<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 March 31, 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 of incorporation (IRS Employer Identification No.)
or organization)
4750 CLAIRTON BOULEVARD, PITTSBURGH, PENNSYLVANIA 15236
--------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412)882-9946
-------------------
(Registrant's telephone number, including area code)
Not Applicable
--------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 8,170,850 shares
of common stock, par value $.01 per share, were outstanding as of May 7,
1997.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
For the Quarter Ended March 31, 1997
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1997 and December 31, 1996................... 1
Consolidated Statements of Income - For the Three
Months Ended March 31, 1997 and 1996................... 2
Consolidated Statements of Cash Flows - For the Three
Months Ended March 31, 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.................... 8-15
PART II: OTHER INFORMATION............................................. 16
SIGNATURES............................................................... 17
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31,1997 Dec. 31, 1996
(Unaudited)
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS (In thousands)
Cash (including interest-bearing demand
deposits of $872
in 1997 and $15,592 in 1996) $ 8,797 $ 22,349
Federal funds sold 6,600 1,950
Available for sale securities, at fair
value:
Investment securities 136,782 119,347
Mortgage-related securities 225,775 244,482
Loans receivable, net 216,591 216,376
Education loans held for sale 14,519 15,383
Accrued interest receivable 4,663 4,252
Federal Home Loan Bank stock 4,351 2,326
Office, property and equipment 5,755 5,644
Securities sold, not settled 42,721 -
Prepaid expenses and other assets 3,788 1,939
- -----------------------------------------------------------------------------
TOTAL ASSETS $ 670,342 $ 634,048
=============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 21,572 $ 19,685
Savings accounts 433,776 429,881
Borrowed funds 92,023 51,525
Advances from borrowers for taxes and insurance 2,101 1,780
Accrued interest payable 2,105 699
Securities purchased, not settled - 5,830
Other liabilities 3,042 2,244
- -----------------------------------------------------------------------------
TOTAL LIABILITIES $ 554,619 $ 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 (492,350 shares
at March 31, 1997 and 445,000 shares
at December 31, 1996) (7,567) (6,768)
Unearned employee stock ownership plan
(ESOP) shares (6,612) (6,612)
Unearned recognition and retention plan
(RRP) shares (3,714) (523)
Net unrealized holding (losses) gains
on securities (3,137) 88
Retained income 51,047 49,814
- -----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 115,723 122,404
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 670,342 $ 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 March 31, 1997 and 1996
<TABLE>
<CAPTION>
For the Quarters Ended
March 31,
1997 1996
(Unaudited)
- -----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Interest income:
Loans, including fees $4,722 $4,015
Mortgage-related securities 4,645 3,180
Investment securities 2,082 1,133
Other 166 403
- -----------------------------------------------------------------------------------
Total interest income 11,615 8,731
- -----------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,459 4,205
Interest on borrowings 954 -
Other 13 13
- -----------------------------------------------------------------------------------
Total interest expense 5,426 4,218
- -----------------------------------------------------------------------------------
Net interest income before provision 6,189 4,513
for losses on loans
Provision for losses on loans 75 30
- -----------------------------------------------------------------------------------
Net interest income after provision
for losses on loans 6,114 4,483
- -----------------------------------------------------------------------------------
Other income:
Service fees 226 182
Net gain on sales of securities - 10
Net gain on sales of education loans 74 -
Data processing service fees 137 204
Other 8 11
- -----------------------------------------------------------------------------------
Total other income 445 407
- -----------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,786 1,622
Occupancy and equipment 446 390
Deposit insurance premiums 67 241
Data processing service expenses 425 404
Marketing expenses 146 102
Other 753 508
- -----------------------------------------------------------------------------------
Total non-interest expense 3,623 3,267
- -----------------------------------------------------------------------------------
Income before provision for income taxes 2,936 1,623
Provision for income taxes 1,079 612
- -----------------------------------------------------------------------------------
Net income $ 1,857 $ 1,011
===================================================================================
Earnings per share (1) $.24 -
------ ------
Dividends per share $.08 -
------ ------
</TABLE>
(1) Per share information for the three month period ending March 31, 1996 is
not comparable as GA Financial did not complete its stock offering until
March 25, 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Quarters Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Quarters Ended
- -----------------------------------------------------------------------------------------------------------
March 31,
1997 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities: (In thousands)
<S> <C> <C>
Net income $ 1,857 $ 1,011
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on loans and real estate owned 75 30
Depreciation and amortization on office, property and equipment 191 207
Net (discount accretion) on securities (21) (13)
Amortization of net deferred loan fees (31) (42)
Compensation expense on RRP shares 205 -
Compensation expense on unallocated ESOP shares 53 -
Net realized (gain) on sales of securities - (10)
Net realized (gain) on sale of student loans (74) -
Net realized (gain) on sale of REO (2) -
(Increase) in accrued interest receivable (411) (584)
Decrease in prepaid expenses and other assets 41 459
Increase in accrued interest payable 1,406 1,074
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,289 2,132
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 10,039 95,485
Proceeds from sale of student loans 2,673 -
Repayments and maturities of available for sale securities 12,176 16,077
Net proceeds from sale of REO 2 -
Purchases of available for sale securities (74,589) (107,960)
Net increase in loans (1,994) (24,474)
Purchases of office, property and equipment, net (302) (28)
Purchase of Federal Home Loan Bank stock (2,025) (424)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (54,020) (21,324)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 4,531 1,428
Net increase (decrease) in certificates of deposit 1,251 (616)
Net increase in advances from borrowers for taxes
and insurance and other liabilities 1,166 869
Purchase of RRP stock (4,095) -
Purchase of treasury stock (799) -
Proceeds from sale of common stock, net - 79,418
Payments made under capital lease obligations (47) (47)
Payments of borrowed funds (66,745) -
Proceeds from borrowed funds 107,243 -
Dividends paid (676) -
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 41,829 81,052
- -----------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,902) 61,860
Cash and cash equivalents at beginning of period 24,299 17,170
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,397 $ 79,030
===========================================================================================================
</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 March 31, 1997 and for the three months
ended March 31, 1997 and March 31, 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 March 31, 1997, the most recent notification from the Office of Thrift
Supervision 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
------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
March 31, 1997:
Equity capital (1) $91,911 $91,911 $91,911
General valuation allowance (2) - - 1,113
Plus unrealized losses on certain available-
for-sale securities 3,166 3,166 3,166
Less core deposit intangible (1,234) (1,234) (1,234)
------------------------------------
Total regulatory capital 93,843 93,843 94,956
Minimum regulatory capital 26,007 10,299 20,598
------------------------------------
Excess regulatory capital $ 67,836 $ 83,544 $ 74,358
====================================
Regulatory capital as a percentage 14.43% 36.45% 36.88%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
------------------------------------
Excess regulatory capital as a percentage 10.43% 32.45% 28.88%
====================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
====================================
<CAPTION>
Tier I Tier I Total
Leverage Risk-Based Risk-based
Capital Capital Capital
------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
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 earning 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 96,600 -
Commitments sold (2,000) -
Commitments settled (25,600) -
-----------------------------------------
Balance at March 31, 1997 $ 79,000 $ 4,000
=========================================
</TABLE>
The fair value of the $83 million in commitments was approximately $82.7 million
at March 31, 1997.
5. Earnings 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 7,888,694 common
shares and common stock equivalents for 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. Earnings per share for the
three months ending March 31, 1996 is not presented as the Company did not
complete its stock offering until March 25, 1996.
6. Consolidated Statements of Shareholders' Equity:
The consolidated statement of shareholders' equity for the three month period
ending March 31, 1997 is as follows:
<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 - - - - - - 1,857 1,857
Change in net
unrealized holding
gains (losses) on
securities, net of
tax - - - - - (3,225) - (3,225)
Treasury stock
purchased - - (799) - - - - (799)
RRP shares purchased - (699) - - (3,396) - - (4,095)
Cash dividends - - - - - - (624) (624)
Shares allocated - - - - - - - -
under ESOP
Shares allocated
under RRP - - - - 205 - - 205
------------------------------------------------------------------------------------------------------
Balance at 3/31/97 $ 89 $ 85,617 $(7,567) $(6,612) $(3,714) $(3,137) $ 51,047 $115,723
======================================================================================================
</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 March 31,
1997, and the related consolidated statements of income and cash flows for
the three-month periods ended March 31, 1997 and March 31, 1996. 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
April 21, 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 March 31, 1997 and December 31, 1996
-------------------------------------------------------------------------
The Association's total assets of $670.3 million at March 31, 1997 increased
$36.3 million or 5.7% from December 31, 1996. This increase was primarily
attributed to the Association's increased borrowings of $40.5 million in the
first quarter of 1997. These funds were primarily invested in mortgage-
related and investment securities.
Cash and cash equivalents of $15.4 million at March 31, 1997 decreased $8.9
million or 36.6% 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 $17.4
million or 14.6% to $136.8 million at March 31, 1997. This was primarily due
to the investment of the funds generated by the deposit purchase of $25.4
million in December, 1996.
Mortgage-related securities classified as available for sale decreased $18.7
million or 7.7% to $225.8 million at March 31, 1997. This is due to the
Association recording $42.7 million of mortgage-related securities that were
sold but not settled at March 31, 1997. This transaction settled in April,
1997.
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 March 31, 1997:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available for sale securities: Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury $ 11,923 $ 1 $ (21) $ 11,903
Mortgage-backed certificates 159,813 618 (3,090) 157,341
Collateralized mortgage obligations 70,315 33 (1,914) 68,434
Marketable equity securities 27,338 1,310 (371) 28,277
US government agency debt 67,906 - (1,326) 66,580
Corporate obligations 19,741 16 (106) 19,651
Municipal obligations 10,495 2 (126) 10,371
- ---------------------------------------------------------------------------------------
Total $ 367,531 $ 1,980 $(6,954) $362,557
=======================================================================================
</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 were substantially the same at December 31, 1996 and March
31, 1997.
Education loans held for sale decreased $864,000 or 5.6% to $14.5 million at
March 31, 1997. The Association sold approximately $2.6 million of education
loans during the quarter.
The following table presents details of the Association's loan portfolio:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Mortgages:
Residential and multi-family 185,814 184,961
Commercial 4,965 5,053
Construction and development 2,577 3,545
Consumer loans:
Home equity 22,561 22,153
Education loans 14,519 15,383
Other:
Loans on savings accounts 2,063 2,062
Unsecured personal loans and other 1,654 1,698
- -----------------------------------------------------------------------------
Total 234,153 234,855
Less:
Undisbursed mortgage loans 499 684
Deferred loan fees 1,431 1,381
Allowance for losses 1,113 1,031
- -----------------------------------------------------------------------------
Net loans 231,110 231,759
=============================================================================
</TABLE>
Accrued interest receivable increased $411,000 or 9.7% to $4.7 million at
March 31, 1997. This was due to interest payment dates on investment
securities falling on different days during the quarter.
Federal Home Loan Bank stock increased $2.0 million or 87.1% to $4.4 million
at March 31, 1997. This was a result of an increase to borrowings at the
Federal Home Loan Bank (FHLB) by $40.5 million. The Association is required
to purchase FHLB stock based upon levels of borrowings and levels of mortgage
loans.
The Association had $42.7 million of securities sold but not settled as of March
31, 1997. These are mortgage-related securities that were sold in March 1997
and subsequently settled in April, 1997. This transaction had a net pre-tax
loss of $14,000.
Prepaid expenses and other assets increased $1.8 million to $3.8 million at
March 31, 1997. This was a result of an increase in net deferred tax assets of
$1.8 million on securities available for sale.
Total deposits increased $5.8 million or 1.3% to $455.3 million at March 31,
1997. This was primarily a result of interest being credited to deposit
accounts.
-9-
<PAGE>
Borrowed funds increased $40.5 million or 78.6% to $92.0 million at March 31,
1997. This was the result of increased investments in mortgage-related and
investment securities. Management's strategy is to grow the Association.
Growth through increasing savings balances is not immediate. Borrowings from
the FHLB can increase the size of the Association. These borrowings can be
invested at yields higher than the cost of the borrowed funds thereby
increasing net income.
There were no securities purchased, not settled at March 31, 1997. The $5.8
million of securities purchased not settled at December 31, 1996 settled in
January, 1997.
Accrued interest payable increased $1.4 million or greater than 100% to $2.1
million at March 31, 1997. This was a result of the timing of accrued
interest payable being credited to deposit accounts.
Other liabilities increased $798,000 or 35.6% to $3.0 million at March 31,
1997. This was primarily a result of an increase in accrued current income
taxes.
Total shareholders' equity decreased $6.7 million or 5.5% to $115.7 million
at March 31, 1997. This was primarily due to a decrease of $3.2 million in
equity for net unrealized holding losses on available for sale securities 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 March 31, 1997 and 1996.
-------------------------------------
Net Income. Net income was $1.9 million for the period of three months ended
March 31, 1997, an increase of $846,000 or 83.7% for the same period in 1996.
This increase was due to an increase in net interest income which was a
result of the utilization of the net conversion proceeds which we did not
have for the entire first quarter of 1996. Also, non-interest expenses
increased as a result of operating as a public company.
Interest Income. Interest income totaled $11.6 million for the period of
three months ended March 31, 1997, an increase of $2.9 million or 33.0 %
compared to the $8.7 million recorded for the period of three months ended
March 31, 1996. The average balances of interest-earning assets for the
period of three months ended March 31, 1997 increased to $627.4 million, an
increase of $145.3 million or 30.1%, compared to the average balance of
interest-earning assets of $482.1 million for the same period in 1996.
Weighted average yield on interest-earning assets for the three month period
ended March 31, 1997 was 7.41% compared to 7.24% 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 March
31, 1997 was $4.7 million at a weighted average yield of 8.05%, an increase
of $707,000 or 17.6%, compared to interest income on loans of $4.0 million at
a weighted average yield of 8.44% for the three month period ended March 31,
1996. This increase was due to an increase in the average balance of loans.
The Association purchased $8.1 million of residential mortgage loans, which
are outside of its normal lending area, during the first quarter of 1997.
For the three month period ended March 31, 1997 interest income on mortgage-
backed securities was $4.6 million at a weighted average yield of 7.38%, an
increase of $1.5 million or 46.1%, compared to interest income of $3.2
million at a weighted average yield of 6.59% 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
three month period ended March 31, 1997 interest income on investment
securities was $2.1 million at a weighted average yield of 6.51%, an increase
of $949,000 or 83.8%, compared to income of $1.1 million at a weighted
average yield of 6.27% for the same period in 1996. The increase in
interest income was due to the purchase of investment securities. Interest
income on interest-earning deposits and short-term investments was $166,000
at a weighted average yield of 5.31% for the period of three months ended
March 31, 1997, a decrease of $237,000 or 58.8%, compared to income of
$403,000 at a weighted average yield of 6.11% for the comparable period in
1996. The decrease was due to a substantial decrease in investments in
federal funds sold and in interest-bearing demand deposits.
Interest Expense. Interest expense for the three month period ended March
31, 1997 was $5.4 million, an increase of $1.2 million or 28.6%, compared to
$4.2 million for the same period in 1996. Average balances of interest-
bearing liabilities was $500.4 million for the period of three months ended
March 31, 1997 at a weighted average cost of 4.34% compared to average
balance of $410.8 million at a weighted average cost of 4.11% for the period
of three months ended March 31, 1996. This increase was due primarily to the
increase in interest rates the Association paid on interest-bearing
liabilities due to market pressures on interest rates. Interest expense on
money-market savings accounts was $103,000 at a weighted average cost of
2.46% for the period of three months ended March 31, 1997, a decrease of
$3,000 or 2.8%, compared to $106,000 at a weighted average cost of 2.49%
recorded for the same period in 1996. Interest expense on passbook accounts
was $1.2 million at a weighted average cost of 2.96% for the period of three
months ended March 31, 1997, a decrease of $59,000 or 4.8%, compared to $1.2
million at a weighted average cost of 2.99% for the comparable period in
1996. 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 last year's stock offering and other balances have
shifted to higher paying certificate accounts. Interest expense on
certificate accounts for the period of three months ended March 31, 1997 was
$3.0 million at a weighted average cost of 5.36%, an increase of $301,000 or
11.0%, compared to $2.7 million at a rate
-10-
<PAGE>
of 5.42% recorded for the same period in 1996. The increase is due to
increases in account balances. Interest expense on checking accounts was
$135,000 at a rate of 1.97% for the three month period ended March 31, 1997,
an increase of $15,000 or 12.5%, compared to $120,000 at a rate of 2.01% paid
for the three month period ended March 31, 1996. 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.
-11-
<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 March 31, 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 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
March 31, 1997 and March 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 Three Months Ended March 31, 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 Investment $ 12,501 $ 166 5.31% $ 26,402 $ 403 6.11%
Investment securities, net (1) 122,953 2,002 6.51% 70,375 1,103 6.27%
Loans receivable, net (1) (2) 234,602 4,722 8.05% 190,323 4,015 8.44%
Mortgage-backed securities, net (1) 251,880 4,645 7.38% 192,946 3,180 6.59%
FHLB stock & other equity investments 5,427 80 5.90% 2,024 30 5.93%
----------------------------------------------------------------------
Total interest-earning assets 627,363 11,615 7.41% 482,070 8,731 7.24%
Non-interest earning assets 18,334 21,495
-------- --------
Total assets $ 645,697 $ 503,565
========= =========
Liabilities and equity:
Interest-earning liabilities:
Money market savings accounts $ 16,760 103 2.46% $ 17,033 106 2.49%
Passbook accounts 159,456 1,180 2.96% 165,710 1,239 2.99%
NOW accounts 27,429 135 1.97% 23,830 120 2.01%
Certificate accounts 226,938 3,041 5.36% 201,975 2,740 5.42%
-----------------------------------------------------------------------
Total 430,583 4,459 4.14% 408,548 4,205 4.12%
FHLB advances & other borrowings 67,816 954 5.63% 0 0 0.00%
Other 2,016 13 2.58% 2,273 13 2.29%
-----------------------------------------------------------------------
Total interest-bearing liabilities 500,415 5,426 4.34% 410,821 4,218 4.11%
Non-interest bearing liabilities 24,689 45,368
Shareholders' equity 120,593 47,376
-------- --------
Total liabilities and shareholders' equity $645,697 $503,565
======== ========
Net interest rate spread (3) $ 6,189 3.07% $4,513 3.13%
Net interest margin (4) 3.95% 3.75%
Ratio of interest-earning assets to
interest-bearing liabilities 125.37% 117.34%
</TABLE>
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts
and premiums and estimated loan loss allowances and includes loans held
for sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by interest
earning assets.
-12-
<PAGE>
Net Interest Income: Net interest income for the period of three months
ended March 31, 1997 was $6.1 million, an increase of $1.6 million or 36.4%,
compared to $4.5 million recorded for the same period in 1996.
Provision for Loan Losses: The Association made a $30,000 increase in the
provision for loan losses during the period of three months ended March 31,
1996. The Association continued purchasing residential mortgage loans in
1997 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. During the first quarter of 1997, the Association's provision
for loan losses was $75,000 which reflects management's consideration of 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 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.
Allowance for Loan Losses
-------------------------
The following table sets forth the changes in the allowance for loan losses
for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1996 $1,031
Provision for loan losses 75
Net recoveries 7
------
Balance, March 31, 1997 $1,113
======
</TABLE>
Non-Performing Assets
---------------------
The following table presents information regarding the Association's non-
performing assets at the dates indicated:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1997 1996
<S> <C> <C>
--------- --------
(in thousands)
Non-performing loans:
Non-accrual loans $814 $896
Accruing loans which are
contractually
past due 90 days or more - -
Restructured loans - -
- ---------------------------------------------------------------------------
Total non-performing loans $814 $896
Real estate owned - -
- ---------------------------------------------------------------------------
Total non-performing assets $814 $896
===========================================================================
Non-performing loans as a % of gross .35% .39%
loans receivable
Non-performing loans to total assets .12% .14%
Allowance for loan loss as a % of .48% .45%
gross loans receivable
Allowance for loan loss to 137% 115%
non-performing loans
</TABLE>
-13-
<PAGE>
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 March 31, 1997 non-interest income was $445,000, an increase of $38,000
or 9.3%, compared to $407,000 recorded for the same period in 1996. Service
fees totaled $226,000 for the period of three months ended March 31, 1997, an
increase of $44,000 or 24.2%, compared to $182,000 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 fell to $0, a decrease of $10,000 or 100%, compared to the $10,000
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 quarter ended March 31, 1997 were $74,000, an
increase of 100%. There were no sales of education loans during the first
quarter of 1996. Education loans are sold as they enter repayment status.
Fees from the sale of data processing services were $137,000, a decrease of
$67,000 or 32.8%, compared to $204,000 recorded for the same period in 1996.
This is the result of the loss of one customer. See other developments
section for more detail. Other non-interest income for the period of three
months ended March 31, 1997 was $8,000, a decrease of $3,000 or 27.3%,
compared to the $11,000 recorded for the comparable period in 1996.
Non-interest Expense. Total non-interest expense was $3.6 million for the
three month period ended March 31, 1997, an increase of $356,000 or 10.9%,
compared to $3.3 million for the same period in 1996. Salaries and employee
benefits were $1.8 million for the three month period ended March 31, 1997,
an increase of $164,000 or 10.1%, compared to the $1.6 million recorded for
the same three month period in 1996. The Association increased salaries
approximately 3% for 1997 and incurred slight increases in benefit costs.The
Association opened three new branches in 1996 and 1997. In October 1996 the
Belle Vernon branch was opened in a Wal-Mart superstore. A branch in a Wal-
Mart store in North Fayette Township was opened in December 1996. During the
first quarter of 1997 one other Wal-Mart branch was opened in West Mifflin.
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 $56,000
or 14.4% to $446,000 million for the period of three months ended March 31,
1997 compared to $390,000 recorded for the same period in 1996. Deposit
insurance premiums decreased $174,000 or 72.2% to $67,000 for the three month
period ended March 31, 1997 compared to $241,000 recorded for the same period
ended March 31, 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, $21,000 or 5.2%, from $404,000 for the
three month period ended March 31, 1996 to $425,000 for the same period in
1997. Other non-interest expenses for the period of three months ended March
31, 1997 were $753,000, an increase of $245,000 or 48.2%, compared to
$508,000 recorded for the same period in 1996. This increase was due to
conversion to a public company. The Association now pays corporate capital
stock taxes to the states of Pennsylvania and Delaware since its conversion
to a publicly-owned company.
Income Tax Expense. Income tax expense of $1.1 million for the three months
ended March 31, 1997 resulted in an effective tax rate of 37%. The income
tax expense recorded for the period of three months ended March 31, 1996 of
$612,000 is an effective tax rate of 38%. There was no material change in
the Association's income tax rate.
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
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 March, 1997
were 23.01% and 4.39% 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 March 31, 1997 the Association had commitments to originate and purchase
loans of $133,000 and to purchase mortgage-backed securities of $83.0
million. The Association anticipates that it will have sufficient funds
available to meet these commitments.
-14-
<PAGE>
At March 31, 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 14.43%. Tier I capital to risk-based assets
requirement is 4.00% and the Association had 36.45%. The total capital to
risk-based assets requirement is 8.00% and the Association had 36.88%.
Other Developments
------------------
During April 1997 the Association purchased $40.6 million of home-equity
consumer loans which are not secured by properties in the Association's prime
lending area. Completion of the sale was contingent upon the Association's
review of those individual loan files. Borrowings from the Federal Home Loan
Bank were used to fund this purchase.
In October 1996 the Association's data servicing division was notified by one
of its customers of that customers intent to not renew its data processing
contract. This loss of a customer resulted in a significant decrease in data
processing revenues. In April 1997 DataOne acquired two additional
customers. These two new customers are expected to replace the revenue of
the previous lost customer.
On April 18, 1997, the Company received approval from the Office of Thrift
Supervision to repurchase 5%, or 422,750 shares of its outstanding stock.
The Company began this repurchase April 25, 1997. As of May 7, 1997, the
Company had repurchased 236,800 shares.
On April 22, 1997 the Board of Directors declared a dividend of $.10 per
share to stockholders of record on May 7, 1997, payable on May 20, 1997.
-15-
<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
------- ---------------------------------------------------
None
Item 5. Other Information
------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
------- ------------------------------------
Exhibit 27 - Financial Data Schedule
-16-
<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 May 12, 1997 By /s/ John M. Kish
------------ ---------------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
Date May 12, 1997 By /s/ Raymond G. Suchta
------------ ---------------------------------------------
Raymond G. Suchta
Chief Financial Officer and Treasurer
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
FIRST QUARYTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,797
<INT-BEARING-DEPOSITS> 872
<FED-FUNDS-SOLD> 6,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 362,557
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 232,223
<ALLOWANCE> 1,113
<TOTAL-ASSETS> 670,342
<DEPOSITS> 455,348
<SHORT-TERM> 78,023
<LIABILITIES-OTHER> 7,248
<LONG-TERM> 14,000
0
0
<COMMON> 89
<OTHER-SE> 115,634
<TOTAL-LIABILITIES-AND-EQUITY> 670,342
<INTEREST-LOAN> 4,722
<INTEREST-INVEST> 6,893
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,426
<INTEREST-DEPOSIT> 4,459
<INTEREST-EXPENSE> 967
<INTEREST-INCOME-NET> 6,189
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,623
<INCOME-PRETAX> 2,936
<INCOME-PRE-EXTRAORDINARY> 2,936
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,857
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<YIELD-ACTUAL> 7.41
<LOANS-NON> 814
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,031
<CHARGE-OFFS> 0
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 1,113
<ALLOWANCE-DOMESTIC> 1,113
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
