<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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: 7,219,975 shares of common
stock, par value $.01 per share, were outstanding as of July 31, 1998.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
June 30, 1998
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 1998 and December 31, 1997......................... 1
Consolidated Statements of Income and Comprehensive Income -
For the Three and Six Months Ended June 30, 1998 and 1997... 2
Consolidated Statements of Cash Flows - For the Six
Months Ended June 30, 1998 and 1997......................... 3
Notes to Consolidated Financial Statements.................. 4-7
Report of Independent Accountants........................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 18
PART II: OTHER INFORMATION................................................ 19
SIGNATURES ............................................................ 20
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash (including interest-bearing demand deposits of $20,312
in 1998 and $3,291 in 1997) $ 28,818 $ 10,242
Federal funds sold 4,900 2,500
Available for sale securities, at fair value:
Investment securities 185,486 151,265
Mortgage-related securities 263,464 284,161
Loans receivable, net 304,101 287,674
Education loans held for sale 18,852 18,853
Accrued interest receivable 6,421 5,977
Federal Home Loan Bank stock 11,353 9,833
Office, property and equipment 4,888 5,203
Foreclosed assets 550 -
Prepaid expenses and other assets 9,439 8,240
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $838,272 $783,948
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 26,680 $ 21,375
Savings accounts 448,124 440,779
Borrowed funds 230,340 198,237
Advances from borrowers for taxes and insurance 2,358 1,602
Accrued interest payable 4,358 1,385
Securities purchased, not settled 14,447 -
Other liabilities 4,060 4,444
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 730,367 667,822
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 86,057 85,992
Treasury stock, at cost (1,679,785 shares at June 30, 1998 and
1,182,130 shares at December 31, 1997) (29,450) (19,464)
Unearned employee stock ownership plan (ESOP) shares (6,104) (6,104)
Unearned recognition and retention plan (RRP) shares (2,851) (3,107)
Accumulated other comprehensive income 3,268 3,724
Retained earnings 56,896 54,996
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 107,905 116,126
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $838,272 $783,948
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Income and Comprehensive Income
For the Quarters Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Dollars in thousands, except per share amounts (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 6,334 $ 5,362 $12,892 $10,084
Mortgage-related securities 4,621 5,346 9,466 9,991
Investment securities 2,770 2,363 5,257 4,445
Interest on bank deposits 186 135 335 301
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 13,911 13,206 27,950 24,821
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 4,636 4,573 9,250 9,032
Interest on borrowings 3,271 2,198 6,385 3,152
Other 9 13 18 26
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 7,916 6,784 15,653 12,210
- ------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for losses on loans 5,995 6,422 12,297 12,611
Provision for losses on loans 90 75 180 150
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 5,905 6,347 12,117 12,461
- ------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service fees 410 280 764 506
Net gain on sales of securities 95 28 257 28
Net gain on sales of education loans 88 - 88 74
Data processing service fees 183 142 370 279
Other 112 1 216 9
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest income 888 451 1,695 896
- ------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,984 1,834 3,983 3,620
Occupancy and equipment 460 434 878 880
Deposit insurance premiums 71 72 142 139
Data processing service expenses 388 353 808 778
Capital stock taxes 199 160 398 284
Other 999 752 1,939 1,527
- ------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 4,101 3,605 8,148 7,228
- ------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,692 3,193 5,664 6,129
Provision for income taxes 890 1,175 1,932 2,254
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 1,802 $ 2,018 $ 3,732 $ 3,875
========================================================================================================================
Other comprehensive income
Unrealized gains (losses) on available for sale securities, net of taxes
for 1998 and 1997, respectively 98 3,348 (456) 123
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 1,900 $ 5,366 $ 3,276 $ 3,998
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<S> <C> <C> <C> <C>
Basic earnings per share $ .27 $ .28(1) $ .55 $ .53(1)
========== ========== ========== ==========
Diluted earnings per share $ .26 $ .28(1) $ .53 $ .52(1)
========== ========== ========== ==========
Dividends per share $ .14 $ .10 $ .26 $ .18
========== ========== ========== ==========
Average shares outstanding - basic 6,658,203 7,141,359 6,724,212 7,273,929
Average shares outstanding - diluted 6,928,120 7,322,904 6,982,958 7,446,387
</TABLE>
(1)Earnings per share were restated to reflect the Company's adoption of SFAS
No. 128, "Earnings per Share".
-2-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
For the Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 30,
1998 1997
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,731 $ 3,875
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 180 150
Depreciation on office, property and equipment 394 418
Net premium amortization (discount accretion) on securities 25 (53)
Amortization of net deferred loan fees (221) (76)
Allocation of RRP shares 256 407
Allocation of unallocated ESOP shares 159 119
Net realized (gain) on sales of securities (257) (28)
Net realized (gain) on sale of education loans (88) (74)
Net realized (gain) on sale of REO - (2)
(Increase) in accrued interest receivable (444) (1,390)
(Increase) in prepaid expenses and other assets (1,292) (58)
Increase in accrued interest payable 2,973 2,914
Amortization of intangibles 93 93
Increase (decrease) in other liabilities (74) 314
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,435 6,609
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 58,543 68,015
Proceeds from sale of education loans 3,350 2,673
Repayments and maturities of available for sale securities 65,340 20,651
Net proceeds from sale of REO - 2
Purchases of available for sale securities (123,450) (168,376)
Purchase of loans (33,054) (19,361)
Net decrease (increase) in loans 12,857 (31,054)
Purchases of office, property and equipment, net (79) (479)
(Purchase) of Federal Home Loan Bank stock (1,520) (6,007)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (18,013) (133,936)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 8,641 5,196
Net increase in certificates of deposit 4,009 3,965
Net increase in advances from borrowers for taxes and insurance 756 513
Purchase of RRP stock - (4,095)
Purchase of treasury stock (10,074) (7,542)
Other stock transactions 152 -
Payments made under capital lease obligations (44) (86)
Payments of borrowed funds (289,984) (224,545)
Proceeds from borrowed funds 322,087 341,871
Dividends paid (1,989) (1,498)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 33,554 113,779
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents 20,976 (13,548)
Cash and cash equivalents at beginning of period 12,742 24,299
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 33,718 $ 10,751
====================================================================================================================
</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 1997 Annual Report on Form 10-K. The
consolidated financial statements as of June 30, 1998 and for the six months
ended June 30, 1998 and June 30, 1997 have been reviewed by
PricewaterhouseCoopers L.L.P., the Company'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 June 30, 1998, 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>
June 30, 1998:
Equity capital (1) $103,689 $103,689 $103,689
General valuation allowance (2) - - 1,501
Less unrealized gains on certain available-
for-sale securities (2,945) (2,945) (2,945)
Less core deposit intangible (1,003) (1,003) (1,003)
-----------------------------------------------------------
Total regulatory capital 99,741 99,741 101,242
Minimum regulatory capital 33,124 12,704 25,408
-----------------------------------------------------------
Excess regulatory capital $ 66,617 $ 87,037 $ 75,834
===========================================================
Regulatory capital as a percentage 12.04% 31.40% 31.88%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
-----------------------------------------------------------
Excess regulatory capital as a percentage 8.04% 27.40% 23.88%
===========================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
===========================================================
Adjusted assets as reported to the OTS 828,104 317,600 317,600
</TABLE>
<TABLE>
<CAPTION>
Tier I Tier I Total
Leverage Risk-Based Risk-based
Capital Capital Capital
-----------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1997:
Equity capital (1) $100,319 $100,319 $100,319
General valuation allowance (2) - - 1,322
Less unrealized gains on certain available-
for-sale securities (3,329) (3,329) (3,329)
Less core deposit intangible (1,095) (1,095) (1,095)
-----------------------------------------------------------
Total regulatory capital 95,895 95,895 97,217
Minimum regulatory capital 30,458 11,520 23,040
-----------------------------------------------------------
Excess regulatory capital $ 65,437 $ 84,375 $ 74,177
===========================================================
Regulatory capital as a percentage 12.59% 33.30% 33.76%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
-----------------------------------------------------------
Excess regulatory capital as a percentage 8.59% 29.30% 25.76%
===========================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
===========================================================
Adjusted assets as reported to the OTS $761,451 $288,002 $288,002
</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.
-5-
<PAGE>
3. Changes in Accounting Principles
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in a financial statement that is displayed
with the same prominence as other financial statements. This statement also
requires that an entity classify items of other comprehensive earnings by their
nature in a financial statement. For example, other comprehensive earnings may
include foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale. Financial statements for prior periods will be
reclassified.
In June 1998, SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," was issued. Implementation of SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
Management of the Company is currently assessing the impact of the adoption of
the standard. Implementation is required for all fiscal quarters of fiscal
years beginning after June 15, 1999 and will be applied prospectively as an
adjustment for the cumulative effect at adoption.
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, 1997 $ 26,000 $16,000
Purchase commitments 41,000 8,000
Commitments sold (26,000) -
Commitments settled (20,000) (8,000)
-------------------------------------------------------
Balance at June 30, 1998 $ 21,000 $16,000
=======================================================
</TABLE>
The fair value of the $37.0 million in commitments was approximately $37.7
million at June 30, 1998.
5. Earnings per Share:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
----------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic:
Net income $1,802 $2,018 $3,732 $3,875
Net income applicable to common stock 1,802 2,018 3,732 3,875
Average common shares - outstanding basic 6,658,203 7,141,359 6,724,212 7,273,929
Basic earnings per share $.27 $.28 $.55 $.53
Diluted:
Net income $1,802 $2,018 $3,732 $3,875
Average common shares - outstanding basic 6,658,203 7,141,359 6,724,212 7,273,929
Effect of dilutive securities:
Shares issuable upon exercise of
outstanding stock options and stock awards 269,917 181,545 258,746 172,458
Average common shares outstanding - diluted 6,928,120 7,322,904 6,982,958 7,446,387
Diluted earnings per share $.26 $.28 $.53 $.52
==================================== ========================================
</TABLE>
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." This Statement requires the
disclosure of basic and diluted earnings per share and revises the method
required to calculate these amounts under previous standards. Earnings per
share data for the 1997 quarter has been restated to reflect adoption of this
Statement. The adoption of this standard did not materially impact previously
reported earnings per share for the 1997 quarter and six month period.
-6-
<PAGE>
6. Consolidated Statements of Shareholders' Equity:
The consolidated statement of shareholders' equity for the six month period
ending June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Accumulated
Additional Unearned Unearned Other Total
Common Paid in Treasury ESOP RRP Comprehensive Retained Shareholders'
(Dollars in thousands) Stock Capital Stock Plan Shares Plan Shares Income (Loss) Earnings Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/97 $89 $85,992 $(19,464) $(6,104) $(3,107) $3,724 $54,996 $116,126
Net income - - - - - - 3,732 3,732
Change in compre-
hensive income,
net of tax - - - - - (456) - (456)
Treasury stock
purchased - - (10,075) - - - - (10,075)
Cash dividends - - - - - - (1,832) (1,832)
Stock awards and
options - 65 89 - 256 - - 410
-----------------------------------------------------------------------------------------------------
Balance at 6/30/98 $89 $86,057 $(29,450) $(6,104) $(2,851) $3,268 $56,896 $107,905
=====================================================================================================
</TABLE>
-7-
<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. (the Company) as of June 30, 1998, and the related
consolidated statements of income and comprehensive income, and cash flows for
the three-month and six-month periods ended June 30, 1998 and June 30, 1997.
These consolidated 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 consolidated 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,
1997 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 22, 1998, except as to the information presented in Note
19, for which the date is February 3, 1998, 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, 1997, is fairly stated in all material respects in relation to the
consolidated statement of financial condition from which it has been derived.
/s/PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
July 22, 1998
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
General
- -------
The Company's and the Association's consolidated results of operations are
dependent primarily on net interest income, which is the difference between the
interest income earned on interest-earning assets, such as loans and
investments, and the interest expense incurred on interest-bearing liabilities,
such as deposits and other borrowings. The Company and the Association refer
hereinto collectively as the "Association". The Association also generates non-
interest income such as service fees and also generates data-processing fees
from its data-processing division. The Association's operating expense consists
primarily of employee compensation, occupancy expenses, federal deposit
insurance premiums, data processing expenses, and other general and
administrative expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
Comparison of Financial Condition at June 30, 1998 and December 31, 1997
- ------------------------------------------------------------------------
The Association's total assets of $838.3 million at June 30, 1998 increased
$54.3 million or 6.9% from December 31, 1997. This increase was primarily
attributed to an increase in investment securities primarily funded by
increased borrowings of $32.1 million in the first six months of 1998.
Cash and cash equivalents of $33.7 million at June 30, 1998 increased $21.0
million or greater than 100% from December 31, 1997. The increase can be
attributed to principal prepayments on mortgage-related securities and loans.
Also, $5.8 million of mortgage-related securities were sold in June, 1998, the
proceeds of which were temporarily invested in cash and cash equivalents.
Investment securities classified as available for sale increased $34.2 million
or 22.6% to $185.5 million at June 30, 1998. This was primarily due to
investment of borrowed funds from the Federal Home Loan Bank (the "FHLB") of
Pittsburgh. These funds were invested primarily in municipal bonds and
government securities.
Mortgage-related securities classified as available for sale decreased $20.7
million or 7.3% to $263.5 million at June 30, 1998. This is due to $5.8 million
of mortgage-related securities sold in June 1998 and also principal prepayments.
There were no securities held by the Association which were classified as `held
to maturity' or `held for trading' for either of the respective periods.
The following table presents details of the Association's investment securities
and mortgage-backed securities as of
June 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available for sale securities: Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed certificates $172,971 $2,980 $ (214) $175,737
Collateralized mortgage obligations 87,865 780 (918) 87,727
Marketable equity securities 31,558 2,557 (109) 34,006
US government agency debt 91,052 168 (439) 90,781
Corporate obligations 24,826 102 (1) 24,927
Municipal obligations 35,486 328 (42) 35,772
- ----------------------------------------------------------------------------------------------------------------------------
Total $443,758 $6,915 $(1,723) $448,950
============================================================================================================================
</TABLE>
-9-
<PAGE>
The following table presents details of the Association's investment securities
and mortgage-backed securities as of December 31, 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>
Mortgage-backed certificates $208,995 $3,862 $ (161) $212,696
Collateralized mortgage obligations 71,980 285 (800) 71,465
Marketable equity securities 34,360 2,317 (17) 36,660
US government agency debt 77,060 150 (73) 77,137
Corporate obligations 24,125 92 (9) 24,208
Municipal obligations 12,992 270 (2) 13,260
- ----------------------------------------------------------------------------------------------------------------------------
Total $429,512 $6,976 $(1,062) $435,426
============================================================================================================================
</TABLE>
Loans receivable increased $16.4 million or 5.7% to $304.1 million at June 30,
1998. This was due to the Association's purchase and origination of first
mortgage loans.
Education loans held for sale were primarily unchanged. Education loans are
normally sold as they enter repayment status.
The following table presents details of the Association's loan portfolio
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
--------------------------------------------------
<S> <C> <C>
Mortgages:
One to four family residential $234,184 $215,024
Multi-family residential 5,673 5,778
Commercial 4,295 4,360
Construction and development 1,470 2,966
Consumer loans:
Home equity 57,129 59,111
Education loans 18,852 18,853
Other:
Loans on savings accounts 2,229 2,168
Unsecured personal loans and other 2,408 1,719
- --------------------------------------------------------------------------------------------------
Total 326,240 309,979
Less:
Undisbursed mortgage loans 618 688
Deferred loan fees 1,168 1,442
Allowance for losses 1,501 1,322
- --------------------------------------------------------------------------------------------------
Net loans $322,953 $306,527
==================================================================================================
</TABLE>
Accrued interest receivable increased $444,000 or 7.4% to $6.4 million at June
30, 1998. This was due to an increase in investment securities purchased.
FHLB stock increased $1.5 million or 15.5% to $11.4 million at June 30, 1998.
The Association is required to own FHLB stock based upon levels of borrowings.
As the use of FHLB advances increases, the amount of required stock ownership
also increases.
Prepaid expenses and other assets increased $1.2 million or 14.6% to $9.4
million at June 30, 1998. This was primarily a result of the increase in the
value of the bank owned life insurance.
Foreclosed assets increased $550,000 from December 31, 1997. The Association
foreclosed on five properties and is in the process of selling them.
Total deposits increased $12.7 million or 2.7% to $474.8 million at June 30,
1998.
-10-
<PAGE>
Borrowed funds increased $32.1 million or 16.2% to $230.3 million at June 30,
1998. 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. FHLB
borrowings can be invested at yields higher than the cost of the borrowed funds
thereby increasing net interest income.
There were $14.4 million securities purchased, not settled at June 30, 1998.
These are all municipal securities that will settle in July, August, and
September of 1998.
Accrued interest payable increased $3.0 million or greater than 100% to $4.4
million at June 30, 1998. This was a result of the timing of accrued interest
payable being credited to deposit accounts and increased FHLB borrowings.
Other liabilities decreased $384,000 or 8.6% to $4.1 million at June 30, 1998.
The change is primarily the result of a decrease of $363,000 in accrued
deferred income taxes on available for sale securities.
Total shareholders' equity decreased $8.2 million or 7.1% to $107.9 million at
June 30, 1998. This was primarily due to the purchase of $10.1 million of
treasury stock, payment of $1.9 million in cash dividends, and $3.7 million in
net income.
Comparison of the Consolidated Results of Operation for the Period of Three
- ---------------------------------------------------------------------------
Months Ended June 30, 1998 and 1997.
- ------------------------------------
Net Income. Net income was $1.8 million for the period of three months ended
June 30, 1998, a decrease of $216,000 or 10.7% for the same period in 1997.
The decrease was primarily due to a decrease in net interest income due
primarily to higher borrowing costs. This was offset in part by an increase in
non-interest income due primarily to an increase in servicing fees and gains on
sales of securities.
Interest Income. Interest income totaled $13.9 million for the period of three
months ended June 30, 1998, an increase of $705,000 or 5.3% compared to the
$13.2 million recorded for the period of three months ended June 30, 1997. The
increase was primarily attributable to an increase in the average balance of
interest-earning assets despite a lower yield than in the prior period. The
average balances of interest-earning assets for the period of three months ended
June 30, 1998 increased to $783.4 million, an increase of $84.7 million or
12.1%, compared to the average balance of interest-earning assets of $698.6
million for the same period in 1997. Weighted average yield on interest-earning
assets for the three month period ended June 30, 1998 was 7.10% compared to
7.56% for the comparable period in 1997. This was due to a lower interest rate
environment. Interest on loans for the three month period ended June 30, 1998
was $6.3 million at a weighted average yield of 7.75%, an increase of $972,000
or 18.1%, compared to interest income on loans of $5.4 million at a weighted
average yield of 8.05% for the three month period ended June 30, 1997. This
increase was due to an increase in the average balance of loans. The
Association purchased $5.0 million of residential mortgage loans, which are
outside of its normal lending area, during the second quarter of 1998. For the
three month period ended June 30, 1998 interest income on mortgage-backed
securities was $4.6 million at a weighted average yield of 6.93%, a decrease of
$725,000 or 13.6%, compared to interest income of $5.3 million at a weighted
average yield of 7.73% for the same period in 1997. Average balances in
mortgage-backed securities decreased between the two periods as did the weighted
average yield on these investments. This is primarily due to a lower rate
environment and longer term instruments. The proceeds from the increase in
borrowings were partially reinvested in mortgaged-backed securities. For the
three month period ended June 30, 1998 interest income on investment securities
was $2.6 million at a weighted average yield of 6.26%, an increase of $336,000
or 14.9%, compared to income of $2.3 million at a weighted average yield of
6.55% for the same period in 1997. 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 $186,000 at a
weighted average yield of 5.77% for the period of three months ended June 30,
1998, an increase of $51,000 or 37.8%, compared to income of $135,000 at a
weighted average yield of 5.20% for the comparable period in 1997. The increase
was due to an increase in investments in federal funds sold and in interest-
bearing demand deposits. This is due to cash from the sale of mortgage-related
securities and prepayments of mortgage-related securities.
Interest Expense. Total interest expense for the three month period ended June
30, 1998 was $7.9 million, an increase of $1.1 million or 16.7%, compared to
$6.8 million for the same period in 1997. Average balances of interest-bearing
liabilities was $672.6 million for the period of three months ended June 30,
1998 at a weighted average cost of 4.71% compared to average balance of $582.3
million at a weighted average cost of 4.66% for the period of three months ended
June 30, 1997. The increase in interest expense and the weighted average cost
was primarily due to an increase in the average balance of interest-bearing
liabilities primarily in the form of FHLB borrowings which bear higher rates
than the Association's deposits. Average deposits increased $12.0 million or
2.76% to $445.4 million primarily due to interest crediting. The average rate
paid on deposits decreased from 4.22% to 4.16% due to market pressures. Average
borrowings
-11-
<PAGE>
increased to $225.2 million or 53.5% for the quarter ending June 30, 1998.
Management currently believes it is efficient to fund asset growth through FHLB
borrowings, rather than attempting to fund all asset growth through increases in
interest bearing deposits. 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 before provision for loan losses for
the period of three months ended June 30, 1998 was $6.0 million, a decrease of
$427,000 or 6.6%, compared to $6.4 million recorded for the same period in 1997.
Provision for Loan Losses: The provision for loan losses during the period of
three months ended June 30, 1998 was $90,000 as compared to $75,000 for the
same period in 1997. The increase in the provision reflects the overall
increase in the Association's loan portfolio primarily through continued
purchases of residential mortgage loans originated in areas outside the local
lending area of the Association. Although the Association performs the same
underwriting criteria for purchased loans as it does for originated loans, due
to the recent nature of such purchases the Association does not have as much
loss experience data for such loans. The allowance for loan losses to total
loans and total non-performing loans was .44% and 105%, respectively at June 30,
1998 and as compared to .42% and 132%, respectively at June 30, 1997. The
allowance for loan losses is maintained at an amount management considers
adequate to cover estimated losses on loans receivable which are deemed probable
and estimable based on information currently known to management. While
management believes the Association's allowance for loan losses is sufficient to
cover losses inherent in its loan portfolio at this time, no assurances can be
given that the Association's level of allowance for loan losses will be
sufficient to cover future loan losses incurred by the Association, or that
future adjustments to the allowance for loan losses will not be necessary if
economic and other conditions differ substantially from the economic and other
conditions analyzed by management to determine the current level of the
allowance for loan losses.
Non-interest Income: Non-interest income consists of service fees, gains and
losses on the sale of loans and securities, fees from data processing services
sold and other miscellaneous items. For the period of three months ended June
30, 1998 non-interest income was $888,000, an increase of $437,000, or 96.9%,
compared to $451,000 recorded for the same period in 1997. Service fees totaled
$410,000 for the period of three months ended June 30, 1998, an increase of
$130,000 or 46.4%, compared to $280,000 recorded for the same period in
1997. This increase primarily resulted from the Association increasing service
fees, particularly on checking accounts. Net gains on the sale of securities is
$95,000, an increase of $67,000 or greater than 100%, compared to the $28,000
recorded for the comparable period in 1997. This increase resulted primarily
from the timing and amounts of security sales. There were $88,000 of gains on
the sale of education loans for the quarter ended June 30, 1998. Education
loans are sold as they enter repayment status. Data processing service fees
increased $41,000, or 28.9%, to $183,000 for the quarter ending June 30, 1998.
The Association's data services division added two new clients in 1997 and they
are generating approximately $30,000 a quarter in new revenue.
Non-interest Expense. Total non-interest expense increased $496,000 to $4.1
million for the three months ended June 30, 1998. This was primarily due to an
increase of $150,000 in compensation expense and $91,000 in marketing expenses.
The increase in compensation expense is primarily due to the recording of the
Employee Stock Ownership Plan at fair value, as required by generally accepted
accounting principles.
Income Tax Expense. Income tax expense of $890,000 for the three months ended
June 30, 1998 resulted in an effective tax rate of 33.1%. The income tax
expense recorded for the period of three months ended June 30, 1997 of $1.2
million is an effective tax rate of 36.8%. This decrease in effective rate is
due to purchase of municipal bonds and the bank owned life insurance.
Comparison of the Consolidated Results of Operation for the Period of Six Months
- --------------------------------------------------------------------------------
Ended June 30, 1998 and 1997.
- -----------------------------
Net Income. Net income was $3.7 million for the period of six months ended June
30, 1998, a decrease of $143,000 or 3.7% for the same period in 1997. This
decrease was primarily due to a decrease in net interest income which was a
result of flat-yield curve environment which increases principal prepayments on
mortgages and mortgage-backed securities.
Interest Income. Total interest income totaled $28.0 million for the period of
six months ended June 30, 1998, an increase of $3.1 million or 12.6% compared to
the $24.8 million recorded for the period of six months ended June 30, 1997.
The average balances of interest-earning assets for the period of six months
ended June 30, 1998 increased to $773.4 million, an increase of $111.0 million
or 16.8%, compared to the average balance of interest-earning assets of $662.4
million for the same period in 1997. Weighted average yield on interest-earning
assets for the six month period ended June 30, 1998 was 7.23% compared to 7.49%
for the comparable period in 1997. Interest on loans for the six month period
ended June 30,
-12-
<PAGE>
1998 was $12.9 million at a weighted average yield of 7.93%, an increase of $2.8
million or 27.8%, compared to interest income on loans of $10.1 million at a
weighted average yield of 8.07% for the six month period ended June 30, 1997.
This increase was due to an increase in the average balance of loans. The
Association purchased $38.1 million of residential mortgage loans, which are
outside of its normal lending area, during the first six months of 1998. For
the six month period ended June 30, 1998 interest income on mortgage-backed
securities was $9.5 million at a weighted average yield of 7.03%, a decrease of
$525,000 or 5.3%, compared to interest income of $9.9 million at a weighted
average yield of 7.50% for the same period in 1997. Average balances in
mortgage-backed securities increased slightly between the two periods as the
weighted average yield decreased on these investments. For the six month period
ended June 30, 1998 interest income on investment securities was $4.9 million at
a weighted average yield of 6.27%, an increase of $619,000 or 14.5%, compared to
income of $4.3 million at a weighted average yield of 6.53% for the same period
in 1997. The increase in interest income on investment securities was due to
the purchase of investment securities. Mortgage-backed securities and
investment securities have been funded with the FHLB borrowings. Interest
income on interest-earning deposits and short-term investments was $335,000 at a
weighted average yield of 5.87% for the period of six months ended June 30,
1998, an increase of $34,000 or 11.3%, compared to income of $301,000 at a
weighted average yield of 6.60% for the comparable period in 1997. The increase
was due to an increase in liquid investments in federal funds sold and in
interest-bearing demand deposits. Increases in these liquid investments are
primarily the result of prepayment and sales of mortgage-related securities.
Interest Expense. Total interest expense for the period of six months ended
June 30, 1998 was $15.7 million, an increase of $3.4 million or 28.2%, compared
to $12.2 million for the same period in 1997. Average balances of interest-
bearing liabilities was $664.9 million for the period of six months ended June
30, 1998 at a weighted average cost of 4.71% compared to average balance of
$541.6 million at a weighted average cost of 4.51% for the period of six months
ended June 30, 1997. 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. Management currently believes it is efficient to fund
asset growth through FHLB borrowings rather than attempting to fund all asset
growth through increased deposit liabilities. Management believes that FHLB
borrowings can be invested at yields higher than the cost of the borrowed funds
thereby increasing net interest income. FHLB borrowings have been reinvested in
investment and mortgage-related securities and home equity consumer loans.
Net Interest Income: Net interest income before provision for loan losses for
the period of six months ended June 30, 1998 was $12.3 million, a decrease of
$314,000 or 2.5%, compared to $12.6 million recorded for the same period in
1997.
Provision for Loan Losses: The Association's provision for loan losses was
$180,000 during the period of six months ended June 30, 1998 as compared to
$150,000 in the same period in 1997. The increase in the provision reflects the
overall increase in the Association's loan portfolio primarily through continued
purchased residential mortgage loans originated in areas outside the local
lending area of the Association. The Association purchased $38.1 million of
these loans in the six months ended June 30, 1998. Although the Association
performs the same underwriting criteria for purchased loans as it does for
originated loans, due to the recent nature of such purchases the Association
does not have as much loss experience data for such loans as it does for loans
originated by the Association. During the first six months of 1998, the
Association's provision for loan losses of $180,000 reflects the increase of the
Association's residential loan portfolio. During 1997 and 1998 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.
Non-interest Income: Non-interest income consists of service fees, gains and
losses on the sale of loans and securities, fees from data processing services
sold and other miscellaneous items. For the period of six months ended June 30,
1998 non-interest income was $1.7 million, an increase of 799,000 or 89.2%,
compared to $896,000 recorded for the same period in 1997. Service fees totaled
$764,000 for the period of six months ended June 30, 1998, an increase of
$258,000 or 51.0%, compared to $506,000 recorded for the same period in 1997.
This increase resulted from the Association increasing service fees,
particularly on checking accounts. Net gains on the sale of securities is
$257,000, an increase of $229,000 or greater than 100%, compared to the $28,000
recorded for the comparable period in 1997. This increase resulted primarily
from the timing and amounts of security sales. Gains on the sale of education
loans were approximately the same for both
-13-
<PAGE>
periods. Education loans are sold as they enter repayment status. Fees from the
sale of data processing services were $370,000, an increase of $91,000 or 32.6%,
compared to $279,000 recorded for the same period in 1997. The Association's
data services division added two new clients in 1997 and they are expected to
generate approximately $30,000 a quarter in new revenue in future quarters.
Other non-interest income for the period of six months ended June 30, 1998 was
$216,000, an increase of $207,000 compared to the $9,000 recorded for the
comparable period in 1997. This is primarily due to earnings on the bank owned
life insurance policy purchased in the fourth quarter of 1997 and the first
quarter of 1998.
Non-interest Expense. Total non-interest expense for the six month period ended
June 30, 1998 was $8.1 million, an increase of $920,000, or 12.7%, compared to
$7.2 million for the same period in 1997. The increase is primarily attributed
to an increase of $363,000, or 10.0%, in compensation expense, $412,000, or
27.0%, in miscellaneous other expenses, and $114,000, or 40.1%, in capital stock
taxes. The Association increased salaries approximately 3% for 1998 and is also
opening a new branch in August, 1998. Also, the Association experienced
approximately $100,000 increase in the Employee Stock Ownership Plan (ESOP) due
to a higher average market value in 1998 on GA Financial stock. In connection
with the formation of the ESOP, the Association adopted Statement of Position
93-6. As shares in the ESOP are earned and committed to be released,
compensation expense will be recorded based on the market value of GA Financial
stock. The capital stock tax increase is due to a lower than expected amount of
taxes in 1996 which resulted in a refund of taxes in 1997. The Company will
incur approximately $800,000 in capital stock taxes in 1998. The increase of
$412,000 in other is due to increases in marketing, professional fees, and
miscellaneous expenses.
Income Tax Expense. Income tax expense of $1.9 million for the six months ended
June 30, 1998 resulted in an effective tax rate of 34.1%. The income tax
expense recorded for the period of six months ended June 30, 1997 of $2.3
million is an effective tax rate of 36.8%. This decrease was due to an increase
in municipal bond purchases and the purchase of the bank owned life insurance.
-14-
<PAGE>
Average Balance Sheets and Analysis of Net Interest Income
- ----------------------------------------------------------
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the volume of interest-earning assets and interest-bearing liabilities and
the rates earned or paid on them. The following table presents certain
information relating to the Association's average consolidated statements of
financial condition and consolidated statements of income for the period of
three months ended June 30, 1998 and 1997. The yield and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively. Average balances are derived from daily average balances. The
average balance of loans receivable includes loans on which the Association has
discontinued accruing interest. The yields and costs include fees and expenses
which are considered adjustments to yield.
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1998
and June 30, 1997 (Dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Three Months Ended June 30, 1997
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 $ 12,892 $ 186 5.77% $ 10,386 $ 135 5.20%
Investment securities, net (1) 165,272 2,586 6.26% 137,363 2,250 6.55%
Loans receivable, net (1) (2) 326,991 6,334 7.75% 266,366 5,362 8.05%
Mortgage-backed securities, net (1) 266,850 4,621 6.93% 276,513 5,346 7.73%
FHLB stock & other equity investments 11,353 184 6.48% 8,017 113 5.64%
-----------------------------------------------------------------------
Total interest-earning assets 783,358 $13,911 7.10% 698,645 $13,206 7.56%
Non-interest earning assets 35,250 27,623
----------- -----------
Total assets $818,608 $726,268
=========== ===========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 14,610 $ 78 2.14% $ 16,577 $ 103 2.49%
Passbook accounts 160,702 1,102 2.74% 161,720 1,209 2.99%
NOW accounts 32,363 135 1.67% 27,352 139 2.03%
Certificate accounts 237,735 3,321 5.59% 227,780 3,122 5.48%
-----------------------------------------------------------------------
Total 445,410 4,636 4.16% 433,429 4,573 4.22%
FHLB advances & other borrowings 225,189 3,271 5.81% 146,712 2,198 5.99%
Other 1,999 9 1.80% 2,109 13 2.47%
-----------------------------------------------------------------------
Total interest-bearing liabilities 672,598 $ 7,916 4.71% 582,250 $ 6,784 4.66%
Non-interest bearing liabilities 33,675 29,130
Shareholders' equity 112,335 114,888
----------- -----------
Total liabilities and shareholders'
equity $818,608 $726,268
=========== ===========
Net interest rate spread (3) $ 5,995 2.39% $ 6,422 2.90%
Net interest margin (4) 3.06% 3.68%
Ratio of interest-earning assets to
interest-bearing liabilities 116.47% 119.99%
</TABLE>
(1) Average balance includes related assets available for sale and unamortized
discounts and premiums.
(2) Average balance 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.
-15-
<PAGE>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1998
and June 30, 1997 (Dollars in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
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 $ 11,421 $ 335 5.87% $ 9,120 $ 301 6.60%
Investment securities, net (1) 156,403 4,901 6.27% 131,132 4,282 6.53%
Loans receivable, net (1) (2) 325,144 12,892 7.93% 249,874 10,084 8.07%
Mortgage-backed securities, net (1) 269,269 9,466 7.03% 266,510 9,991 7.50%
FHLB stock & other equity investments 11,188 356 6.36% 5,796 163 5.62%
-------------------------------------------------------------------
Total interest-earning assets 773,425 $27,950 7.23% 662,432 $24,821 7.49%
Non-interest earning assets 35,143 23,776
---------- ----------
Total assets $808,568 $686,208
========== ==========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 14,814 $ 169 2.28% $ 16,668 $ 206 2.47%
Passbook accounts 160,566 2,201 2.74% 160,639 2,389 2.97%
NOW accounts 31,443 279 1.77% 27,391 274 2.00%
Certificate accounts 237,263 6,601 5.56% 227,361 6,163 5.42%
-------------------------------------------------------------------
Total 444,086 9,250 4.17% 432,059 9,032 4.18%
FHLB advances & other borrowings 218,902 6,385 5.83% 107,482 3,152 5.87%
Other 1,913 18 1.88% 2,063 26 2.52%
-------------------------------------------------------------------
Total interest-bearing liabilities 664,901 $15,653 4.71% 541,604 $12,210 4.51%
Non-interest bearing liabilities 31,619 27,271
Shareholders' equity 112,048 117,333
---------- ----------
Total liabilities and shareholders'
equity $808,568 $686,208
========== ==========
Net interest rate spread (3) $12,297 2.52% $12,611 2.98%
Net interest margin (4) 3.18% 3.81%
Ratio of interest-earning assets to
interest-bearing liabilities 116.32% 122.31%
</TABLE>
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and
remiums and estimated loan loss allowances and includes loans held for
sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by interest
earning assets.
Allowance for Loan Losses
- -------------------------
The following table sets forth the changes in the allowance for loan losses for
the six months ended June 30, 1998 (Dollars in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1997 $1,322
Provision for loan losses 180
Net charge-offs (1)
------
Balance, June 30, 1998 $1,501
======
</TABLE>
-16-
<PAGE>
Non-Performing Assets
- ---------------------
The following table presents information regarding the Association's non-
performing assets at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
-------------------------------
(dollars in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans $1,426 $1,733
Accruing loans which are contractually
past due 90 days or more - -
Restructured loans - -
- ----------------------------------------------------------------------------------------------------
Total non-performing loans $1,426 $1,733
Real estate owned 550 -
- ----------------------------------------------------------------------------------------------------
Total non-performing assets $1,976 $1,733
====================================================================================================
Non-performing loans as a % of gross loans receivable .44% .56%
Non-performing loans to total assets .17% .22%
Allowance for loan loss as a % of gross loans receivable .46% .43%
Allowance for loan loss to non-performing loans 105% 76%
</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 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 is currently 5%. The Association's liquidity for the
month of June, 1998 was 74.60% . The high levels of liquidity were due to
management's maintenance of higher than required levels of liquidity in order to
better manage interest rate risk by investing in investments that are eligible
to be included in liquidity calculations.
At June 30, 1998 the Association had commitments to originate and purchase loans
of $5.0 million and to purchase mortgage-backed securities of $37.0 million.
The Association anticipates that it will have sufficient funds available to meet
these commitments.
At June 30, 1998 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 12.04%. Tier I capital to risk-based assets requirement
is 4.00% and the Association had 31.40%. The total capital to risk-based assets
requirement is 8.00% and the Association had 31.88%.
Year 2000 Compliance
- --------------------
As the millennium (year 2000) approaches, the Company is increasingly aware of
the potential impact of the century date change on the Company's information
systems and the ability to conduct business in an uninterrupted and orderly
manner. The year 2000 presents a significant exposure to any company with date
sensitive data in its computer and environmental systems.
As the year 2000 approaches, an important business issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. Many existing application software products, including the
Company's, were designed to accommodate a two digit year. For example, "96" is
stored on the system and represents 1996.
-17-
<PAGE>
In 1996, the Company's data processing division, DataOne Financial Systems
(DataOne), began to address the risks associated with the coming millennium.
DataOne's approach to the year 2000 project includes five phases: Awareness,
Assessment, Renovation, Validation and Implementation. DataOne is currently in
the Renovation phase of the project and expects full conversion of all data
files and programs by October, 1998. This will allow adequate time to validate
and test all systems.
Additionally, the Company is utilizing internal resources to examine all
personal computer hardware and software and all environmental systems that are
dependent on embedded microchips to ensure year 2000 compliance. The
Association is conducting a Year 2000 compliance review of its third-party
vendors and service bureaus for its ancillary computer operations. In addition,
if significant vendors fail to certify their Year 2000 compliance, the Company
intends to engage alternative vendors and suppliers. While the Company cannot
estimate the expenses associated with hiring new vendors and suppliers,
management believes that such expenses would not have a material impact on the
Company's earnings. The Company estimates it will incur costs of $200,000 to
remediate its year 2000 issues.
Other Developments
- ------------------
The Board of Directors declared a dividend of $.14 per share to stockholders of
record on August 7, 1998, payable on August 20, 1998.
The company completed a stock repurchase program on June 8, 1998. Under the
repurchase, 379,765 shares, or 5% of the shares outstanding, were repurchased at
an average cost of $20.52. All of the stock was repurchased through registered
broker-dealers in open-market transactions.
The Association announced that after a long and comprehensive study of its
DataOne data processing division, it has concluded that it will no longer
continue to provide data processing services for other financial institutions.
The study included analysis of strategic business planning objectives, a review
of the current data processing system and its operation, as well as a review of
the competition in the data processing service arena.
As a result of this loss of data processing for other financial institutions,
the Association's revenues will begin to decline in mid 1999. At the same time,
expenses will begin to increase as the Association commences the implementation
of an enhanced system and software. However, the future net costs of data
processing will decrease as the new system replaces the existing system.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
There have been no material changes in information regarding quantitative and
qualitative disclosures about market risk from the information presented as of
December 31, 1997 (in the Company's Form 10-K) to June 30, 1998.
-18-
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ------- -----------------
None
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
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 15 - Independent Accountant's Letter regarding unaudited
financial information
Exhibit 27 - Financial Data Schedule
-19-
<PAGE>
GA FINANCIAL, INC. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GA FINANCIAL, INC.
------------------
(Registrant)
Date August 11, 1998 By /s/ John M. Kish
----------------- ----------------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date August 11, 1998 By /s/ Raymond G. Suchta
----------------- ----------------------------------------------
Raymond G. Suchta
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
-20-
<PAGE>
EXHIBIT 15 INDEPENDENT ACCOUNTANT'S LETTER REGARDING UNAUDITED FINANCIAL
INFORMATION
July 22, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GA Financial, Inc.
1. Form S-8 (Registration No. 333-37837)
Ladies and Gentlemen:
We are aware that our report dated July 22, 1998 on our review of interim
financial information of GA Financial, Inc. for the three months and six month
period ended June 30, 1998 and included in GA Financial, Inc.'s quarterly report
on Form 10-Q for the period then ended is incorporated by reference in the
registration statment referred to above. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Very truly yours,
/s/PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,506
<INT-BEARING-DEPOSITS> 20,312
<FED-FUNDS-SOLD> 4,900
<TRADING-ASSETS> 0
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<TOTAL-ASSETS> 838,272
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<SHORT-TERM> 152,580
<LIABILITIES-OTHER> 25,223
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0
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<COMMON> 89
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