<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 September 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 of (IRS Employer
incorporation or organization) Identification No.)
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: 7,871,370 shares of
common stock, par value $.01 per share, were outstanding as of October 31, 1997.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
September 30, 1997
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1997 and December 31, 1996...................... 1
Consolidated Statements of Income - For the Three and Nine
Months Ended September 30, 1997 and 1996...................... 2
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 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
EXHIBIT 11
EXHIBIT 27
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS (In thousands)
<S> <C> <C>
Cash (including interest-bearing demand deposits of $14,083
in 1997 and $15,592 in 1996) $ 21,717 $ 22,349
Federal funds sold 1,800 1,950
Available for sale securities, at fair value:
Investment securities 157,530 119,347
Mortgage-related securities 295,224 244,482
Loans receivable, net 287,407 216,376
Education loans held for sale 15,725 15,383
Accrued interest receivable 5,721 4,252
Federal Home Loan Bank stock 9,811 2,326
Office, property and equipment 5,481 5,644
Prepaid expenses and other assets 1,888 1,939
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $802,304 $634,048
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 21,140 $ 19,685
Savings accounts 435,732 429,881
Borrowed funds 200,398 51,525
Advances from borrowers for taxes and insurance 850 1,780
Accrued interest payable 4,818 699
Securities purchased, not settled 17,505 5,830
Other liabilities 4,484 2,244
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 684,927 511,644
Shareholder's Equity:
Preferred stock, (.01 par value); 1,000,000 shares authorized; 0 shares outstanding - -
Common stock, (.01 par value); 23,000,000 shares authorized;
8,900,000 shares outstanding 89 89
Additional paid in capital 85,617 86,316
Treasury stock, at cost (927,100 shares at September 30, 1997 and
445,000 shares at December 31, 1996) (14,534) (6,768)
Unearned employee stock ownership plan (ESOP) shares (6,612) (6,612)
Unearned recognition and retention plan (RRP) shares (3,309) (523)
Net unrealized holding gains on securities 2,535 88
Retained earnings 53,591 49,814
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 117,377 122,404
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $802,304 $634,048
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the three months For the nine months
ended Sept. 30, ended Sept. 30,
1997 1996 1997 1996
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 6,033 $ 4,709 $16,117 $13,382
Mortgage-related securities 5,424 3,732 15,415 10,423
Investment securities 2,196 1,960 6,641 4,915
Interest on bank deposits 109 114 410 742
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 13,762 10,515 38,583 29,462
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,710 4,137 13,742 12,437
Interest on borrowings 2,576 200 5,728 200
Other 15 13 41 44
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,301 4,350 19,511 12,681
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for losses on loans 6,461 6,165 19,072 16,781
Provision for losses on loans 75 75 225 135
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 6,386 6,090 18,847 16,646
- ----------------------------------------------------------------------------------------------------------------------------
Other income:
Service fees 432 309 938 680
Net gain on sales of securities 10 535 38 580
Gain on sale of student loans 113 162 187 311
Gain on settlement/curtailment of pension - 769 - 769
Data processing service fees 164 205 443 607
Other 1 8 10 24
- ----------------------------------------------------------------------------------------------------------------------------
Total other income 720 1,988 1,616 2,971
- ----------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,895 1,655 5,515 4,764
Occupancy and equipment 445 406 1,325 1,169
Deposit insurance premiums 71 3,010 210 3,493
Data processing service expenses 424 376 1,202 1,121
Marketing and advertising 161 103 402 313
Other 657 862 2,227 2,216
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 3,653 6,412 10,881 13,076
- ----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 3,453 1,666 9,582 6,541
Provision for income taxes 1,287 584 3,541 2,355
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 2,166 $ 1,082 $ 6,041 $ 4,186
============================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
Earnings per share $.29 $.13 $.79 $.51(1)
======================================
Average shares outstanding 7,436 8,188 7,617 8,188
======================================
</TABLE>
(1)Assumes the stock conversion was completed on January 1, 1996.
-2-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
- ----------------------------------------------------------------------------------------------------------------
1997 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,041 $ 4,186
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans and real estate owned 225 135
Depreciation and amortization on office, property and equipment 654 562
Net (discount) premium amortization on securities (72) 9
Amortization of net deferred loan fees (140) (197)
Net realized gain on sales of securities (38) (580)
Net realized gain on sale of student loans (187) (311)
Compensation expense on RRP shares 610 -
Compensation expense on unallocated ESOP shares 198 -
(Increase) in accrued interest receivable (1,469) (1,727)
Decrease in prepaid expenses and other assets 51 1,147
Increase in accrued interest payable 4,119 2,899
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,992 6,123
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 88,308 134,161
Proceeds from sale of student loans 6,176 12,543
Repayments and maturities of available for sale securities 32,567 41,060
Purchases of available for sale securities (194,131) (255,166)
Purchase of loans (90,000) (62,400)
Net decrease in loans 12,553 6,928
Purchases of office, property and equipment, net (491) (297)
Net proceeds from sale of REO - 25
Purchase of Federal Home Loan Bank stock (7,485) (423)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (152,503) (123,569)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand and savings deposits 1,761 (6,723)
Net increase (decrease) in certificates of deposit 5,545 (1,130)
Payments of borrowed funds (463,776) (83,550)
Proceeds from borrowed funds 612,649 118,250
Dividends paid (2,462) (445)
Net (decrease) increase in advances from borrowers for taxes and
insurance and other liabilities (2) 290
Proceeds from sale of common stock, net - 79,252
Purchase of treasury stock (7,766) -
Purchase of recognition and retention shares (4,095) -
Payments made under capital lease obligations (125) (140)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 141,729 105,804
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (782) (11,642)
Cash and cash equivalents at beginning of period 24,299 17,170
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 23,517 $ 5,528
================================================================================================================
</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 September 30, 1997 and for the nine
months ended September 30, 1997 have been reviewed by Coopers & Lybrand L.L.P.,
the Association's independent accountants, 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 September 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
-----------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
September 30, 1997:
Equity capital (1) $97,130 $97,130 $97,130
General valuation allowance (2) - - 1,233
Less unrealized net gains on certain
available-for-sale securities (2,167) (2,167) (2,167)
Less core deposit intangible (1,142) (1,142) (1,142)
-----------------------------------------------------------
Total regulatory capital 93,821 93,821 95,054
Minimum regulatory capital 31,087 11,350 22,700
-----------------------------------------------------------
Excess regulatory capital $62,734 $82,471 $72,354
===========================================================
Regulatory capital as a percentage 12.07% 33.06% 33.50%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
-----------------------------------------------------------
Excess regulatory capital as a percentage 8.07% 29.06% 25.50%
===========================================================
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 net 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 123,820 4,000
Commitments sold (9,000) -
Commitments settled/expired (117,600) (4,000)
----------------------------------------------
Balance at September 30, 1997 $ 7,220 $ 4,000
==============================================
</TABLE>
The fair value of the $11.2 million in commitments was approximately $11.4
million at September 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 7,617,061 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 $.12 per share for the quarter ended September 30, 1997, $.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 nine month period
ending September 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 - - - - - - 6,041 6,041
Change in net
unrealized holding
gains (losses) on
securities, net of
tax - - - - - 2,447 - 2,447
Treasury stock
purchased - - (7,766) - - - - (7,766)
RRP shares purchased - (699) - - (3,396) - - (4,095)
Cash dividends - - - - - - (2,264) (2,264)
Shares allocated - - - - - - - -
under ESOP
Shares allocated
under RRP - - - - 610 - - 610
-------------------------------------------------------------------------------------------------------
Balance at 9/30/97 $89 $85,617 $(14,534) $(6,612) $(3,309) $2,535 $53,591 $117,377
=======================================================================================================
</TABLE>
7. Supplementary Cash Flow Information:
The $17.5 million of securities purchased not settled at September 30, 1997 is a
non-cash transaction. These securities settled in October, 1997.
-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 September 30, 1997, and
the related consolidated statements of income and cash flows for the three-month
and nine-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
October 20, 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 September 30, 1997 and December 31, 1996
- -----------------------------------------------------------------------------
The Association's total assets of $802.3 million at September 30, 1997 increased
$168.3 million or 26.5% from December 31, 1996. This increase was primarily
attributed to the Association's increased borrowings of $148.9 million or
greater than 100% in the first nine months of 1997. These funds were invested
in mortgage-related securities, investment securities, and home equity consumer
loans.
Cash and cash equivalents of $23.5 million at September 30, 1997 decreased
$782,000 or 3.2% from December 31, 1996.
Investment securities classified as available for sale increased $38.2 million
or 32.0% to $157.5 million at September 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 $50.7
million or 20.8% to $295.2 million at September 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 September 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 $ 8,969 $ 34 $ 0 $ 9,003
Mortgage-backed certificates 222,814 2,952 (632) 225,134
Collateralized mortgage obligations 70,649 167 (726) 70,090
Marketable equity securities 31,183 2,060 (86) 33,157
US government agency debt 77,229 0 (1) 77,228
Corporate obligations 24,885 89 (11) 24,963
Municipal obligations 13,001 269 (91) 13,179
- ----------------------------------------------------------------------------------------------------------------------------
Total $448,730 $5,571 $(1,547) $452,754
============================================================================================================================
</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 $71.0 million or 32.8% to $287.4 million at September
30, 1997. This was due to the Association's purchase of $90.0 million of home
equity loans and first mortgage loans funded by FHLB borrowings.
Education loans held for sale increased $342,000 or 2.2% to $15.7 million at
September 30, 1997. The Association sold approximately $6.0 million of
education loans during the nine-month period which was offset by the origination
of $7.3 million education loans for the period. There were principal repayments
of approximately $1.0 million.
The following table presents details of the Association's loan portfolio
(dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------------------------
<S> <C> <C>
Mortgages:
Residential and multi-family 217,479 184,961
Commercial 5,002 5,053
Construction and development 2,804 3,545
Consumer loans:
Home equity 61,086 22,153
Education loans 15,724 15,383
Other:
Loans on savings accounts 2,236 2,062
Unsecured personal loans and other 1,909 1,698
- -------------------------------------------------------------------------------------------
Total 306,240 234,855
Less:
Undisbursed mortgage loans 402 684
Deferred loan fees 1,473 1,381
Allowance for losses 1,233 1,031
- -------------------------------------------------------------------------------------------
Net loans 303,132 231,759
===========================================================================================
</TABLE>
Accrued interest receivable increased $1.5 million or 34.5% to $5.7 million at
September 30, 1997. This was due to an increase in loan receivables and
investment and mortgage-related securities purchases funded by FHLB borrowings.
FHLB stock increased $7.5 million or greater than 100% to $9.8 million at
September 30, 1997. This was a result of an increase in borrowings with the
FHLB of $148.9 million. The Association is required to own FHLB stock based
upon levels of borrowings and mortgage loans.
Prepaid expenses and other assets decreased $51,000 to $1.9 million at
September 30, 1997. This was primarily a result of the amortization of core
deposit intangibles.
Total deposits increased $7.3 million or 1.6% to $456.9 million at September 30,
1997. This was primarily a result of interest being credited to deposit
accounts.
-9-
<PAGE>
Borrowed funds increased $148.9 million from $51.5 million at December 31, 1996
to $200.4 million at September 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 $17.5 million of securities purchased, not settled at September 30,
1997. These settled in October, 1997. The $5.8 million of securities purchased
not settled at December 31, 1996 settled in January, 1997.
Accrued interest payable increased $4.1 million or greater than 100% to $4.8
million at September 30, 1997. This was a result of the timing of accrued
interest payable being credited to deposit accounts.
Other liabilities increased $2.2 million or 99.8% to $4.5 million at September
30, 1997. This was substantially the result of an increase in accrued current
and deferred income taxes.
Total shareholders' equity decreased $5.0 million or 4.1% to $117.4 million at
September 30, 1997. This was primarily due to the purchase of $7.8 million of
treasury stock and the purchase of 306,000 recognition and retention plan shares
for $4.1 million. There was $610,000 of compensation expense amortization of
the recognition and retention plan shares. This purchase completed the
acquisition of shares to fund the 1996 stock incentive plan. Earnings totaled
$6.0 million and net unrealized holding gains were $2.4 million for the nine
months ended September 30, 1997. The Company also paid cash dividends per share
to its shareholders in the first, second, and third quarters of $.08, $.10, and
$.12, respectively.
Comparison of the Consolidated Results of Operation for the Period of Three
- ---------------------------------------------------------------------------
Months Ended September 30, 1997 and 1996.
- -----------------------------------------
Net Income. Net income was $2.2 million for the period of three months ended
September 30, 1997, an increase of $1.1 million or greater than 100% for the
same period in 1996 primarily due to a decrease in deposit insurance premiums
due to the one time Savings Association Insurance Fund (SAIF) assessment which
occurred on September 30, 1996 and a decrease in deposit insurance premiums. In
addition, higher net interest income was offset by a decrease in other income.
Interest Income. Interest income totaled $13.8 million for the period of three
months ended September 30, 1997, an increase of $3.2 million or 30.9 % compared
to the $10.5 million recorded for the period of three months ended September 30,
1996. The increase was primarily attributable to an increase in the average
balance of interest-earning assets. The average balances of interest-earning
assets for the period of three months ended September 30, 1997 increased to
$729.1 million, an increase of $171.5 million or 30.7%, compared to the average
balance of interest-earning assets of $557.6 million for the same period in
1996. Weighted average yield on interest-earning assets for the three month
period ended September 30, 1997 was 7.55% compared to 7.54% for the comparable
period in 1996. Interest on loans for the three month period ended September
30, 1997 was $6.0 million at a weighted average yield of 8.37%, an increase of
$1.3 million or 28.1%, compared to interest income on loans of $4.7 million at a
weighted average yield of 8.44% for the three month period ended September 30,
1996. This increase was due to an increase in the average balance of loans.
The Association purchased $30.2 million of residential mortgage loans, which are
outside of its normal lending area, during the third quarter of 1997. For the
three month period ended September 30, 1997 interest income on mortgage-backed
securities was $5.4 million at a weighted average yield of 7.31%, an increase of
$1.7 million or 45.3%, compared to interest income of $3.7 million at a weighted
average yield of 7.33% for the same period in 1996. Average balances in
mortgage-backed securities increased between the two periods due to a portion of
the increase in borrowed funds being invested in mortgaged-backed securities.
For the three month period ended September 30, 1997 interest income on
investment securities was $2.1 million at a weighted average yield of 6.44%, an
increase of $139,000 or 7.2%, compared to income of $1.9 million at a weighted
average yield of 6.35% 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 $109,000 at a weighted average yield of 5.92% for the period of
three months ended September 30, 1997, a slight decrease of $5,000 or 4.4%,
compared to income of $114,000 at a weighted average yield of 6.23% for the
comparable period in 1996. The decrease was due to a decrease in yield on
federal funds sold and interest-bearing demand deposits. FHLB stock and other
equity investment income increased $97,000, or greater than 100% for the three
month period ended September 30, 1997 over the comparable period in 1996 due to
FHLB stock purchases of $7.5 million in 1997 due to increased FHLB borrowings.
Interest Expense. Total interest expense for the three month period ended
September 30, 1997 was $7.3 million, an increase of $3.0 million or 67.8%,
compared to $4.4 million for the same period in 1996. Average balances of
interest-bearing liabilities was $608.7 million for the period of three months
ended September 30, 1997 at a weighted average cost
-10-
<PAGE>
of 4.8 % compared to average balance of $420.1 million at a weighted average
cost of 4.14% for the period of three months ended September 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 interest rates than the
Association's deposits. Average deposits increased $33.0 million or 8.1% to
$437.6 million primarily due to the $25.4 million deposit purchase in December,
1996. The average rate paid on deposits increased from 4.09% to 4.31% due to
upward market pressures in certificate accounts. Average borrowings increased to
$169.3 million or greater than 100% for the quarter ending September 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 September 30, 1997 was $6.4 million, an
increase of $296,000 or 4.9%, 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 September 30, 1997 was $75,000 which was the same for the
same period in 1996. 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 allowance for loan losses to total loans and total non-
performing loans was .40% and 64%, respectively at September 30, 1997 and as
compared to .42% and 86%, respectively at September 30, 1996. Although the
Association requires 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 it has originated. 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
September 30, 1997 non-interest income was $720,000, a decrease of $1.3 million,
or 63.8%, compared to $2.0 million recorded for the same period in 1996.
Service fees totaled $432,000 for the period of three months ended September 30,
1997, an increase of $123,000 or 39.8%, compared to $309,000 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 $10,000, a decrease of $525,000 or greater than 98.1%,
compared to the $535,000 recorded for the comparable period in 1996. This
decrease resulted primarily from the timing and amounts of security sales.
There was a $113,000 gain on the sale of education loans for the quarter ended
September 30, 1997, a decrease of $49,000 over the same period in 1996.
Education loans are sold as they enter repayment status. Fees from the sale of
data processing services were $164,000, a decrease of $41,000 or 20.0%, compared
to $205,000 recorded for the same period in 1996.
Non-interest Expense. Total non-interest expense was $3.7 million for the three
month period ended September 30, 1997, a decrease of $2.8 million or 43.0%,
compared to $6.4 million for the same period in 1996. This is due to the one-
time Savings Association Insurance Fund (SAIF) assessment of $2.8 million on
September 30, 1996. Compensation and employee benefits were $1.9 million for
the three month period ended September 30, 1997, an increase of $240,000 or
14.5%, compared to the $1.7 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 $39,000 or 9.6% to
$445,000 for the period of three months ended September 30, 1997 compared to
$406,000 recorded for the same period in 1996. Deposit insurance premiums
decreased $2.9 million or 97.6% to $71,000 for the three month period ended
September 30, 1997 compared to $3.0 million recorded for the same period ended
September 30, 1996. This decrease is due to the recapitalization of the SAIF
in September 1996 which resulted in an assessment of $2.8 million. The
recapitalization of the SAIF also resulted in lower future insurance premiums
for member institutions. Data processing costs increased $48,000 or 12.8%, from
$376,000 for the three month period ended September 30, 1996 to $424,000 for the
same period in 1997. Marketing expenses increased
-11-
<PAGE>
from $103,000 to $161,000. Other non-interest expenses for the period of three
months ended September 30, 1997 were $657,000, a decrease of $205,000 or 23.8%,
compared to $862,000 recorded for the same period in 1996.
Income Tax Expense. Income tax expense of $1.3 million for the three months
ended September 30, 1997 resulted in an effective tax rate of 37.3%. The income
tax expense recorded for the period of three months ended September 30, 1996 of
$584,000 is an effective tax rate of 35.1%. The Association has compensation
expense of approximately $85,000 for the quarter which is not deductible for tax
purposes due to the accounting for the ESOP. This raises our effective tax rate
slightly.
Comparison of the Consolidated Results of Operation for the Period of Nine
- --------------------------------------------------------------------------
months Ended September 30, 1997 and 1996.
- -----------------------------------------
Net Income. Net income was $6.0 million for the period of nine months ended
September 30, 1997, an increase of $1.9 million or 44.3% 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 $38.6 million for the period of
nine months ended September 30, 1997, an increase of $9.1 million or 31.0%
compared to the $29.5 million recorded for the period of nine months ended
September 30, 1996. The average balances of interest-earning assets for the
period of nine months ended September 30, 1997 increased to $684.9 million, an
increase of $156.6 million or 29.6%, compared to the average balance of
interest-earning assets of $528.3 million for the same period in 1996. Weighted
average yield on interest-earning assets for the nine month period ended
September 30, 1997 was 7.51% compared to 7.44% 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 nine month period ended
September 30, 1997 was $16.1 million at a weighted average yield of 8.18%, an
increase of $2.7 million or 20.4%, compared to interest income on loans of $13.4
million at a weighted average yield of 8.50% for the nine month period ended
September 30, 1996. This increase was due to an increase in the average balance
of loans. The Association purchased $49.5 million of residential mortgage loans
and $40.5 million of home-equity consumer loans, which are outside of its normal
lending area, during the first nine months of 1997. For the nine month period
ended September 30, 1997 interest income on mortgage-backed securities was $15.4
million at a weighted average yield of 7.43%, an increase of $5.0 million or
47.9%, compared to interest income of $10.4 million at a weighted average yield
of 7.00% 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 nine month period ended September 30, 1997
interest income on investment securities was $6.3 million at a weighted average
yield of 6.50%, an increase of $1.5 million or 31.9%, compared to income of $4.8
million at a weighted average yield of 6.31% 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
purchases have been funded with FHLB borrowings. Interest income on interest-
earning deposits and short-term investments was $410,000 at a weighted average
yield of 6.41% for the period of nine months ended September 30, 1997, a
decrease of $332,000 or 44.7%, compared to income of $742,000 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. FHLB stock and other equity investment
income increased $193,000 or greater than 100%, to $296,000 for the nine months
ended September 30, 1997 due to required FHLB stock purchases which resulted
from increased FHLB borrowing.
Interest Expense. Total interest expense for the nine month period ended
September 30, 1997 was $19.5 million, an increase of $6.8 million or 53.9%,
compared to $12.7 million for the same period in 1996. Average balances of
interest-bearing liabilities was $564.2 million for the period of nine months
ended September 30, 1997 at a weighted average cost of 4.61% compared to average
balance of $412.4 million at a weighted average cost of 4.10% for the period of
nine months ended September 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 $28.4 million
or 7.0% to $433.9 million due to the $25.4 million deposit purchase in December,
1996. The average rate paid on deposits increased from 4.09% to 4.22% due to
upward market pressures. Average borrowings increased $123.7 million or greater
than 100% to $128.3 million at September 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.
-12-
<PAGE>
Net Interest Income: Net interest income after provision for loan losses for
the period of nine months ended September 30, 1997 was $18.8 million, an
increase of $2.2 million or 13.2%, compared to $16.6 million recorded for the
same period in 1996. This is a result of the increase in income earning assets
purchased with FHLB borrowings.
Provision for Loan Losses: The Association's provision for loan losses was
$225,000 during the period of nine months ended September 30, 1997 compared to
$135,000 for the same period in 1996. The increase in the provision reflects
the overall increase in the Association's loan portfolio through additional
purchases of residential mortgage loans originated in areas outside the local
lending area of the Association. The Association purchased $49.5 million of
these loans in the nine months ended September 30, 1997. Although the
Association requires 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 nine months of 1997,
the Association's provision for loan losses of $225,000 reflects the increase of
the Association's residential loan portfolio. During 1996 and 1997 the
Association 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.
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 nine months ended
September 30, 1997 non-interest income was $1.6 million, a decrease of $1.4
million or 45.6%, compared to $3.0 million recorded for the same period in 1996.
Service fees totaled $938,000 for the period of nine months ended September 30,
1997, an increase of $258,000 or 37.9%, compared to $680,000 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 $38,000 , a decrease of $542,000 or 93.4%, compared to the
$580,000 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 nine months ended September 30, 1997 were $187,000, a
decrease of 39.9%. Education loans are sold as they enter repayment status.
Fees from the sale of data processing services were $443,000, a decrease of
$164,000 or 27.0%, compared to $607,000 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 current quarter and they are expected to
generate approximately $10,000 a quarter in revenue. Other non-interest income
for the period of nine months ended September 30, 1997 was $10,000, a decrease
of $14,000 or 58.3%, compared to the $24,000 recorded for the comparable period
in 1996.
Non-interest Expense. Total non-interest expense was $10.9 million for the nine
month period ended September 30, 1997, a decrease of $2.2 million or 16.8%,
compared to $13.1 million for the same period in 1996. This is due to the one-
time SAIF assessment of $2.8 million on September 30, 1996. Compensation and
employee benefits were $5.5 million for the nine month period ended September
30, 1997, an increase of $751,000 or 15.8%, compared to the $4.8 million
recorded for the same nine 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 $156,000 or 13.3% to $1.3 million for the
period of nine months ended September 30, 1997 compared to $1.2 million recorded
for the same period in 1996. Deposit insurance premiums decreased $3.3 million
or 94.0% to $210,000 for the nine month period ended September 30, 1997 compared
to $3.5 million recorded for the same period ended September 30, 1996. This
decrease is due to the recapitalization of the SAIF in September 1996 which
resulted in a one time assessment of $2.8 million. This recapitalization also
resulted in future lower insurance premiums for member institutions. Data
processing costs increased $81,000 or 7.2%, from $1.1 million for the nine month
period ended September 30, 1996 to $1.2 million for the same period in 1997.
Other non-interest expenses for the period of nine months ended September 30,
1997 were $2.2 million, an increase of $11,000, compared to $2.2 million
recorded for the same period in 1996.
Income Tax Expense. Income tax expense of $3.5 million for the nine months
ended September 30, 1997 resulted in an effective tax rate of 37.0%. The income
tax expense recorded for the period of nine months ended September 30, 1996 of
$2.4 million is an effective tax rate of 36.0%. 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 September 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 for the three
months ended September 30, 1997 and September 30, 1996 (Dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended September 30, Three Months Ended September 30,
1997 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 $ 7,364 $ 109 5.92% $ 7,319 $ 114 6.23%
Investment securities, net (1) 128,018 2,062 6.44% 121,186 1,923 6.35%
Loans receivable, net (1) (2) 288,337 6,033 8.37% 223,254 4,709 8.44%
Mortgage-backed securities, net (1) 296,600 5,424 7.31% 203,547 3,732 7.33%
FHLB stock & other equity investments 8,751 134 6.13% 2,305 37 6.42%
------------------------------------------------------------------------------
Total interest-earning assets 729,070 $13,762 7.55% 557,611 $10,515 7.54%
Non-interest earning assets 20,595 14,831
---------- ----------
Total assets $749,665 $572,442
========== ==========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 15,811 $ 100 2.53% $ 16,066 $ 101 2.51%
Passbook accounts 161,363 1,220 3.02% 164,624 1,245 3.03%
NOW accounts 29,172 142 1.95% 25,177 126 2.00%
Certificate accounts 231,222 3,248 5.62% 198,741 2,665 5.36%
------------------------------------------------------------------------------
Total 437,568 4,710 4.31% 404,608 4,137 4.09%
FHLB advances & other borrowings 169,348 2,576 6.08% 13,395 196 5.85%
Other 1,781 15 3.37% 2,121 17 3.21%
------------------------------------------------------------------------------
Total interest-bearing liabilities 608,697 $ 7,301 4.80% 420,124 $ 4,350 4.14%
Non-interest bearing liabilities 26,771 24,450
Shareholders' equity 114,197 127,868
---------- ----------
Total liabilities and shareholders' equity $749,665 $572,442
========== ==========
Net interest rate spread (3) $ 6,461 2.75% $ 6,165 3.40%
Net interest margin (4) 3.54% 4.42%
Ratio of interest-earning assets to
interest-bearing liabilities 119.78% 132.73%
</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.
-14-
<PAGE>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities for the nine
months ended September 30, 1997 and September 30, 1996 (Dollars in thousands).
<TABLE>
<CAPTION>
Nine Months Ended September 30, Nine Months Ended September 30,
1997 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 $ 8,528 $ 410 6.41% $ 15,697 $ 742 6.30%
Investment securities, net (1) 130,094 6,345 6.50% 101,709 4,812 6.31%
Loans receivable, net (1) (2) 262,836 16,117 8.18% 209,983 13,382 8.50%
Mortgage-backed securities, net (1) 276,651 15,415 7.43% 198,670 10,423 7.00%
FHLB stock & other equity investments 6,781 296 5.82% 2,212 103 6.21%
-------------------------------------------------------------------------------
Total interest-earning assets 684,890 $38,583 7.51% 528,271 $29,462 7.44%
Non-interest earning assets 22,702 17,050
------------ -----------
Total assets $707,592 $545,321
============ ===========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,379 $ 305 2.48% $ 16,500 $ 309 2.50%
Passbook accounts 160,883 3,609 2.99% 164,705 3,708 3.00%
NOW accounts 27,991 416 1.98% 24,443 369 2.01%
Certificate accounts 228,663 9,412 5.49% 199,842 8,051 5.37%
-------------------------------------------------------------------------------
Total 433,916 13,742 4.22% 405,490 12,437 4.09%
FHLB advances & other borrowings 128,331 5,728 5.95% 4,615 200 5.78%
Other 1,968 41 2.78% 2,271 44 2.58%
-------------------------------------------------------------------------------
Total interest-bearing liabilities 564,215 $19,511 4.61% 412,376 $12,681 4.10%
Non-interest bearing liabilities 27,103 32,047
Shareholders' equity 116,274 100,898
------------ -----------
Total liabilities and shareholders' equity $707,592 $545,321
============ ===========
Net interest rate spread (3) $19,072 2.90% $16,781 3.34%
Net interest margin (4) 3.71% 4.24%
Ratio of interest-earning assets to
interest-bearing liabilities 121.39% 128.10%
</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 average
interest earning assets.
Allowance for Loan Losses
- -------------------------
The following table sets forth the changes in the allowance for loan losses for
the nine months ended September 30, 1997 (Dollars in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1996 $1,031
Provision for loan losses 225
Net chargeoffs 23
------
Balance, September 30, 1997 $1,233
======
</TABLE>
-15-
<PAGE>
Non-Performing Assets
- ---------------------
The following table presents information regarding the Association's non-
performing assets at the dates indicated:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
--------------------------------
(in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans $1,931 $896
Accruing loans which are contractually
past due 90 days or more - -
Restructured loans - -
- --------------------------------------------------------------------------------------------------
Total non-performing loans $1,931 $896
Real estate owned 6 -
- --------------------------------------------------------------------------------------------------
Total non-performing assets $1,937 $896
==================================================================================================
Non-performing loans as a % of gross loans receivable .63% .39%
Non-performing loans to total assets .24% .14%
Allowance for loan loss as a % of gross loans receivable .40% .45%
Allowance for loan loss to non-performing loans 64% 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 September, 1997 were 4.95%
and 18.79% 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 September 30, 1997 the Association had commitments to originate and purchase
loans of $415,000 and to purchase mortgage-backed securities of $11.2 million.
The Association anticipates that it will have sufficient funds available to meet
these commitments.
At September 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 12.07%. Tier I capital to risk-based assets requirement
is 4.00% and the Association had 33.06%. The total capital to risk-based assets
requirement is 8.00% and the Association had 33.50%.
Other Developments
- ------------------
The Board of Directors declared on October 21, 1997 a dividend of $.12 per share
to stockholders of record on November 7, 1997, payable on November 20, 1997.
There was no change in the dividend paid from the previous quarter.
The Company announced on August 20, 1997 that it has requested and received
regulatory approval from the Office of Thrift Supervision to repurchase up to 5%
or 401,612 shares of its outstanding stock. As of September 30, 1997, the
Company has repurchased 12,000 shares.
The Company filed an S-8 to the Securities and Exchange commission on October
14, 1997.
The Company repurchased an additional 117,830 shares of GA Financial, Inc. stock
from September 30 ,1997 to November 5, 1997. Treasury shares total 1,044,930 at
November 5, 1997.
-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
- ------- ---------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Exhibit 2 - Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession - N/A
Exhibit 3 - (i) Articles of Incorporation - Incorporated by
reference into this document from the Exhibits to Form S-1
Registration Statement and amendments thereto, initially
filed December 21,1995. Registration No. 33-80715
(ii) Bylaws - Incorporated by reference into this document
from the Exhibits to Form S-1 Registration Statement and
amendments thereto, initially filed December 21, 1995,
Registration No. 33-80715
Exhibit 4 - Instruments Defining the Rights of Security Holders,
Including Indentures - N/A
Exhibit 10 - Material Contracts - N/A
Exhibit 11 - Statement re: Computation of Per Share Earnings - filed
herewith
Exhibit 15 - Letter re: Unaudited Interim Financial Information - N/A
Exhibit 18 - Letter re: Change in Accounting Principles - N/A
Exhibit 19 - Report Furnished to Security Holders - N/A
Exhibit 22 - Published Report Regarding Matters Submitted to Vote of
Security Holders - N/A
Exhibit 23 - Consent of Experts and Counsel - N/A
Exhibit 24 - Power of Attorney - N/A
Exhibit 27 - Financial Data Schedule - filed herewith
Exhibit 99 - Additional Exhibits - N/A
-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 November 13, 1997 By /s/ John M. Kish
------------------ --------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
Date November 13, 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 SEPTEMBER 30, 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net Income $ 2,166 $ 1,082
=========================================
Weighted average shares outstanding:
Weighted average shares issued
(net of treasury shares) 7,980,587 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 116,203 -
-----------------------------------------
7,435,647 8,188,000
=========================================
Earnings per share $ .29 $ .13
=========================================
<CAPTION>
Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net Income $ 6,041 $ 4,186
=========================================
Weighted average shares outstanding:
Weighted average shares issued
(net of treasury shares) 8,185,934 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 92,270 -
-----------------------------------------
7,617,061 8,188,000
=========================================
Earnings per share $ .79 $ .51
=========================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1997
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,634
<INT-BEARING-DEPOSITS> 14,083
<FED-FUNDS-SOLD> 1,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 452,754
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 304,365
<ALLOWANCE> 1,233
<TOTAL-ASSETS> 802,304
<DEPOSITS> 456,872
<SHORT-TERM> 139,398
<LIABILITIES-OTHER> 27,657
<LONG-TERM> 61,000
0
0
<COMMON> 89
<OTHER-SE> 117,288
<TOTAL-LIABILITIES-AND-EQUITY> 802,304
<INTEREST-LOAN> 16,117
<INTEREST-INVEST> 22,466
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 38,583
<INTEREST-DEPOSIT> 13,742
<INTEREST-EXPENSE> 19,511
<INTEREST-INCOME-NET> 19,072
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 38
<EXPENSE-OTHER> 10,881
<INCOME-PRETAX> 9,582
<INCOME-PRE-EXTRAORDINARY> 9,582
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,041
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 7.51
<LOANS-NON> 1,931
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,031
<CHARGE-OFFS> 69
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 1,233
<ALLOWANCE-DOMESTIC> 1,233
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
