<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, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________________
Commission File Number 1-14154
-----
GA FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1780835
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (IRS Employer
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: 6,320,454 shares of common
stock, par value $.01 per share, were outstanding as of July 26, 1999.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
June 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 1999 and December 31, 1998............................................ 1
Consolidated Statements of Income and Comprehensive Income -
For the Three and Six Months Ended June 30, 1999 and 1998...................... 2
Consolidated Statements of Cash Flows - For the Six
Months Ended June 30, 1999 and 1998............................................ 3
Notes to unaudited Consolidated Financial Statements........................... 4- 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 8-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................... 17
PART II. OTHER INFORMATION................................................................... 18
SIGNATURES ................................................................... 19
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30,1999 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash (including interest-bearing demand deposits of $8,825
at 1999 and $7,705 at 1998) $ 14,110 $ 22,987
Federal funds sold - 500
Available for sale securities, at fair value:
Investment securities 165,105 163,108
Mortgage-related securities 319,582 273,124
Loans receivable, net 315,147 310,688
Education loans held for sale 21,600 20,040
Accrued interest receivable 6,444 6,050
Federal Home Loan Bank stock 14,458 11,413
Office, property and equipment, net 5,071 5,114
Foreclosed assets 448 758
Prepaid expenses and other assets 13,005 9,540
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $874,970 $823,322
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 32,466 $ 30,373
Savings accounts 449,750 452,175
Borrowed funds 292,160 222,545
Advances from borrowers for taxes and insurance 1,997 1,514
Accrued interest payable 4,598 1,606
Securities purchased, not settled 1,000 1,901
Other liabilities 1,882 3,992
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 783,853 714,106
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 86,442 86,467
Treasury stock, at cost (2,579,546 shares at June 30, 1999 and 1,858,865 shares
at December 31, 1998) (43,712) (32,255)
Unearned employee stock ownership plan (ESOP) shares (5,520) (5,520)
Unearned recognition and retention plan (RRP) shares (1,981) (2,431)
Accumulated other comprehensive (loss) income, net (5,433) 3,306
Retained earnings, substantially restricted 61,232 59,560
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 91,117 109,216
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $874,970 $823,322
====================================================================================================================
</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 Three and Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 6,251 $ 6,334 $ 12,470 $12,892
Mortgage-related securities 5,204 4,621 9,723 9,466
Investment securities 2,526 2,770 4,931 5,257
Bank deposits 131 186 331 335
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 14,112 $13,911 $ 27,455 $27,950
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,415 4,636 8,850 9,250
Borrowed funds 3,828 3,271 7,213 6,385
Other 8 9 17 18
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 8,251 7,916 16,080 15,653
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for losses on loans $ 5,861 $ 5,995 $ 11,375 $12,297
Provision for losses on loans 90 90 150 180
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans $ 5,771 $ 5,905 $ 11,225 $12,117
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service fees 474 410 901 764
Net gain on sales of securities 47 95 131 257
Net gain on sales of education loans 17 88 17 88
Data processing service fees 181 183 374 370
Other 105 112 220 216
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 824 888 1,643 1,695
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,994 1,984 4,002 3,983
Occupancy and equipment 494 460 1,009 878
Deposit insurance premiums 70 71 141 142
Data processing service expenses 342 388 737 808
Other 1,125 1,198 2,177 2,337
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 4,025 4,101 8,066 8,148
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes $ 2,570 $ 2,692 $ 4,802 $ 5,664
Provision for income taxes 620 890 1,170 1,932
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,950 $ 1,802 $ 3,632 $ 3,732
==============================================================================================================================
Other comprehensive income (loss), net of taxes:
Unrealized holding gains (losses) on available for sale securities
for 1999 and 1998, respectively $ (7,237) $ 38 $ (8,822) $ (541)
Reclassification adjustment for gains included in net income 30 60 83 85
- ------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (7,207) 98 (8,739) (456)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) ($ 5,257) $ 1,900 ($ 5,107) $ 3,276
==============================================================================================================================
Basic earnings per share $ .33 $ .27 $ .60 $ .55
======== ======= ======== =======
Diluted earnings per share $ .33 $ .26 $ .59 $ .53
======== ======= ====== =======
Dividends per share $ .16 $ .14 $ .32 $ .26
======== ======= ====== =======
Average shares outstanding - basic 5,835,968 6,658,203 6,015,016 6,724,212
Average shares outstanding - diluted 5,946,260 6,928,120 6,133,881 6,982,958
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
For the Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 30,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,632 $ 3,732
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans 150 180
Depreciation on office, property and equipment 354 394
Accretion of net deferred loan fees (202) (221)
Allocation of RRP shares 449 256
Net realized gain on sales of securities (131) (257)
Increase in accrued interest receivable (394) (444)
Increase in prepaid expenses and other assets (1,613) (1,293)
Increase in accrued interest payable 2,992 2,973
Net discount accretion on securities 167 25
Compensation expense on unallocated ESOP shares 176 159
Net realized gain on sale of student loans (17) (88)
Amortization of intangibles 92 93
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 5,655 $ 5,509
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 34,956 58,543
Repayments and maturities of available for sale securities 54,147 65,340
Purchases of available for sale securities (152,369) (123,450)
Proceeds from sale of student loans 1,486 3,350
Net increase in loans (7,126) (20,197)
Purchases of office, property and equipment, net (311) (79)
Purchases of Federal Home Loan Bank stock (3,045) (1,520)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (72,262) (18,013)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 4,043 8,641
Net (decrease) increase in certificates of deposit (4,375) 4,009
Net increase in advances from borrowers for taxes and insurance 1,565 682
Purchase of treasury stock (11,410) (10,074)
Net increase in borrowed funds 69,615 32,103
Cash dividends paid (2,136) (1,989)
Other stock transactions (72) 152
Payments made under capital lease obligations - (44)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 57,230 33,480
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents ($ 9,377) $ 20,976
Cash and cash equivalents at beginning of period 23,487 12,742
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 14,110 $ 33,718
====================================================================================================================
</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 subsidiaries, Great
American Federal Savings and Loan Association (the "Association") and New Eagle
Capital, Inc.
In the opinion of the management of the Company, the accompanying consolidated
financial statements include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for the
periods presented. All significant intercompany transactions have been
eliminated in consolidation. Certain information and footnote disclosures
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 Company's Annual Report on Form 10-K. 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 risk-based, Tier I risk-based, and Tier I leverage
capital. It is management's opinion that the Association meets all capital
adequacy requirements to which it is subject.
As of June 30, 1999, 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. In March 1999, the Association paid a $32
million dividend to the Company. This dividend had OTS approval.
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, 1999:
Equity capital (1) $ 64,007 $ 64,007 $ 64,007
General valuation allowance (2) - - 1,602
Plus unrealized losses on certain available
for sale securities 4,843 4,843 5,665
Less core deposit intangible (818) (818) (818)
------------------------------------------------------
Total regulatory capital $ 68,032 $ 68,032 $ 70,456
Minimum regulatory capital 34,178 12,349 24,698
------------------------------------------------------
Excess regulatory capital $ 33,854 $ 55,683 $ 45,758
======================================================
Regulatory capital as a percentage 7.96% 22.04% 22.82%
Minimum regulatory capital as a percentage 4.00 4.00 8.00
------------------------------------------------------
Excess regulatory capital as a percentage 3.96% 18.04% 14.82%
======================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
======================================================
Adjusted assets as reported to the OTS $ 854,444 $ 308,724 $ 308,724
</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, 1998:
Equity capital (1) $ 101,688 $ 101,688 $ 101,688
General valuation allowance (2) - - 1,604
Less unrealized gains on certain available
for sale securities (3,490) (3,490) (2,320)
Less core deposit intangible (910) (910) (910)
-------------------------------------------------------
Total regulatory capital 97,288 97,288 100,062
Minimum regulatory capital 32,381 12,594 25,188
-------------------------------------------------------
Excess regulatory capital $ 64,907 $ 84,694 $ 74,874
=======================================================
Regulatory capital as a percentage 12.02% 30.90% 31.78%
Minimum regulatory capital as a percentage 4.00 4.00 8.00
-------------------------------------------------------
Excess regulatory capital as a percentage 8.02% 26.90% 23.78%
========================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
=======================================================
Adjusted assets as reported to the OTS $ 809,516 $ 314,850 $ 314,850
</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 ("SFAS") 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 transaction adjustments, minimum pension liability
adjustments, and unrealized gains and losses on marketable securities classified
as available-for-sale. Adoption had no impact on reported results.
In June 1998, the Financial Accounting Standard Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The
provisions of this statement require that derivative instruments be carried at
fair value on the balance sheet. The statement continues to allow derivative
instruments to be used to hedge various risks and sets forth specific criteria
to be used to determine when hedge accounting can be used. The statement also
provides for offsetting changes in fair value or cash flows of both the
derivative and the hedged asset or liability to be recognized in earnings in the
same period; however, any changes in fair value or cash flow that represent the
ineffective portion of a hedge are required to be recognized in earnings and
cannot be deferred. For derivative instruments not accounted for as hedges,
changes in fair value are required to be recognized in earnings.
The provisions of this statement become effective beginning with the year 2001
interim reporting. Although the statement allows for early adoption on any
quarterly period after June 1998, the Company has no plans to adopt the
provisions of SFAS No. 133 prior to the effective date. The impact of adopting
the provisions of this statement on the Company's financial position, results of
operations and cash flow subsequent to the effective date is not currently
estimable and will depend on the financial position of the Company and the
nature and purpose of the derivative instruments in use by management at that
time.
On January 1, 1999, the Company adopted the provisions of the American Institute
of Certified Public Accountants Statement of Position ("SOP") No. 98-5 on
reporting on the costs of start-up activities. This SOP requires that costs of
start-up activities be expensed as incurred. Initial application of this SOP is
to be reported as a cumulative effect of a change in accounting principle. The
adoption of SOP 98-5 had no impact on the Company's financial position and
results of operations.
On January 1, 1999, the Company adopted the provisions of SOP No. 98-1 on
accounting for the costs of computer software developed or obtained for internal
use. This SOP requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. The adoption
of SOP No. 98-1 was immaterial to the Company's financial position and results
of operations.
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, 1998 $ 42,000 $ 8,000
Purchase commitments 79,000 16,000
Commitments sold (2,000) -
Commitments settled (102,000) (16,000)
----------------------------------------
Balance at June 30, 1999 $ 17,000 $ 8,000
----------------------------------------
</TABLE>
The fair value of the $25.0 million in commitments was approximately $24.3
million at June 30, 1999.
6
<PAGE>
5. Earnings per Share:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
-----------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic:
Net income $ 1,950 $ 1,802 $ 3,632 $ 3,732
Net income applicable to common stock 1,950 1,802 3,632 3,732
Average common shares - outstanding basic 5,835,968 6,658,203 6,015,016 6,724,212
Basic earnings per share $ .33 $ .27 $ .60 $ .55
Diluted:
Net income $ 1,950 $ 1,802 $ 3,632 $ 3,732
Average common shares - outstanding basic 5,835,968 6,658,203 6,015,016 6,724,212
Effect of dilutive securities:
Shares issuable upon exercise of
outstanding stock options and stock awards 110,292 269,917 118,865 258,746
Average common shares outstanding - diluted 5,946,260 6,928,120 6,133,881 6,982,958
Diluted earnings per share $ .33 $ .26 $ .59 $ .53
=================================================================================
</TABLE>
6. Consolidated Statements of Shareholders' Equity:
The consolidated statement of shareholders' equity for the six month period
ending June 30, 1999 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),Net Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/98 $89 $86,467 $(32,255) $(5,520) $(2,431) $ 3,306 $59,560 $109,216
Net income - - - - - - 3,632 3,632
Change in compre-
hensive income,
net of tax - - - - - (8,739) - (8,739)
Treasury stock
purchased - - (11,410) - - - - (11,410)
Cash dividends - - - - - - (1,960) (1,960)
Stock awards and
options - (25) (47) - 450 - - 378
----------------------------------------------------------------------------------------------------------
Balance at 06/30/99 $89 $86,442 $(43,712) $(5,520) $(1,981) $(5,433) $61,232 $ 91,117
==========================================================================================================
</TABLE>
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 are
referred hereinto collectively as the "Company". The Company also generates
non-interest income such as service fees and also generates data-processing fees
from its data-processing division. The Company's operating expense consists
primarily of employee compensation, occupancy expenses, federal deposit
insurance premiums, data processing expenses, and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
Comparison of Financial Condition at June 30, 1999 and December 31, 1998
- ------------------------------------------------------------------------
The Company's total assets of $875.0 million at June 30, 1999 increased $51.6
million or 6.3% from December 31, 1998. This increase was primarily attributed
to an increase in mortgage-related securities of $46.5 million primarily funded
by increased borrowings of $69.6 million in the first six months of 1999.
Cash and fed funds decreased $9.4 million or 39.9% to $14.1 million at June 30,
1999. These funds were used to purchase investment securities.
Investment securities classified as available for sale increased $2.0 million or
1.2% to $165.1 million at June 30, 1999.
Mortgage-related securities classified as available for sale increased $46.5
million or 17.0% to $319.6 million at June 30, 1999. This was primarily due to
investment of borrowed funds from the Federal Home Loan Bank (the "FHLB") of
Pittsburgh. This was the result of management's continued emphasis on the
utilization of FHLB borrowings to fund asset growth, particularly investments in
mortgage-related securities. FHLB borrowings can be invested at yields higher
than the cost of borrowed funds, thereby increasing net interest income.
There were no securities held by the Company which were classified as `held to
maturity' or `held for trading' for either of the respective periods.
The following table presents details of the Company's investment securities and
mortgage-related securities as of June 30, 1999 (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 $246,780 $1,023 $ (5,482) $242,321
Collateralized mortgage obligations 79,358 91 (2,188) 77,261
Marketable equity securities 38,145 2,344 (1,112) 39,377
US government agency debt 38,735 - (591) 38,144
Corporate obligations 20,031 9 (223) 19,817
Municipal obligations 70,264 179 (2,676) 67,767
- --------------------------------------------------------------------------------------------------------------------------
Total $493,313 $3,646 $(12,272) $484,687
==========================================================================================================================
</TABLE>
8
<PAGE>
The following table presents details of the Company's investment securities and
mortgage-related securities as of December 31, 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 $183,312 $2,707 $ (291) $185,728
Collateralized mortgage obligations 87,913 821 (1,338) 87,396
Marketable equity securities 33,750 2,808 (530) 36,028
US government agency debt 58,689 858 (267) 59,280
Corporate obligations 27,457 345 - 27,802
Municipal obligations 39,863 154 (19) 39,998
- ----------------------------------------------------------------------------------------------------------------------------
Total $430,984 $7,693 $(2,445) $436,232
============================================================================================================================
</TABLE>
Loans receivable increased $4.5 million or 1.4% to $315.1 million at June 30,
1999. This was due to the Company's purchase and origination of mortgage and
consumer loans.
Education loans held for sale increased $1.6 million or 7.8% to $21.6 million
due to originations.
The following table presents details of the Company's loan portfolio (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------------------
<S> <C>
Mortgages:
One to four family residential $235,880 $239,648
Multi-family residential 4,529 5,293
Commercial 12,011 7,329
Construction and development 11,523 2,371
Consumer loans:
Home equity 52,177 54,953
Education loans held for sale 21,600 20,040
Other:
Loans on savings accounts 1,790 2,003
Unsecured personal loans and other 3,090 3,013
- -----------------------------------------------------------------------------------------------
Total $342,600 334,650
Less:
Undisbursed mortgage loans 3,534 1,350
Deferred loan fees 717 968
Allowance for losses 1,602 1,604
- -----------------------------------------------------------------------------------------------
Net loans $336,747 $330,728
===============================================================================================
</TABLE>
Accrued interest receivable increased $394,000 or 6.5% to $6.4 million at June
30, 1999. This was due to an increase in mortgage-related securities purchased
by proceeds from FHLB borrowings.
FHLB stock increased $3.0 million or 26.7% to $14.5 million at June 30, 1999.
The Company 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.
Foreclosed assets decreased $310,000 or 40.9% from December 31, 1998. The
Company is in the process of selling all foreclosed assets.
Prepaid expenses and other assets increased $3.5 million or 36.3% to $13.0
million at June 30, 1999. This was primarily a result of the increase in
deferred income tax assets.
Total deposits decreased $332,000 or less than 1% to $482.2 million at June 30,
1999.
9
<PAGE>
Borrowed funds increased $69.6 million or 31.3% to $292.2 million at June 30,
1999. This was the result of management's continued 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.
Accrued interest payable increased $3.0 million or greater than 100% at June 30,
1999. This was a result of the timing of accrued interest payable being
credited to deposit accounts and increased FHLB borrowings.
Securities purchased and not settled of $1.0 million at June 30, 1999 were
government securities and will settle in July, 1999.
Other liabilities decreased $2.1 million or 52.9% to $1.9 million at June 30,
1999. The change is primarily the result of the tax effect of the decreased
unrealized gains on available for sale securities.
Total shareholders' equity decreased $18.1 million or 16.6% to $91.1 million at
June 30, 1999. This was primarily due to the purchase of $11.4 million of
treasury stock, payment of $2.0 million in cash dividends, $8.7 million decrease
in accumulated other comprehensive income, $3.6 million net income and $378,000
in stock vesting.
Comparison of the Consolidated Results of Operation for the Period of Three
- ---------------------------------------------------------------------------
Months Ended June 30, 1999 and 1998
- -----------------------------------
Net Income. Net income was $2.0 million for the period of three months ended
June 30, 1999, an increase of $148,000 or 8.2% for the same period in 1998.
Interest Income. Interest income totaled $14.1 million for the period of three
months ended June 30, 1999, an increase of $201,000 or 1.4% compared to the
$13.9 million recorded for the period of three months ended June 30, 1998. The
increase was primarily attributable to an increase in the average balances. The
average balances of interest-earning assets for the period of three months ended
June 30, 1999 increased to $848.1 million, an increase of $64.8 million or 8.3%,
compared to the average balance of interest-earning assets of $783.4 million
for the same period in 1998. Weighted average yield on interest-earning assets
for the three month period ended June 30, 1999 was 6.66% compared to 7.10% for
the comparable period in 1998. This was due to a lower interest rate
environment. Interest on loans receivable decreased $83,000 or 1.3% to $6.3
million at June 30, 1999. The average balance increased $11.9 million while the
average yield decreased from 7.75% to 7.38% due to prepayments on higher
yielding loans. Interest on mortgage related securities increased $583,000 or
12.6% to $5.2 million at June 30, 1999. Average balances on mortgage-related
securities increased $49.3 million or 18.5% to $316.2 million while the yield
decreased from 6.93% to 6.58%. This is due to prepayments on higher yielding
securities. Interest on investment securities decreased $244,000 or 8.8% for the
period. Interest on bank deposits decreased $55,000 or 29.6%.
Interest Expense. Total interest expense for the three month period ended June
30, 1999 was $8.3 million, an increase of $335,000 or 4.2% compared to $7.9
million for the same period in 1998. Average balances of interest-bearing
liabilities was $739.2 million for the period of three months ended June 30,
1999 at a weighted average cost of 4.47% compared to averages balance of $672.6
million at a weighted average cost of 4.71% for the period of three months ended
June 30, 1998. The increase in interest expense was primarily due to an
increase in the average balance of interest-bearing liabilities. Average
interest-bearing deposits increased $8.5 million or 1.9% to $453.9 million. The
average rate paid on deposits decreased from 4.16% to 3.89% due to market
environment. Average borrowings increased $58.2 million or 25.9% to $283.4
million for the quarter ending June 30, 1999. 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 investment, mortgage 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, 1999 was $5.9 million, a decrease of
$134,000 or 2.2% , compared to $6.0 million recorded for the same period in
1998.
Provision for Loan Losses. The provision for loan losses during the period of
three months ended June 30, 1999 and 1998 was $90,000. The provision reflects
the 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 assets was 0.47% and 113%,
respectively, at June 30, 1999 and as compared to 0.46% and 105%, respectively
at June 30, 1998. The allowance
10
<PAGE>
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, 1999 non-interest income was $824,000, compared to $888,000 recorded for the
same period in 1998. The decrease is primarily due to the amount of securities
and loan gains.
Non-interest Expense. Total non-interest expense was $4.0 million for the three
month period ending June 30, 1999 and $4.1 million for the same period in 1998.
Income Tax Expense. Income tax expense of $620,000 for the three months ended
June 30, 1999 resulted in an effective tax rate of 24.1%. The income tax
expense recorded for the period of three months ended June 30, 1998 of $890,000
is an effective tax rate of 33.1%. This decrease in effective rate is due to
the additional purchases of bank qualified municipal bonds.
Comparison of the Consolidated Results of Operation for the Period of Six
- --------------------------------------------------------------------------
Months Ended June 30, 1999 and 1998
- -----------------------------------
Net Income. Net income was $3.6 million for the period of six months ended June
30, 1999, a decrease of $100,000 or 2.7% for the same period in 1998. This was
primarily due to a decrease in net interest income due to compression in net
interest rate spread.
Interest Income. Interest income totaled $27.5 million for the period of six
months ended June 30, 1999, a decrease of $495,000 or 1.8% compared to the
$28.0 million recorded for the period of six months ended June 30, 1998. The
decrease was primarily attributable to a decrease in the yield. The average
balances of interest-earning assets for the period of six months ended June 30,
1999 increased to $827.5 million, an increase of $54.1 million or 7.0%, compared
to the average balance of interest-earning assets of $773.4 million for the same
period in 1998. Weighted average yield on interest-earning assets for the six
month period ended June 30, 1999 was 6.85% compared to 7.23% for the comparable
period in 1998. This was due to a lower interest rate environment. Interest on
loans receivable decreased $422,000 or 3.3% to $12.5 million at June 30, 1999.
The average balance increased $13.0 million while the average yield decreased
from 7.93% to 7.38% due to prepayments on higher yielding loans. Interest on
mortgage related securities increased $257,000 or 2.7% to $9.7 million at June
30, 1999. Average balances on mortgage-related securities increased $30.4
million or 11.3% to $299.7 million while the yield decreased from 7.03% to
6.49%. This is due to prepayments on higher yielding securities. Interest on
investment securities decreased $326,000 or 6.2% for the period. Interest on
bank deposits was substantially unchanged for the period.
Interest Expense. Total interest expense for the six month period ended June
30, 1999 was $16.1 million, an increase of $427,000 or 2.7%, compared to $15.7
million for the same period in 1998. Average balances of interest-bearing
liabilities was $718.7 million for the period of six months ended June 30, 1999
at a weighted average cost of 4.47% compared to average balance of $664.9
million at a weighted average cost of 4.71% for the period of six months ended
June 30, 1998. The increase in interest expense was due to an increase in the
average balance of interest-bearing liabilities despite lower rates. Average
interest bearing deposits increased $8.3 million or 1.9% to $452.4 million. The
average rate paid on deposits decreased from 4.17% to 3.91% due to the market
environment. Average borrowings increased $45.6 million or 20.8% to $264.5
million for the six months ending June 30, 1999. 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 investment, 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, 1999 was $11.4 million, a decrease of
$922,000 or 7.5%, compared to $12.3 million recorded for the same period in
1998.
Provision for Loan Losses: The provision for loan losses during the period of
six months ended June 30, 1999 was $150,000 as compared to $180,000 for the
same period in 1998. The provision reflects the continued purchases of
11
<PAGE>
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 assets was 0.47% and 113%, respectively at June 30, 1999 and as
compared to 0.46% and 105%, respectively at June 30, 1998. 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,
1999 non-interest income was $1.6 million, compared to $1.7 million recorded for
the same period in 1998.
Non-interest Expense. Total non-interest expense was $8.1 million for the six
month period ending June 30, 1999 and 1998.
Income Tax Expense. Income tax expense of $1.2 million for the six months ended
June 30, 1999 resulted in an effective tax rate of 24.4%. The income tax
expense recorded for the period of six months ended June 30, 1998 of $1.9
million is an effective tax rate of 34.1%. This decrease in effective rate is
due to the additional purchases of bank qualified municipal bonds.
12
<PAGE>
Average Balance Sheets and Analysis of Net Interest Income
- ----------------------------------------------------------
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the volume of interest-earning assets and interest-bearing liabilities and
the rates earned or paid on them. The following table presents certain
information relating to the Company's average consolidated statements of
financial condition and consolidated statements of income for the period of
three months ended June 30, 1999 and 1998. 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, 1999
and June 30, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Three Months Ended June 30, 1998
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits $ 14,583 $ 131 3.59% $ 12,892 $ 186 5.77%
Investment securities, net (1) (2) 164,268 2,298 6.75% 165,272 2,586 6.26%
Loans receivable, net (1) (3) 338,899 6,251 7.38% 326,991 6,334 7.75%
Mortgage-related securities, net (1) 316,153 5,204 6.58% 266,850 4,621 6.93%
FHLB stock & other equity investments 14,237 228 6.41% 11,353 184 6.48%
----------------------------------------------------------------------------------
Total interest-earning assets $ 848,140 $14,112 6.66% 783,358 $13,911 7.10%
Non-interest earning assets 26,115 35,250
--------- ----------
Total assets $ 874,255 $ 818,608
========= ==========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 15,341 $ 114 2.97% $ 14,610 $ 78 2.14%
Passbook accounts 162,463 972 2.39% 160,702 1,102 2.74%
NOW accounts 35,872 155 1.73% 32,363 135 1.67%
Certificate accounts 240,272 3,174 5.28% 237,735 3,321 5.59%
----------------------------------------------------------------------------------
Total $ 453,948 $ 4,415 3.89% 445,410 4,636 4.16%
Borrowed Funds 283,401 3,828 5.40% 225,189 3,271 5.81%
Other 1,803 8 1.77% 1,999 9 1.80%
----------------------------------------------------------------------------------
Total interest-bearing liabilities $ 739,152 $ 8,251 4.47% 672,598 $ 7,916 4.71%
Non-interest bearing liabilities 35,685 33,675
Shareholders' equity 99,418 112,335
--------- ----------
Total liabilities and shareholders' equity $ 874,255 $ 818,608
========= ==========
Net interest rate spread (4) $ 5,861 2.19% $ 5,995 2.39%
Net interest margin (5) 2.99% 3.06%
Ratio of interest-earning assets to
interest-bearing liabilities 114.75% 116.47%
</TABLE>
(1) Average balance includes related assets available for sale and unamortized
discounts and premiums.
(2) Includes municipal obligations and yield stated is fully taxable equivalent.
(3) 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.
(4) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest earning assets.
13
<PAGE>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1999
and June 30, 1998 (Dollars in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Six Months Ended June 30, 1998
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits $ 14,827 $ 331 4.46% $ 11,421 $ 335 5.87%
Investment securities, net (1) (2) 161,393 4,507 6.69% 156,403 4,901 6.27%
Loans receivable, net (1) (3) 338,107 12,470 7.38% 325,144 12,892 7.93%
Mortgage-related securities, net (1) 299,706 9,723 6.49% 269,269 9,466 7.03%
FHLB stock & other equity investments 13,507 424 6.28% 11,188 356 6.36%
-----------------------------------------------------------------------------------
Total interest-earning assets $ 827,540 $ 27,455 6.85% 773,425 $ 27,950 7.23%
Non-interest earning assets 30,820 35,143
---------- ----------
Total assets $ 858,360 $ 808,568
========== ==========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 14,754 $ 218 2.96% $ 14,814 $ 169 2.28%
Passbook accounts 161,332 1,924 2.39% 160,566 2,201 2.74%
NOW accounts 34,715 305 1.76% 31,443 279 1.77%
Certificate accounts 241,616 6,403 5.30% 237,263 6,601 5.56%
-----------------------------------------------------------------------------------
Total $ 452,417 $ 8,850 3.91% 444,086 9,250 4.17%
Borrowed Funds 264,494 7,213 5.45% 218,902 6,385 5.83%
Other 1,749 17 1.94% 1,913 18 1.88%
-----------------------------------------------------------------------------------
Total interest-bearing liabilities $ 718,660 $ 16,080 4.47% 664,901 $ 15,653 4.71%
Non-interest bearing liabilities 36,287 31,619
Shareholders' equity 103,413 112,048
---------- ----------
Total liabilities and shareholders' equity $ 858,360 $ 808,568
========== ==========
Net interest rate spread (4) $ 11,375 2.38% $ 12,297 2.52%
Net interest margin (5) 2.97% 3.18%
Ratio of interest-earning assets to
interest-bearing liabilities 115.15% 116.32%
</TABLE>
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Includes municipal obligations and yield stated is fully taxable
equivalent.
(3) 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.
(4) Net interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
(5) Net interest margin represents net interest income divided by average
interest earning assets.
14
<PAGE>
Allowance for Loan Losses
- -------------------------
The following table sets forth the changes in the allowance for loan losses for
the six months ended June 30, 1999 (dollars in thousands):
Balance, December 31, 1998 $1,604
Provision for loan losses 150
Net charge-offs (152)
------
Balance, June 30, 1999 $1,602
======
Non-Performing Assets
- ---------------------
The following table presents information regarding the Association's
non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
--------------------------
(dollars in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans $970 $1,426
Accruing loans which are contractually
past due 90 days or more - -
Restructured loans - -
- ----------------------------------------------------------------------------------------------------
Total non-performing loans $920 $1,426
Real estate owned 448 550
- ----------------------------------------------------------------------------------------------------
Total non-performing assets $1,418 $1,976
====================================================================================================
Non-performing assets as a % of gross loans receivable .41% .44%
Non-performing assets to total assets .16% .17%
Allowance for loan loss as a % of gross loans receivable .47% .46%
Allowance for loan loss to non-performing assets 113% 105%
</TABLE>
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits; principal and interest
payments on loans, 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-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 4%. The Association's liquidity for the
month of June 30, 1999 was 50.63% . 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, 1999, the Association had commitments to originate loans of $1.2
million and to purchase mortgage-related securities of $25.0 million. The
Association anticipates that it will have sufficient funds available to meet
these commitments.
At June 30, 1999, 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 7.96%. Tier I capital to risk-based assets requirement
is 4.00% and the Association had 22.04%. The total capital to risk-based assets
requirement is 8.00% and the Association had 22.82%.
15
<PAGE>
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. 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.
In 1998, the Company's data processing division, DataOne Financial Systems
(DataOne), began to address the risks associated with the coming millennium. A
full conversion of all data files and programs was successfully implemented in
January, 1999.
Additionally, the Company is utilizing internal resources to examine all
personal computer hardware and software and all other company environmental
systems that are dependent on embedded microchips to ensure Year 2000
compliance. The Company is conducting a Year 2000 compliance review of its
third-party vendors, including utility companies, and service bureaus for its
ancillary computer operations. The Company completed all third party mission
critical vendor testing and validation by July 31, 1999. 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 has expended approximately $200,000 to date on
Year 2000 issues and estimates it will incur additional costs of approximately
$100,000 to remediate its Year 2000 issues.
The Company believes it has an effective plan in place to resolve the Year 2000
issue in a timely manner and, thus far, activities have tracked in accordance
with the original timeline. The Company is in the process of modifying its
existing business resumption plans and is also developing contingency plans to
address potential risks in the event of Year 2000 failures, including
non-compliance by third parties. However, it should be noted that the Company
completed all third party mission critical vendor testing and validation by July
31, 1999. Despite the Company's efforts to date to remediate affected systems
and develop contingency plans for potential risks, the Company could be
materially adversely affected as a result of not being able to conduct its core
business activities in a timely manner for any reason. In addition,
non-compliance by third parties (including loan customers) and disruptions to
the economy in general resulting from Year 2000 issues could also have a
undetermined negative impact on the Company.
The Company has made its customers aware of Year 2000 issues through the use of
account statement inserts in May of 1998 and has made additional information
available at all of it's branch locations, beginning in November, 1998.
Private Securities and Litigation Reform Act Safe Harbor Statement. This report
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company and the subsidiaries include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's 1998 Form 10-K filing.
The Company does not undertake--and specifically disclaims any obligation--to
publicly release the result of any revisions which may be made to
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
16
<PAGE>
Other Developments
- ------------------
The Board of Directors declared a dividend of $.16 per share to stockholders of
record on August 6, 1999, payable on August 20, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------- ----------------------------------------------------------
Management is responsible for monitoring and limiting the Company's exposure to
interest rate risk within established guidelines while maximizing net interest
income. During the first half of 1999, the Company's interest rate risk position
grew more liability sensitive. The change in position primarily resulted from an
increase in interest rates. The Company continued to purchase investment
securities during the first half of 1999 which are financed by FHLB borrowings.
The Company will continue to monitor the Company's interest rate sensitivity
with the primary objective to prudently structure the balance sheet so that
movements of interest rates on assets and liabilities are highly correlated and
produce a reasonable net interest margin even in periods of volatile interest
rates. Further discussion on market risk is in the Company's December 31, 1998
SEC Form 10-K filing.
17
<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
- ------- -----------------
The Board of Directors declared a dividend of $.16
per share to stockholders of record on August 7,
1999, payable on August 20, 1999.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Exhibit 27 - Financial Data Schedule
18
<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 2, 1999 By /s/ John M. Kish
-------------------- ----------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date August 2, 1999 By /s/ Raymond G. Suchta
--------------------- ----------------------------------------
Raymond G. Suchta
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999
SECOND 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,285
<INT-BEARING-DEPOSITS> 8,825
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 484,687
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 338,349
<ALLOWANCE> 1,602
<TOTAL-ASSETS> 874,970
<DEPOSITS> 482,216
<SHORT-TERM> 64,160
<LIABILITIES-OTHER> 9,477
<LONG-TERM> 228,000
0
0
<COMMON> 89
<OTHER-SE> 91,028
<TOTAL-LIABILITIES-AND-EQUITY> 874,970
<INTEREST-LOAN> 12,470
<INTEREST-INVEST> 14,985
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,455
<INTEREST-DEPOSIT> 8,850
<INTEREST-EXPENSE> 16,080
<INTEREST-INCOME-NET> 11,375
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 131
<EXPENSE-OTHER> 8,066
<INCOME-PRETAX> 4,802
<INCOME-PRE-EXTRAORDINARY> 4,802
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,632
<EPS-BASIC> .60
<EPS-DILUTED> .59
<YIELD-ACTUAL> 6.85
<LOANS-NON> 1,418
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,604
<CHARGE-OFFS> 154
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,602
<ALLOWANCE-DOMESTIC> 1,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
