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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File No.: 1-14154
GA FINANCIAL, INC.
(exact name of registrant as specified in its charter)
DELAWARE 25-1780835
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4750 Clairton Boulevard, Pittsburgh, Pennsylvania 15236
(Address of principal executive offices)
Registrant's telephone number, including area code: (412) 882-9946
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act: None
The American Stock Exchange
(Name of exchange on which registered)
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 .
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than the directors and executive officers of
the registrant, was $63,908,190 based upon the last sales price as listed on The
American Stock Exchange for March 7, 2000.
The number of shares of Common Stock outstanding as of March 7, 2000 is:
6,012,059.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December
31, 1999, are incorporated by reference into Part II of this Form 10-K.
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-K.
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INDEX
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PAGE
PART I
<S> <C> <C>
Item 1. Business....................................................... 1
Additional Item. Executive Officers of the Registrant.................... 37
Item 2. Properties..................................................... 37
Item 3. Legal Proceedings.............................................. 38
Item 4. Submission of Matters to a Vote of Security Holders............ 38
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................ 38
Item 6. Selected Financial Data........................................ 38
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 38
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 38
Item 8. Financial Statements and Supplementary Data.................... 38
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant............. 39
Item 11. Executive Compensation......................................... 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................. 39
Item 13. Certain Relationships and Related Transactions................. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................... 40
SIGNATURES
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Item 1. Business.
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General
GA Financial, Inc. (the "Company") was incorporated under Delaware law in
December 1995. The Company completed its initial public offering of 8,900,000
shares of common stock on March 26, 1996 in connection with the conversion of
Great American Federal Savings and Loan Association (the "Association") from the
mutual to stock form of ownership. GA Financial, Inc. is the parent company of
the Association and New Eagle Capital, Inc. The Association is a federally
chartered savings and loan association and is wholly-owned by the Company. The
Company is a savings and loan holding company and is subject to regulation by
the Office of Thrift Supervision ("OTS"), the Federal Deposit Insurance
Corporation ("FDIC") and the Securities and Exchange Commission ("SEC").
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. As of December 31, 1999, the
Company had total assets of $883.0 million, total deposits of $495.1 million and
total stockholders' equity of $84.6 million.
The Association was originally chartered in 1914. The Association's
principal business is to operate a customer oriented savings and loan
association. The Association attracts retail deposits from the general public
in its primary market area and invests those funds primarily in fixed-rate one-
to four-family owner-occupied mortgage loans, consumer loans and investment,
mortgage-backed and mortgage-related securities. To a lesser extent, the
Association invests in construction and development loans, multi-family loans
and commercial real estate loans. The Association's revenues are derived
principally from interest on mortgage loans and interest and dividends on
investment, mortgage-backed and mortgage-related securities and, to a much
lesser extent, short-term investments and other fees and services charges. The
Association's primary source of funds is retail deposits, loan repayments and
borrowed funds from the Federal Home Loan Bank.
The Company's and Association's executive offices are located at 4750
Clairton Boulevard, Pittsburgh, Pennsylvania 15236. The telephone number is
(412) 882-9946. As of December 31, 1999, the Association had 207 full-time
equivalent employees. The employees are not represented by a collective
bargaining unit and the Association considers its relations with its employees
to be good.
Market Area and Competition
The Association has been, and continues to be, a community-oriented savings
institution offering a variety of financial services to meet the needs of the
communities which it serves. Its primary market area is the areas surrounding
its branch offices while its lending activities include areas throughout
Allegheny, Beaver, Butler, Fayette, Washington and Westmoreland Counties,
Pennsylvania. In addition to its principal office in Whitehall, the Association
operates fourteen other retail offices, all of which are located in the southern
and eastern suburbs of the Pittsburgh greater metropolitan area in Allegheny and
Westmoreland Counties. The earnings of the Association are affected by the
competitive, economic and regulatory environment in which the savings industry
operates. The Association competes actively with national and local banks,
brokerage firms, mutual fund companies and other financial service entities.
Lending Activities
Loan Portfolio Composition. The Association's loan portfolio primarily
consists of first mortgage loans secured by one- to four-family residences and
consumer loans (consisting of home equity loans and education loans) and, to a
much lesser extent, multi-family loans, residential construction and development
loans, commercial real estate loans and other loans. As of December 31, 1999,
the Association had total
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loans outstanding of $358.8 million, of which $256.2 million were one- to four-
family residential mortgage loans, or 71.4% of the Association's total loans. At
such date, the remainder of the Association's loan portfolio consisted of $72.0
million of consumer loans, or 20.1% of total loans; $4.4 million of multi-family
residential loans, or 1.2% of total loans; $3.7 million of construction and
development loans, or 1.0% of total loans; $17.6 million of commercial real
estate loans, or 4.9% of total loans; and $5.0 million of other loans, or 1.4%
of total loans. At that same date, 4.3% of the Association's mortgage loans had
adjustable interest rates. The Association's one- to four-family mortgage loan
portfolio, as a percentage of total assets has remained relatively stable from
29.1% of total assets as of December 31, 1998 to 29.0% of total assets as of
December 31, 1999. The Association has attempted to offset the decline in demand
for one- to four-family mortgage loans secured by properties located in the
Association's market area by purchasing such loans secured by properties outside
of its primary market area. During the year ended December 31, 1999, the
Association purchased $57.6 million of such loans primarily secured by
properties located in the northeast, midwest and south.
The types of loans that the Association may originate are subject to
federal and state laws and regulations. Interest rates charged by the
Association on loans are affected by the demand for such loans and the supply of
money available for lending purposes and the rates offered by competitors.
These factors are, in turn, affected by, among other things, economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, and legislative tax policies.
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The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio as of the dates
indicated.
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------- ------------------- ------------------ ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- ---------- -------- ---------- -------- ---------- ------- ---------- ------- ----------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family........ $256,172 71.39% $239,648 71.62% $215,024 69.37% $178,234 75.89% $122,509 66.79%
Multi-family............... 4,405 1.23 5,293 1.58 5,778 1.86 6,727 2.87 7,208 3.93
Commercial................. 17,592 4.90 7,329 2.20 4,360 1.41 5,053 2.15 3,290 1.79
Construction and
development............... 3,658 1.02 2,371 0.70 2,966 0.96 3,545 1.51 5,891 3.21
Consumer loans:
Home equity................ 52,819 14.72 54,953 16.43 59,111 19.07 22,153 9.43 20,151 10.99
Education.................. 19,158 5.34 20,040 5.99 18,853 6.08 15,383 6.55 20,766 11.32
Other:
Unsecured personal
loans..................... 3,280 0.91 2,930 0.87 1,594 0.51 1,534 0.65 1,250 0.68
Loans on savings........... 1,725 0.48 2,003 0.59 2,168 0.70 2,062 0.88 2,159 1.18
accounts..................
Other loans................ 37 0.01 83 0.02 125 0.04 164 0.07 199 0.11
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans................. 358,846 100.00% 334,650 100.00% 309,979 100.00% 234,855 100.00% 183,423 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less:
Undisbursed loan funds..... (2,905) (1,350) (688) (684) (1,363)
Deferred loan fees......... (701) (968) (1,442) (1,381) (963)
Allowance for loan
losses.................... (1,731) (1,604) (1,322) (1,031) (822)
-------- -------- -------- -------- --------
Total loans, net............ $353,509 $330,728 $306,527 $231,759 $180,275
======== ======== ======== ======== ========
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Loan Maturity. The following table shows the remaining contractual
maturity of the Association's loans as of December 31, 1999. As of December 31,
1999, all of the Association's loans, except for education loans, were
categorized as held for investment. The table does not include the effect of
future principal prepayments. Principal prepayments and scheduled principal
amortization on loans totaled $59.7 million, $65.8 million and $52.2 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------------------------------------------
One- to Construction Total
Four- Multi- and Loans
Family Family Commercial Development Consumer Other Receivable
---------- ------- ----------- ------------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Amounts due:
One year or less............................ $ 60 $ -- $ 3 $3,658 $ 98 $2,426 $ 6,245
-------- ------ ------- ------------ ------- ------ --------
After one year:
More than one year to three years......... 752 -- 39 -- 578 347 1,716
More than three years to five years....... 1,942 79 102 -- 25,135 1,629 28,887
More than five years to 10 years.......... 15,633 -- 9,992 -- 22,740 403 48,768
More than 10 years to 20 years............ 42,750 4,326 757 -- 4,268 237 52,338
More than 20 years........................ 195,035 -- 6,699 -- -- -- 201,734
-------- ------ ------- ------------ ------- ------ --------
Total due after December 31, 2000......... 256,112 4,405 17,589 -- 52,721 2,616 333,443
-------- ------ ------- ------------ ------- ------ --------
Total amount due.......................... $256,172 $4,405 $17,592 $3,658 $52,819 $5,042 $339,688
======== ====== ======= ============ ======= ====== ========
Less:
Undisbursed loan funds............................................................................... (2,905)
Deferred loan fees, net.............................................................................. (701)
Allowance for loan losses............................................................................ (1,731)
Total loans, net......................................................................................... $334,351
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The following table sets forth as of December 31, 1999 the dollar amount of
loans contractually due after December 31, 2000, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
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Due After December 31, 2000
--------------------------------------
Fixed Adjustable Total
----- ---------- -----
<S> <C> <C> <C>
(In thousands)
Mortgage loans:
One- to four-family............ $245,160 $10,952 $256,112
Multi-family................... 4,405 -- 4,405
Construction and development... -- -- --
Commercial..................... 17,534 55 17,589
Consumer loans:
Home equity.................... 52,066 655 52,721
Education...................... 19,158 -- 19,158
Other Loans:
Unsecured personal loans....... 219 2,360 2,579
Loans on savings accounts...... -- -- --
Other loans.................... 37 -- 37
-------- ------- --------
Total loans receivable............ $338,579 $14,022 $352,601
======== ======= ========
</TABLE>
Origination, Sale, Servicing and Purchase of Loans. The Association's
mortgage origination lending activities are conducted by loan personnel at its
fifteen full service branch offices. Although the Association offers both
adjustable-rate and fixed-rate mortgage loans, the substantial majority of the
Association's loan originations have been fixed-rate mortgage loans. The
Association's ability to originate loans is dependent upon the relative customer
demand for fixed-rate or adjustable-rate mortgage loans, which is affected by
the current and expected future level of interest rates. The Association has
not emphasized the origination of adjustable-rate mortgage loans due to the
relatively low demand for such loans in the Association's primary market area
and aggressive pricing by competitors offering such loans. While the
Association generally retains for its portfolio all of the mortgage loans that
it originates, the Association may, in the future, sell mortgage loans that it
originates depending on market conditions and the financial condition of the
Association. As of December 31, 1999, there were no mortgage loans categorized
as held for sale. Due to the low demand for mortgage loans secured by properties
in its primary market area, the Association has emphasized the purchase of
single-family owner-occupied mortgage loans which are primarily secured by
properties located outside of the Association's primary market area, such as the
northeast, midwest and south. In addition, in response to the low demand for
one- to four-family mortgage loans in its primary market area, the Association
has also emphasized the origination of consumer loans consisting of home equity
loans and education loans. The Association intends to continue purchasing
single-family owner-occupied loans to supplement reduced loan demand as needed.
Loans purchased by the Association generally must meet the same underwriting
criteria as loans originated by the Association. Loans purchased by the
Association are generally funded by the Association (not table funded), closed
in the name of the correspondent financial institution and immediately assigned
to the Association, and are generally purchased by the Association on a
servicing released basis. As of December 31, 1999, the Association had $225.2
million of loans serviced by others. $39.9 million of purchased mortgage loans
during 1999, or 69.3% of such loans, were purchased from one mortgage lender
affiliated with a residential development company.
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One- to Four-Family Residential Mortgage Lending. The Association offers
residential mortgage loans primarily secured by owner-occupied one- to four-
family residences. Loan originations are generally obtained from existing or
past customers, members of the local communities served, or referrals from local
real estate agents, attorneys and builders. The Association primarily
originates fixed-rate loans, but also offers adjustable-rate mortgage ("ARM")
loans. As of December 31, 1999, one- to four-family mortgage loans totalled
$256.2 million, or 71.4% of total loans. Of the Association's mortgage loans
secured by one-to four-family residences, $245.2 million, or 95.7%, were fixed-
rate loans.
The Association originates mortgage loans for its own portfolio.
Originated mortgage loans are secured by properties located within the
Association's primary market area of Allegheny, Beaver, Butler, Fayette,
Washington and Westmoreland Counties, Pennsylvania. The Association's one- to
four-family mortgage loan portfolio has increased 6.9% from $239.6 million, or
29.1% of total assets and 71.6% of total loans, as of December 31, 1998 to
$256.2 million, or 29.0% of total assets and 71.4% of total loans, as of
December 31, 1999 as a result of an increase in loan purchases to offset the
decrease in one- to four-family mortgage loan demand in the Association's
primary market area.
The Association also presently offers one year ARM loans. One-year ARM
loans have interest rates that adjust annually based on a spread of 275 basis
points above the weekly average yield of the one year CMT Index, subject to a
limitation on interest rate increases and decreases of 2.0% per year, a lifetime
ceiling on interest rate increases of 6.0% above the origination rate, and a
floor on interest rate decreases of 4.0% below the origination rate. The
Association offers these loans with conversion features whereby the loan may be
converted to a fixed-rate loan one time during the first five years of the loan.
The Association's ARM loans are offered with terms of up to 30 years.
The volume and types of ARM loans originated by the Association have been
affected by such market factors as the level of interest rates, competition,
consumer preferences and the availability of funds. In recent years, demand for
ARM loans has been weak due to the low interest rate environment and consumer
preference for fixed-rate loans. In addition, management's strategy has been to
emphasize fixed-rate loans. Therefore, the Association has not offered
competitive interest rates on its ARM loans.
The Association has not sold one- to four-family mortgage loans in the
secondary market. Mortgage loans that are originated by the Association are
underwritten in conformity with FNMA secondary market requirements. The
Association has been approved by the FNMA to sell mortgage loans in the
secondary market, and may sell loans to FNMA in the future.
Generally, with the exception of its community loan programs, the
Association's maximum loan-to-value ("LTV") ratio on one- to four-family
mortgage loans is 95%. However, loans with LTV ratios in excess of 80% require
the borrower to obtain private mortgage insurance ("PMI"). The Association's
one-to four-family residential mortgage loans do not provide for negative
amortization. Mortgage loans in the Association's portfolio generally include
due-on-sales clauses, which provide the Association with the contractual right
to demand the loan immediately due and payable in the event the borrower
transfers ownership of the property that is subject to the mortgage. The
maximum one- to four-family loan amount is $450,000 unless otherwise approved by
the Board.
In an effort to provide financing for low and moderate income home buyers,
the Association participates in various Community Loan Programs. These programs
offer single-family residential mortgage loans to residents of the CRA
delineated lending areas. These loans are offered with terms of up to 30 years.
Such loans must be secured by a single-family owner-occupied unit. These loans
are originated using
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modified underwriting guidelines with reduced down payments and loan fees. Such
loans are originated in amounts up to 97% of the lower of the property's
appraised value or the sale price. Because the Association typically charges a
lower rate of interest, lower mortgage origination fees and a discount on
closing costs on its Community Loan Programs, the Association expects to achieve
a lower rate of return on such loans, as compared to other residential mortgage
loans. During 1999 the Association originated 21 community loans totalling $1.1
million.
The Association offers full-time employees of the Association, other than
executive officers and directors, who satisfy certain criteria and the general
underwriting standards of the Association fixed and adjustable-rate mortgage
loans with interest rates which are currently below the rates offered to the
Association's other customers, the Employee Mortgage Rate ("EMR"). The EMR is
limited for the purchase, construction or refinance of an employee's single-
family owner-occupied primary residence. When the LTV ratio does not exceed 95%
(80% in the case of refinance loans), the EMR is generally no less than the
Association's overall cost of funds rounded up to the next quarter percentage
point, with a minimum EMR of 6.25%. Additionally, loan origination fees are
waived for all EMR loans. The EMR normally ceases upon termination of
employment or if the property no longer is the employee's primary residence.
Upon termination of the employee, the interest rate reverts to the contract rate
in effect at the time that the loan was extended. All other terms and
conditions contained in the original mortgage and note continue to remain in
effect. As of December 31, 1999, the Association had $2.8 million of total EMR
loans, or 0.8% of total loans.
Construction and Development Lending. The Association originates three
types of construction and development loans for the construction and development
of one- to four-family properties: (1) acquisition and development loans to
qualified developers; (2) loans and lines of credit to qualified builders; and
(3) construction/permanent financing for other individuals. As of December 31,
1999, the Association had $3.7 million of construction and development loans
which constituted 1.0% of the Association's total loan portfolio.
The Association originates loans for the acquisition and development of
one- to four-family properties located in its primary market area. The
Association's acquisition and development loans primarily have been made to
finance the construction of single-family, owner-occupied residential
properties. These loans are offered with adjustable-rates and maturities of
four years or less. Acquisition and development mortgage loans are originated
with maximum LTV ratios of 65% for the acquisition of the raw land and 75% for
the development of the property. Generally, the maximum loan amount for the
acquisition of the land is $350,000 and the maximum loan amount for construction
and development is $1.0 million. Proceeds of such loans are dispersed as phases
of the construction are completed. Generally, if the borrower is a corporation,
partnership or other business entity, personal guarantees by the principal
borrowers are required. However, personal guarantees may not be required on such
loans depending on the creditworthiness of the borrower and amount of the
downpayment.
The Association also offers loans and lines of credit to qualified builders
for the construction of single-family detached residences located in the
Association's primary market area, except that the lines of credit are limited
to properties located in the counties of Allegheny and Westmoreland,
Pennsylvania. Such loans and lines of credit are only available to certain
local contractors on the Association's approved list of contractors, and require
that the Association be in a first lien position and limit each loan and line of
credit to the construction of one single-family residence. Such builder's loans
are originated with a maximum LTV ratio of 80%. The maximum borrowing limit for
such lines of credit is the lesser of $150,000 or 80% of the proposed selling
price of the property as completed. Upon the completion and sale of the
property, the outstanding balance of such loan or line of credit is required to
be repaid. Prior to that time, the borrower
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is required to remit monthly payments of interest only. The Association
generally requires personal and/or corporate guarantees on such loans and lines
of credit.
The Association also originates construction/permanent loans to individual
borrowers for the construction of single-family owner-occupied residential
properties. The Association's underwriting standards and procedures for
residential construction/permanent financing are similar to those applicable for
one- to four-family residential mortgage lending. Proceeds of these loans are
dispersed as phases of the construction are completed. All such loans are
converted to a one- to four-family mortgage loan upon completion of the
construction.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development and market demand for similar properties.
Moreover, because of the uncertainties inherent in estimating construction
costs, delays resulting from labor problems, material shortages or weather
conditions and other unpredictable contingencies, it is relatively difficult to
evaluate accurately the total funds required and to establish the related LTV
ratio. If the estimate of value proves to be inaccurate, the Association may be
confronted with a project, if not completed, having a value which is
insufficient to assure full repayment.
Multi-Family Lending. The Association originates multi-family mortgage
loans generally secured by five to one hundred unit apartment buildings located
in the Association's primary market area. Pursuant to the Association's current
underwriting policies, a multi-family mortgage loan may only be made in an
amount up to 80% of the appraised value of the underlying property. In
addition, the Association generally requires a debt service coverage of 120%.
Properties securing these loans are appraised by an independent appraiser and
title insurance is required on all such loans. As of December 31, 1999, multi-
family loans totalled $4.4 million, or 1.2% of the Association's total loan
portfolio.
The Association also has, from time to time, purchased loan participations
in multi-family real estate loans, most of which are located outside of its
primary market area. Loan participation interests are subject to the same
underwriting criteria as loans originated by the Association. As of December
31, 1999, the Association had no multi-family real estate loan participation
interests.
When determining whether to originate a multi-family loan, the Association
considers many factors including: the net operating income of the mortgaged
premises before debt service and depreciation; the debt service coverage (the
ratio of net operating income to debt service); and the ratio of loan amount to
appraised value. When evaluating the qualifications of the borrower for a
multi-family loan, the Association considers the financial resources, the
borrower's experience in owning and managing similar property, and the
Association's lending experience with the borrower. The Association's
underwriting policies require that the borrower be able to demonstrate strong
management skills and the ability to maintain the property from current rental
income. In addition, the borrower is required to present evidence of the
ability to repay the mortgage and a history of making mortgage payments on a
timely basis. In making its assessment of the creditworthiness of the borrower,
the Association generally reviews the financial statements, employment and
credit history of the borrower, as well as other related documentation.
Loans secured by apartment buildings and other multi-family residential
properties are generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
multi-family properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse
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conditions in the real estate market or the economy. The Association seeks to
minimize these risks through its underwriting policies, which require such loans
to be qualified at origination on the basis of the property's income and debt
coverage ratio.
Commercial Real Estate Lending. The Association also offers commercial
real estate loans that are secured by properties generally used for business
purposes such as small office buildings, retail facilities, shopping centers,
motels and hotels and industrial properties located in the Association's primary
market area. The Association's underwriting standards and procedures are
similar to those applicable to multi-family loans, whereby the Association
considers the net operating income of the property and the borrower's expertise,
credit history and profitability. Generally, all commercial real estate loans
made to corporations, partnerships and other business entities require personal
guarantees by the principal borrowers. On an exception basis, the Association
may not require a personal guarantee on such loans depending on the
creditworthiness of the borrowers and the amount of the downpayment. The
Association's commercial real estate loan portfolio as of December 31, 1999 was
$17.6 million, or 4.9% of total loans. The Association, from time to time,
purchases loan participations in commercial real estate loans located outside of
its primary market area. Loan participation interests are subject to the same
underwriting criteria as loans originated by the Association. As of December
31, 1999, the Association had $1.4 million in commercial real estate loan
participation interests, or 7.8% of commercial real estate loans and 0.4% of
total loans.
Loans secured by commercial real estate properties, like multi-family
loans, are generally larger and involve a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a great
extent of the then prevailing conditions in the real estate market or the
economy. The Association seeks to minimize these risks through its underwriting
standards.
Consumer Lending. The Association also offers both secured and unsecured
consumer loans. Consumer loans consist of home equity lines of credit and
installment loans and education loans. As of December 31, 1999, the
Association's consumer loans amounted to $72.0 million, or 20.1% of the
Association's total loan portfolio. Home equity loans are generally only
available to the residents of Allegheny, Beaver, Butler, Fayette, Washington and
Westmoreland Counties, Pennsylvania.
The Association's home equity lines of credit are offered as revolving
lines of credit with interest rates that range from .49% to 2.49% above the
prime rate of interest as published by The Wall Street Journal and adjust
monthly but which are capped at 17.99%. The Association's home equity
installment loans are offered on a fixed-rate basis only with terms of one to
fifteen years. Both types of home equity loans are offered in minimum amounts
of $5,000. The home equity lines of credit are offered to a maximum amount of
the lesser of $100,000 or 90% of the appraised value of the property. Home
equity installment loans are offered to a maximum amount of the lesser of
$150,000 or 90% of the appraised value of the property. Certain "Class B" home
equity installment loans are offered to a maximum amount of 90% of the appraised
value of the property, with an overall maximum of $100,000. A "Class B" home
equity installment loan is one in which the borrower uses the equity in his or
her existing residence to finance the acquisition of improved land and the
construction of a new primary residence. As of December 31, 1999, home equity
loans totalled $52.8 million, or 73.4% of consumer loans and 14.7% of the
Association's total loans.
With respect to education lending, the Association participates in the
United States Department of Education (the "DOE") Title IV loan programs
commonly referred to as the Federal Family Education Loan Programs ("FFELP").
The loans in this program that the Association participates in include the
Federal Subsidized Stafford Loan, the Federal Un-Subsidized Stafford Loan and
the Federal Parent Loan to
9
<PAGE>
Undergraduate Students (PLUS) Loan. All FFELP loans that were disbursed prior to
October 1, 1993 are 100% guaranteed as to principal and interest by the full
faith of the United States Government if serviced properly. Loans disbursed
after October 1, 1993 are guaranteed to at least 98% of principal plus eligible
interest by the full faith of the United States Government if serviced properly.
Under certain circumstances loans guaranteed at the 98% level will be insured to
the 100% level.
Education loans held by the Association are administrated and guaranteed by
one of two agencies: the Pennsylvania Higher Education Assistance Agency
("PHEAA") or the USA Group. Federal regulations as established by DOE apply to
both agencies equally. The Association underwrites, operates and administrates
participation in the FFELP under the policies and procedures outlined in the
common manual of unified student loan policy for loans guaranteed by each
agency. As of December 31, 1999, education loans totalled $19.2 million, or
26.6% of consumer loans and 5.3% of the Association's total loans. The
Association has decided to sell educational loans when those loans reach
repayment status.
Other Lending. The Association also originates other types of loans
primarily consisting of unsecured personal lines of credit and installment
loans, loans on savings accounts and foreign aid loans. These loans have a
maximum borrowing limitation of $5,000 for unsecured personal loans and 90% of
the account value for loans on savings accounts. Unsecured personal loans
require a debt ratio (the ratio of debt service to net earnings) of 36%.
Secured personal lines of credit and installment loans are generally secured by
certificates of deposit and passbook savings accounts. The Association offers
credit card loans to its customers in its own name. Credit card loans require a
debt ratio of 36% and are offered to a maximum credit limit of $10,000. As of
December 31, 1999, personal loans totalled $5.0 million, or 1.4% of total loans
of which $1.7 million were secured by savings accounts.
As of December 31, 1999, the Association also had one outstanding foreign
aid loan in its portfolio to the country of Ecuador which was a performing loan,
guaranteed by the United States government and had an outstanding principal
balance of $37,000.
Loan Servicing. The Association generally services mortgage loans in its
own portfolio but relies upon third party loan servicers for the servicing of
purchased loans as such loans are purchased on a servicing released basis. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections as required of mortgage premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain insurance and
tax payments on behalf of the borrowers and generally administering the loans.
The Association currently does not purchase servicing rights related to mortgage
loans originated by other institutions. To date, the substantial majority of
loans purchased by the Association has been purchased on a servicing released
basis. As of December 31, 1999, the Association had $225.2 million of loans
serviced by others and $133.7 million of loans serviced by the Association.
Delinquencies and Classified Assets. The Board of Directors performs a
monthly review of all delinquent loans ninety days or more past due with
principal balances of $100,000 or more and reviews a summary of the aggregate
level of non-performing loans 90 days or more past due. In addition, management
reviews on an ongoing basis all loans 30 or more days delinquent. The
procedures taken by the Association with respect to delinquencies vary depending
on the nature of the loan and period of delinquency. In the case of real estate
loans, the Association takes legal action and will commence foreclosure
proceedings against any real property that secures the loan. If a foreclosure
action is instituted and the loan is not brought current, paid in full, or
refinanced before the foreclosure sale, the real property securing the loan is
generally acquired at foreclosure.
10
<PAGE>
Federal regulations and the Association's Classification of Assets Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as part of its credit
monitoring system. The Association currently classifies problem and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
For regulatory purposes, when an insured institution classifies one or more
assets, or portions thereof, as Substandard or Doubtful, it is required to
establish a general valuation allowance for loan losses in an amount deemed
prudent by management. The general valuation allowance, which is a regulatory
term, represents a loss allowance which has been established to recognize the
inherent risk associated with lending activities, but which, unlike specific
allowances, has not been allocated to particular problem assets. When an
insured institution classifies one or more assets, or portions thereof, as
"Loss," it is required either to establish a specific allowance for losses equal
to 100% of the amount of the asset so classified or to charge off such amount.
For financial reporting purposes, the Company follows the guidelines of
Statement of Financial Accounting Standards ("SFAS") No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," an amendment of SFAS
114. SFAS 114 addresses the accounting by creditors for impairment of loans by
specifying how reserves for credit losses related to certain loans should be
measured. SFAS 118 rescinds SFAS 114 rules to permit a creditor to use existing
methods for recognizing interest income on impaired loans and eliminated the
income recognition provisions of SFAS 114.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
recently adopted an interagency policy statement on the allowance for loan and
lease losses. The policy statement provides guidance for financial institutions
on both the responsibilities of management for the assessment and establishment
of adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
As a result of the declines in local and regional real estate market value and
the significant losses experienced by many financial institutions, there has
been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
institutions by the OTS and the FDIC. While the Association believes that it
has established an appropriate allowance for loan losses, there can be no
assurance that regulators, in reviewing the Association's loan portfolio, will
not request the Association to materially increase its allowance for loan
losses, thereby negatively affecting the Association's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual
11
<PAGE>
losses are dependent upon future events and, as such, further additions to the
level of specific and general loan loss allowances may become necessary.
The Association's Mortgage Servicing Department reviews the Association's
loans on a monthly basis and provides delinquency reports to the President. The
Association's Asset Classification Committee meets on a quarterly basis and
classifies assets in accordance with the management guidelines described above.
Real Estate Owned is classified as Substandard. As of December 31, 1999, the
Association had $1.7 million of assets classified as Substandard, $61,000 of
assets classified as Doubtful and no assets classified as Loss.
The Association generally requires appraisals on an annual basis on
foreclosed properties and at other times as deemed necessary by management. The
Association also conducts external inspections on commercial real estate
properties, foreclosed properties and other properties as deemed necessary. As
of December 31, 1999, the Association had $345,000 of foreclosed real estate in
its portfolio. The balance consisted of nine properties for which the
Association held first or second liens.
12
<PAGE>
The following table sets forth delinquencies in the Association's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31, 1999 As of December 31, 1998
-------------------------------------------- -------------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
-------------------- --------------------- --------------------- --------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
-------------------------------------------- -------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family......... 57 $1,695 17 $ 856 48 $1,040 20 $ 462
Multi-family................ -- -- -- -- -- -- -- --
Commercial.................. -- -- -- -- -- -- -- --
Consumer:
Home equity................. 34 821 20 584 28 705 21 574
Education................... 7 9 8 13 21 57 34 59
Other loans:
Unsecured personal loans.... 17 32 8 23 21 34 9 21
--- ------ -- ------ ------- --------- ------- ---------
Total........................ 115 $2,557 53 $1,476 118 $1,836 84 $1,116
=== ====== == ====== ======= ========= ======= =========
Delinquent loans to total
gross loans................. 0.71 0.41 0.55% 0.34%
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------
30-89 Days 90 Days or More
-------------------- ---------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
--------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.......... 48 $ 870 28 $ 720
Multi-family................. -- -- -- --
Commercial................... -- -- -- --
Consumer loans:
Home equity.................. 48 1,229 28 930
Education.................... 22 49 27 69
Other loans:
Unsecured personal loans..... 11 26 10 14
--- ------ -- ------
Total......................... 129 $2,174 93 $1,733
=== ====== == ======
Delinquent loans to total
gross loans................ 0.70% 0.56%
</TABLE>
13
<PAGE>
Non-Performing Assets. General. The following table sets forth
information regarding non-accrual loans and real estate owned ("REO"). As of
December 31, 1999, the Association held nine REO properties totalling $345,000.
It is the policy of the Association to cease accruing interest on loans 90 days
or more past due and charge off all accrued interest upon foreclosure or deed-
in-lieu of foreclosure. For the years ended December 31, 1999, 1998, 1997, 1996
and 1995, the amount of additional interest income that would have been
recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $138,000, $147,000, $72,000, $37,000
and $59,000, respectively.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Non-accrual loans:
Mortgage loans:
One- to four-family...................... $ 856 $ 462 $ 720 $ 537 $ 727
Multi-family............................. --- -- -- 97 8
Construction and development............. --- -- -- -- --
Commercial............................... --- -- -- -- --
Consumer loans:
Home equity.............................. 584 574 930 73 116
Education................................ 13 59 69 163 593
Other loans:
Unsecured personal loans................. 23 21 14 26 16
------ ------ ------ ------- ------
Total non-accrual loans................ 1,476 1,116 1,733 896 1,460
Real estate owned, net(3).................. 345 758 -- -- --
------ ------ ------ ------- ------
Total non-performing assets.............. $1,821 $1,874 $1,733 $ 896 $1,460
====== ====== ====== ======= ======
Allowance for loan losses as a percent
of gross loans receivable(1)............. 0.48% 0.48% 0.43% 0.44% 0.45%
Allowance for loan losses as a percent of
total non-performing loans(2)............ 95.06% 85.59% 76.28% 115.07% 56.30%
Non-performing assets as a
percent of gross loans receivable(1)(2).. 0.51% 0.56% 0.56% 0.38% 0.81%
Non-performing assets as a percent of
total assets(2)......................... 0.21% 0.23% 0.22% 0.14% 0.28%
</TABLE>
(1) Gross loans includes loans receivable held for investment and loans
receivable held for sale, less undisbursed loan funds and deferred loan
fees.
(2) Non-performing assets consist of non-performing loans and REO.
(3) REO balances are carried at the lower of cost or market value less estimated
costs to sell.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers appropriate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The Board of Directors'
Asset Classification Committee reviews and approves the loan loss reserve on a
quarterly basis. The allowance is based upon a number of factors, including
current regional and national economic conditions, actual loss experience and
industry trends. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Association's allowance
for loan losses. Such agencies may require the Association to make additional
provisions for estimated loan losses based upon judgments different from those
of management. As of
14
<PAGE>
December 31, 1999 and December 31, 1998, the Association's allowance for loan
losses was 0.48% of total loans. The Association had nonperforming assets of
$1.8 million and $1.9 million as of December 31, 1999 and December 31, 1998,
respectively. The Association will continue to monitor and modify its allowances
for loan losses as conditions dictate. 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 used by management
to determine the current level of the allowance for loan losses.
The following table sets forth activity in the Association's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
As of or For the Years Ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.... $1,604 $1,322 $1,031 $ 822 $ 850
Provision for loan losses......... 390 360 300 210 --
Charge-offs:
Mortgage loans:
One -to-four-family............ 19 5 9 -- 8
Multi-family................... -- -- -- -- --
Commercial..................... -- -- -- -- --
Consumer loans:
Home equity.................... 164 44 -- -- --
Education...................... 71 37 31 5 5
Other loans...................... 15 30 38 15 22
------ ------ ------ ------ -----
Total..................... 269 116 78 20 35
Recoveries........................ 6 38 69 19 7
------ ------ ------ ------ -----
Net (charge-offs) recoveries...... (263) (78) (9) (1) (28)
------ ------ ------ ------ -----
Balance at end of period.......... $1,731 $1,604 $1,322 $1,031 $ 822
====== ====== ====== ====== =====
Ratio of net charge-offs during
the period to average loans
outstanding during the period... 0.08% 0.02% 0.00% 0.00% 0.02%
====== ====== ====== ====== =====
</TABLE>
15
<PAGE>
The following tables set forth the Association's percent of allowance for
loan losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ----------------------------- ------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each
Allowance Category Allowance Category Allowance Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family............ $ 773 44.66% 71.39% $ 933 58.17% 71.62% $ 624 47.20% 69.37%
Multi-family................... 87 5.03 1.23 127 7.92 1.58 100 7.56 1.86
Commercial..................... 349 20.16 4.90 -- -- 2.20 14 1.06 1.41
Construction and development... 7 0.40 1.02 10 0.62 0.70 23 1.74 0.96
Consumer loans:
Home equity.................... 469 27.09 14.72 500 31.20 16.43 530 40.09 19.07
Education...................... -- -- 5.34 -- -- 5.99 -- -- 6.08
Other loans:
Unsecured personal loans....... 46 2.66 0.91 34 2.09 0.87 31 2.35 0.51
Loans on savings accounts...... -- -- 0.48 -- -- 0.59 -- -- 0.70
Other loans.................... -- -- 0.01 -- -- 0.02 -- -- 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------
Total valuation allowance..... $1,731 100.00% 100.00% $1,604 100.00% 100.00% $1,322 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------
1996 1995
------------------------------- ------------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Mortgage loans:
One- to four-family............ $ 706 68.48% 75.89% $429 52.19% 66.79%
Multi-family................... 117 11.35 2.87 103 12.53 3.93
Commercial..................... 15 1.45 2.15 16 1.95 1.79
Construction and development... 27 2.62 1.51 45 5.47 3.21
Consumer loans:
Home equity.................... 145 14.06 9.43 118 14.35 10.99
Education...................... -- -- 6.55 89 10.83 11.32
Other loans:
Unsecured personal loans....... 21 2.04 0.65 22 2.68 0.68
Loans on savings accounts...... -- -- 0.88 -- -- 1.18
Other loans.................... -- -- 0.07 -- -- 0.11
------ ------ ------ ---- ------ ------
Total valuation allowance..... $1,031 100.00% 100.00% $822 100.00% 100.00%
====== ====== ====== ==== ====== ======
</TABLE>
16
<PAGE>
Real Estate Owned. As of December 31, 1999, the Association held nine
properties totalling $345,000. When the Association acquires property through
foreclosure or deed-in-lieu of foreclosure, it is initially recorded at the
lower of the recorded investment in the corresponding loan or the fair value of
the related assets at the date of foreclosure, less estimated costs to sell the
property. Thereafter, if there is a further deterioration in value, the
Association provides for a specific valuation allowance and charges operations
for the diminution in value. It is the policy of the Association to have
obtained an appraisal on all real estate subject to foreclosure proceedings
prior to the time of foreclosure. It is the Association's policy to require
appraisals on foreclosed properties and conduct inspections on foreclosed
properties.
Investment Activities
The Company can invest in common and preferred stocks, limited partnerships
and all investments the Association is permitted to invest in. Anything other
than that requires Board of Directors approval. Federally-chartered savings
institutions have the authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, certificates of deposit of insured banks and savings institutions,
bankers' acceptances, repurchase agreements and federal funds. Subject to
various restrictions, federally-chartered savings institutions may also invest
their assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally-chartered
savings institution is otherwise authorized to make directly. Additionally, the
Association must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Historically, the Association has maintained
liquid assets above the minimum OTS requirements and at a level considered to be
adequate to meet its normal daily activities.
The investment policy of the Association, as approved by the Board of
Directors, generally requires management to maintain adequate liquidity,
generate a favorable return on investments without incurring undue interest rate
and credit risk as a complement to the Association's lending activities. The
Association's current investment policy provides that the Association may invest
in the following types of securities: U.S. Government and federal government-
sponsored agency debt securities, short-term money market instruments, mutual
funds which primarily invest in mortgage-backed securities and which also
qualify as liquid assets under the OTS regulations, federal funds and U.S.
government sponsored agency issued mortgage-backed and mortgage-related
securities, investment grade corporate debt obligations and other investments as
authorized by the OTS and as may be approved by the Board of Directors. As of
December 31, 1999, the Association's investment securities generally consisted
of government-sponsored agency debt securities (primarily issued by FHLB, FNMA
and FHLMC), investment grade corporate debt securities, commercial paper,
municipal obligations and mutual fund securities. As of such date its mortgage-
backed securities portfolio generally consisted of fixed- and adjustable-rate
mortgage-backed securities issued by the FNMA, GNMA and FHLMC and its mortgage-
related securities portfolio consisted of fixed- and adjustable-rate CMOs backed
by FNMA and FHLMC.
The Board of Directors monitors and ratifies the investment decisions of
the Association's officers which have been authorized to manage the investment
portfolio (the President, Treasurer, Chief Financial Officer and Chief Lending
Officer). On at least a quarterly basis, the Asset/Liability Management
Committee also reviews the Association's securities portfolio and, in connection
therewith, reviews the market value of each security held. The Association's
current investment policy generally limits investment securities (consisting of
agency and corporate debt obligations and commercial paper) to 25% of total
assets and limits the weighted average life of such portfolio to twenty years or
less. The Association's policies also provide that investments in any one CMO,
Real Estate Mortgage Investment Conduit ("REMIC") and other asset-backed
obligation may not, exceed 5% of total assets and limits the weighted average
life of such
17
<PAGE>
investments to less than seven years. The Association's policies
also limit the aggregate investment in such securities to 20% of total assets.
As required by SFAS 115, the Association has established an investment
portfolio of securities that may be categorized as held to maturity, available
for sale or held for trading. As of December 31, 1999, all of the Association's
securities were categorized as available for sale.
Mortgage-Backed Securities. As of December 31, 1999, the Association had
$238.0 million in mortgage-backed securities, or 27.0% of total assets, which
generally consisted of mortgage-backed securities guaranteed by GNMA or insured
by either FNMA or FHLMC. Mortgage-backed securities generally yield less than
the mortgage loans that underlie such securities because of the cost of payment
guaranties or credit enhancement that result in nominal credit risk. In
addition, mortgage-backed securities are more liquid than individual mortgage
loans and may be used to collateralize obligations of the Association. In
general, mortgage-backed securities issued or guaranteed by FNMA and FHLMC and
certain AA-rate and AAA-rated mortgage-backed pass through securities are
weighted at no more than 20% for risk-based capital purposes, and mortgage-
backed securities issued or guaranteed by GNMA are weighted at 0% for risk-based
capital purposes, compared to an assigned risk weighting of 50% to 100% for
whole residential mortgage loans. These types of securities allow the
Association to optimize regulatory capital to a greater extent than non-
securitized whole loans. See "Regulation and Supervision - Federal Savings
Institution Regulation - Capital Requirements" for a discussion of the OTS risk-
based capital requirement.
While mortgage-backed securities carry a reduced credit risk as compared to
whole mortgage loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors such as the
geographic distribution of the underlying mortgage loans, may alter the
prepayment rate of such mortgage loan and so affect both the prepayment speed,
and value, of such securities. Specifically, investments in mortgage-backed and
CMOs, discussed below, involve risks that in a declining interest rate
environment actual prepayments may exceed prepayments estimated over the life of
the security which, in turn, may result in a loss of any premiums paid for such
instrument thereby reducing the net yield on such securities. Conversely, if
interest rates increase, the market value of such securities may be adversely
affected.
Mortgage-Related Securities. As of December 31, 1999, the Association had
$68.7 million of mortgage-related securities, or 7.8% of total assets,
consisting of CMOs issued by FHLMC and FNMA. CMOs are a type of debt security
issued by a special purpose entity that aggregates pools of underlying fixed-and
adjustable-rate mortgages or mortgage-backed securities and create different
classes of CMO securities with different maturities and, in some cases,
amortization schedules as well as residual interest with each such class
possessing different risk characteristics. The cash flows from the underlying
collateral is generally divided into "tranches" or "classes" whereby such
tranches have descending priorities with respect to the distribution of
principal repayments from the underlying mortgages or mortgage-backed
securities. In contrast to mortgage-backed securities in which cash flow is
received (and, accordingly, prepayment risk is shared) pro rata by all
securities holders, the cash flows from the mortgages or mortgage-backed
securities underlying CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. Accordingly, CMOs attempt to moderate the reinvestment risk
associated with conventional mortgage-backed securities when prepayments of the
mortgages underlying such securities prepay faster than anticipated. CMOs are
issued by special purpose entities formed by government-sponsored agencies, such
as FNMA or FHLMC, and private issuers, however, the Association generally only
invests in CMOs issued by government-sponsored agencies which are collateralized
by mortgage-backed securities.
18
<PAGE>
While CMOs issued by government sponsored agencies involve reduced credit
risk, they involve prepayment risk (i.e., the risk that actual prepayments of
the mortgage loans or mortgage backed securities underlying the CMOs will be
greater than estimated prepayments over the life of the security upon which the
price of the security CMO is based). In the event actual prepayments exceed
estimated prepayments, it may require adjustments to the amortization of any
premium or accretion of any discount relating to such instruments thereby
reducing the net yield on such securities. There is also reinvestment risk
associated with CMOs if the cash flows from such securities are at rate greater
than the estimated cash flow or in the event such securities are redeemed by the
issuer. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
Corporate Debt Obligations. As of December 31, 1999, the Association had
$11.5 million of corporate debt obligations, or 1.3% of total assets. The
Association's investments in corporate debt obligations, as of December 31,
1999, generally consisted of short term debt obligations issued by large and
medium sized U.S. and multinational corporate issuers. The Association's
policies require all corporate debt obligations purchased by the Association to
be denominated in dollars and be rated in one of the four highest categories by
a nationally recognized rating agency and the average maturity of such
securities may not exceed six years.
Investments in corporate debt obligations and commercial paper involve
credit risk as they are not insured or guaranteed by the U.S. government or any
agency thereof, generally not secured by collateral and generally rely upon
future income from the operations of the issuer for repayment of principal and
interest.
GNMA Forward Commitments. The Company had only limited involvement with
derivative financial instruments. Periodically, the Company entered into
unconditional forward commitments to purchase mortgage-backed certificates, such
as those issued by the Government National Mortgage Association ("GNMA"), at a
fixed price and coupon rate to be delivered, typically, no longer than six
months in the future. In addition, the Company also entered into 50-50 flexible
commitments to purchase GNMA's whereby the broker delivered at least 50% of the
commitment amount or up to 150% of the total commitment amount on the settlement
date. In effect, 50% of the commitment represented an unconditional forward
commitment and the remaining portion of the commitment represented standby
commitments (put options) with certain brokers approved by the Board of
Directors. The Company only entered into these commitments when it had
available liquidity to meet the full amount of the commitment. Certain
purchase commitments were "paired off" against sale commitments for the same
type of security bearing the same contact amount, rate and settlement date.
Risks associated with these commitments arose from the possible inability
of counterparties to meet the terms of their contracts and from movements in
securities values and interest rates. Under standby commitments, the Company
bore the risk of an unfavorable change in the price of the mortgage-backed
certificates underlying the options. The Company reviewed the creditworthiness
of the parties to these commitments.
No such forward commitments were entered into subsequent to June 1999. The
last purchase commitment settled in September 1999. Accordingly, the Company
had no forward or standby commitments outstanding as of December 31, 1999. Such
activity did not result in a material impact to operations for the years ended
December 31, 1999, 1998 and 1997, respectively.
U.S. Government Securities. As of December 31, 1999, the Company had $37.1
million of U.S. Government agency securities, or 4.2% of total assets. All
government securities are issued directly by the
19
<PAGE>
U.S. government, either through the Treasury Department or through one of the
many federal agencies created by Congress. U.S. Treasury Securities are issued
by the Treasury Department and are backed by the full faith and credit of the
U.S. government.
Marketable Equity Securities. As of December 31, 1999 the Company had
$42.5 million of marketable equity securities, or 4.8% of total assets. This
included $26.9 million of mutual funds, backed by adjustable-rate mortgage-
backed securities, corporate debt, corporate bonds, or government bonds, $1.8
million of FHLMC stock, $65,000 of Student Loan Marketing Association stock,
$1.4 million of FNMA stock, $1.6 million of bank equities, $4.7 million of bank
preferred and trust preferred stock, $3.8 million investment in a Real Estate
Limited Partnership, $900,000 in Real Estate Investment Trusts, and a $1.2
million investment in a limited partnership.
Municipal Obligations. As of December 31, 1999, the Company had $59.9
million of municipal obligations. The Company's investment policy requires all
municipal obligations to be rated in one of the four highest categories by a
nationally recognized rating agency.
20
<PAGE>
The following table sets forth the composition of the Association's
investment, mortgage-backed and mortgage-related securities portfolio in dollar
amounts and in percentages of the respective portfolios as of the dates
indicated.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------
1999 1998 1997
--------------------- ------------------- ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities available for sale:
Marketable equity securities(1)............. $ 42,452 9.27% $ 36,028 8.26% $ 36,660 8.42%
U.S. Government Agency debt................. 71,857 15.70 72,350 16.59 77,178 17.72
Municipal Obligations....................... 60,359 13.19 59,331 13.60 13,278 3.05
Corporate obligations....................... 11,467 2.51 27,630 6.33 23,910 5.49
-------- ------ -------- ------ -------- ------
Total investment securities................ 186,135 40.67 195,339 44.78 151,026 34.68
-------- ------ -------- ------ -------- ------
Mortgage-backed and mortgage
related securities available for sale:
FHLMC....................................... 4,403 0.96 7,462 1.71 17,797 4.09
FNMA........................................ 8,634 1.89 12,907 2.96 20,285 4.66
GNMA........................................ 224,012 48.94 163,504 37.48 172,435 39.60
CMOs........................................ 69,171 15.11 87,845 20.14 71,595 16.44
-------- ------ -------- ------ -------- ------
Total mortgage-backed and
mortgage-related securities............ 306,220 66.90 271,718 62.29 282,112 64.79
-------- ------ -------- ------ -------- ------
Plus:
Unamortized premium (discount).............. (34,671) (7.57) (30,825) (7.07) 2,288 0.53
-------- ------ -------- ------ -------- ------
Total securities, net...................... $457,684 100.00% $436,232 100.00% $435,426 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
_________________
(1) As of December 31, 1999, marketable equity securities consisted of $26.9
million of mutual funds backed by adjustable-rate mortgage-backed
securities, corporate debt, corporate bonds or government bonds, $1.8
million of FHLMC stock, $65,000 of Student Loan Marketing Association stock,
$1.4 million of FNMA Stock, $1.7 million of bank equities, $4.7 million of
bank preferred and trust preferred stock, $3.8 million in a real estate
limited partnership, $900,000 in real estate investment trusts, and a $1.2
million investment in a limited partnership.
21
<PAGE>
The following table sets forth certain information regarding the carrying
and market values of the Association's short-term investments (consisting of
federal funds sold and interest-bearing demand deposits) and investments,
mortgage-backed and mortgage-related securities as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -------------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
--------- -------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Short term investments.............. $12,457 $12,457 $ 8,205 $ 8,205 $ 5,791 $ 5,791
------- ------- ------- ------- ------- -------
Investment securities:
Available for sale:
Corporate obligations........... 11,476 11,476 27,802 27,802 24,208 24,208
U.S. government and
agency obligations............ 37,148 37,148 59,280 59,280 77,137 77,137
Municipal obligations........... 59,884 59,884 39,998 39,998 13,260 13,260
Marketable equity securities(1). 42,452 42,452 36,028 36,028 36,660 36,660
-------- -------- -------- -------- -------- --------
Total available for sale...... 150,960 150,960 163,108 163,108 151,265 151,265
------- ------- ------- ------- ------- -------
Mortgage-backed and
mortgage-related securities:
Available for sale:
FHLMC............................. 4,473 4,473 7,646 7,646 18,148 18,148
GNMA.............................. 224,654 224,654 164,863 164,863 173,806 173,806
FNMA.............................. 8,864 8,864 13,219 13,219 20,742 20,742
CMOs.............................. 68,733 68,732 87,396 87,396 71,465 71,465
-------- -------- -------- -------- -------- --------
Total available for sale...... 306,724 306,724 273,124 273,124 284,161 284,161
-------- -------- -------- -------- -------- --------
Total short-term investments,
investment securities, mortgage-
backed and mortgage-related
securities........................ $470,141 $470,141 $444,437 $444,437 $444,217 $444,217
======== ======== ======== ======== ======== ========
</TABLE>
- --------------------------
(1) As of December 31, 1999, marketable equity securities consisted of $26.9
million of mutual funds backed by adjustable-rate mortgage-backed
securities, corporate debt, corporate bonds or government bonds, $1.8
million of FHLMC stock, $65,000 of Student Loan Marketing Association
stock, $1.4 million of FNMA Stock, $1.7 million of bank equities, $4.7
million of bank preferred and trust preferred stock, $3.8 million in a real
estate limited partnership, $900,000 in real estate investment trusts, and
a $1.2 million investment in a limited partnership.
22
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
short-term investments (consisting of federal funds sold and interest-bearing
demand deposits), investment securities and mortgage-backed and mortgage related
securities as of December 31, 1999.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years Total
-------------------- ------------------ ------------------ ------------------- ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
--------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments...... $12,457 4.06% $ -- -- % $ -- -- % $ -- -- % $ 12,457 4.06%
Investment securities:
Available for Sale:
U.S. Government agency
securities.............. 2,000 5.69 10,436 6.18 5,698 6.40 19,014 7.11 37,148 6.66
Municipal obligations.... 1,455 4.14 4,473 4.28 6,993 4.72 46,963 4.73 59,884 4.68
Corporate obligations.... 2,003 6.16 3,079 6.24 4,739 6.45 1,655 6.50 11,476 6.35
Marketable equity
securities.............. 26,885 5.84 -- -- -- -- -- -- 26,885 5.84
Common Stock............. 4,586 -- -- -- -- -- -- -- 4,586 --
Preferred and Trust
Preferred Securities.... 5,123 8.87 -- -- -- -- -- -- 5,123 8.87
Other Investment
Securities (1).......... 5,858 5.60 -- -- -- -- -- -- 5,858 5.60
------- ---- ------- ---- ------- ---- -------- ---- -------- ----
Total investment
securities............. 47,910 5.53 17,988 5.72 17,430 5.74 67,632 5.44 150,960 5.54
------- ---- ------- ---- ------- ---- -------- ---- -------- ----
Mortgage-backed and
mortgage-related
securities:
Available for Sale:
GNMA..................... -- -- -- -- -- -- 224,654 6.94 224,654 6.94
FNMA..................... 505 6.33 732 6.77 973 7.01 6,654 6.65 8,864 6.68
FHLMC.................... -- -- 4,473 6.50 -- -- -- -- 4,473 6.50
CMOs..................... -- -- -- -- 14,697 6.40 54,036 6.42 68,733 6.41
------- ---- ------- ---- ------- ---- -------- ---- -------- ----
Total mortgage-backed
and mortgage-
related securities...... 505 6.33 5,205 6.54 15,670 6.44 285,344 6.83 306,724 6.81
------- ---- ------- ---- ------- ---- -------- ---- -------- ----
Total short-term
investments, investment
securities, mortgage-
backed securities
and mortgage-related
securities................. $60,872 $23,193 $33,100 $470,141 $470,141
======= ======= ======= ======== ========
</TABLE>
- --------------
(1) Other investment securities consisted of $3.8 million of a real estate
investment limited partnership, $1.2 million investment in a limited
partnership and $900,000 of investment in real estate investment trusts.
23
<PAGE>
Sources of Funds
General. Deposits, loan repayments and prepayments, proceeds from sales of
loans, principal and interest payments on investment and mortgage-backed and
mortgage-related securities, cash flows generated from operations and FHLB
advances are the primary sources of the Association's funds for use in lending,
investing and for other general purposes.
Deposits. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
savings, NOW accounts, checking accounts, money market accounts and certificate
accounts. For the year ended December 31, 1999, core deposits represented 54.8%
of total average deposits. The flow of deposits is influenced significantly by
general and regional economic conditions, changes in money market rates,
prevailing interest rates and competition. The Association's deposits are
obtained predominantly from the areas in which its branch offices are located.
To attract and retain deposits, the Association relies primarily on pricing its
deposit products at a competitive rate providing customer service and its long-
standing relationships with customers; however, market interest rates and rates
offered by competing financial institutions significantly affect the
Association's ability to attract and retain deposits. The Association uses
traditional means of advertising its deposit products, including radio and print
media and generally does not solicit deposits from outside its market area.
Certificate accounts in excess of $100,000 are not actively solicited by the
Association and the Association does not currently use brokers to obtain
deposits. During the year ended December 31, 1999, the Association's balance of
passbook accounts decreased by $11.1 million, or 7.0%, and its balance of
certificates of deposits increased by $2.5 million, or 1.0%. The increase in
certificates of deposit resulted from the Association's offering CD specials and
increased advertising during 1999 which caused depositors to invest in
certificates of deposit.
As of December 31, 1999, certificate accounts with maturities of one year
or less totalled $163.8 million, or 33.1% of total deposits. While the
Association believes that, based on the Association's historical deposit outflow
activity, the substantial majority of such accounts will remain with the
Association, if a material amount of such accounts were not renewed it could
have a material adverse impact on the liquidity and cash flows of the
Association and may result in increased interest expense in the event the
Association paid higher rates to attract and retain deposit accounts or
increased its utilization of higher cost borrowings to fund its liquidity needs.
The following table presents the deposit activity of the Association for
the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
(In thousands)
Net deposits (withdrawals)..................... $(4,798) $ 2,221 $(5,316)
Interest credited on deposit accounts.......... 17,374 18,173 17,904
------- ------- -------
Total increase (decrease) in deposit accounts.. $12,576 $20,394 $12,588
======= ======= =======
</TABLE>
24
<PAGE>
As of December 31, 1999, the Association had $19.7 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
Weighted
Maturity Period Amount Average Rate
- -------------------------- ------- ---------------
(Dollars in
thousands)
Three months or less...... $ 5,041 5.88%
Over 3 through 6 months... 3,332 5.04
Over 6 through 12 months.. 2,509 4.99
Over 12 months............ 8,859 5.88
-------
Total..................... $19,741
=======
25
<PAGE>
The following table sets forth the distribution of the Association's
average deposit accounts for the periods indicated and the weighted average
nominal interest rates on each category of deposits presented. Averages for the
periods presented utilize daily average balances.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ --------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Cost Balance Deposits Cost Balance Deposits Cost
----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market savings accounts......... $ 18,770 3.87% 3.66% $ 14,342 3.04% 2.29% $ 16,152 3.54% 2.46%
Passbook accounts..................... 157,920 32.58 2.41 159,374 33.84 2.76 160,155 35.12 3.00
NOW accounts.......................... 33,744 6.96 1.82 31,886 6.77 1.78 28,339 6.21 1.95
Non-interest-bearing accounts......... 31,944 6.59 -- 25,565 5.43 -- 21,784 4.78 --
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total............................... 242,378 50.00 2.11 231,167 49.08 2.29 226,430 49.65 2.54
-------- ------ ---- -------- ------ ---- -------- ------ ----
Certificate accounts:
Less than six months................. 605 0.12 3.41 570 0.12 3.56 719 0.16 3.83
Over six through 12 months........... 65,011 13.41 5.65 68,410 14.53 5.02 76,267 16.72 4.90
Over 12 through 24 months............ 65,051 13.42 5.78 62,294 13.23 5.95 46,772 10.26 5.97
Over 24 months....................... 62,718 12.94 4.38 60,910 12.93 5.91 60,664 13.30 5.98
IRA/KEOGH............................ 48,999 10.11 5.35 47,635 10.11 5.59 45,198 9.91 5.65
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total certificate accounts.......... 242,384 50.00 5.30 239,819 50.92 5.58 229,620 50.35 5.53
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total average deposits............. $484,762 100.00% 3.71% $470,986 100.00% 3.97% $456,050 100.00% 4.05%
======== ====== ==== ======== ====== ==== ======== ====== ====
</TABLE>
26
<PAGE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding as of the dates indicated and the periods to
maturity of the certificate accounts outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999 As of December 31,
----------------------------------------- ------------------------
Less One to Two to Over
than Two Three Three 1999 1998 1997
One years years years
Year
-------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Certificate accounts:
0 to 2.99%........... $ 1,379 $ -- $ -- $ -- $ 1,379 $ 684 $ --
3.00 to 3.99%......... 538 -- -- -- 538 584 1,360
4.00 to 4.99%......... 71,851 8,000 3,442 5,427 88,720 52,889 8,053
5.00 to 5.99%......... 57,019 16,820 6,958 4,752 85,549 116,924 133,348
6.00 to 6.99%......... 20,918 1,770 17,523 15,747 55,958 54,986 75,378
7.00 to 7.99%......... 12,064 325 1,086 296 13,771 17,450 16,727
8.00 to 8.99%......... -- -- 840 358 1,198 1,138 1,097
Over 9.00%............ -- -- -- -- -- -- --
-------- ------- ------- ------- -------- -------- ---------
Total.............. $163,769 $26,915 $29,849 $26,580 $247,113 $244,655 $235,963
======== ======= ======= ======= ======== ======== ========
</TABLE>
27
<PAGE>
Borrowings. The Association utilizes advances from the FHLB as an
alternative to retail deposits to fund its operations and may do so in the
future as part of its operating strategy. These FHLB advances are collateralized
primarily by certain of the Association's mortgage loans and mortgage-backed
securities and secondarily by the Association's investment in capital stock of
the FHLB. FHLB advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. The maximum
amount that the FHLB will advance to member institutions, including the
Association, fluctuates from time to time in accordance with the policies of the
OTS and the FHLB. As of December 31, 1999, the Association had $115.2 million in
short-term and $182.0 million in long-term outstanding advances from the FHLB.
The following table sets forth certain information regarding the
Association's borrowed funds as of or for the periods ended on the dates
indicated:
As of or For the Year
Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
FHLB advances:
Average balance outstanding............. $286,034 $222,057 $146,481
======== ======== ========
Maximum amount outstanding at
any month-end during the period...... $307,160 $225,340 $195,398
======== ======== ========
Balance outstanding at end of period.... $297,160 $217,545 $193,237
======== ======== ========
Weighted average interest rate
during the period.................... 5.39% 5.82% 5.98%
======== ======== ========
Weighted average interest rate at end
of period............................. 5.54% 5.63% 6.04%
======== ======== ========
Subsidiary Activities
GA Financial Inc. is the parent company of the Association and New Eagle
Capital, Inc. Great American Financial Services, Inc. is a wholly-owned
subsidiary of the Association, which currently does not conduct any activities.
28
<PAGE>
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal law
to file reports with, and otherwise comply with, the rules and regulations of
the Office of Thrift Supervision ("OTS"). The Association is subject to
extensive regulation, examination and supervision by the OTS, as its primary
federal regulator, and the FDIC, as the deposit insurer. The Association is a
member of the Federal Home Loan Bank System and, with respect to deposit
insurance, of the Savings Association Insurance Fund ("SAIF") managed by the
FDIC. The Association must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Association's safety and soundness and
compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Association and their
operations. Certain of the regulatory requirements applicable to the Association
and to the Company are referred to below or elsewhere herein. The description
of statutory provisions and regulations applicable to savings institutions and
their holding companies set forth in this Form 10-K does not purport to be a
complete description of such statutes and regulations and their effects on the
Association and the Company.
Holding Company Regulation
The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law. Under prior law, a unitary savings and loan
holding company, such as the Company was not generally restricted as to the
types of business activities in which it may engage, provided that the
Association continued to be a qualified thrift lender. See "Federal Savings
Institution Regulation - QTL Test." The Gramm-Leach-Bliley Act of 1999 provides
that no company may acquire control of a savings association after May 4, 1999
unless it engages only in the financial activities permitted for financial
holding companies under the law or for multiple savings and loan holding
companies as described below. Further, the Gramm-Leach-Bliley Act specifies
that existing savings and loan holding companies may only engage in such
activities. The Gramm-Leach-Bliley Act, however, grandfathered the unrestricted
authority for activities with respect to unitary savings and loan holding
companies existing prior to May 4, 1999, such as the Company, so long as the
Association continues to comply with the QTL Test. Upon any non-supervisory
acquisition by the Company of another savings institution or savings bank that
meets the qualified thrift lender test and is deemed to be a savings institution
by the OTS, the Company would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would
generally be limited to activities permissible for bank holding companies under
Section 4(c)(8) of the Association Holding Company Act, subject to the prior
approval of the OTS, and certain activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured
29
<PAGE>
by the FDIC. In evaluating applications by holding companies to acquire savings
institutions, the OTS considers the financial and managerial resources and
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the deposit insurance funds, the convenience and
needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. The Association must
notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on
the CAMELS rating system) and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMEL financial institution rating system),
and, together with the risk-based capital standard itself, a 4% Tier 1 risk-
based capital standard. The OTS regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease
30
<PAGE>
losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk capital charge. As of December 31, 1999, the
Association met each of its capital requirements.
The following table presents the Association's capital position as of
December 31, 1999.
<TABLE>
<CAPTION>
Capital
Excess -----------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
--------- --------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Tangible 71,164 13,158 58,006 8.11% 1.50%
Core (Leverage) 71,164 26,317 44,847 8.11% 3.00%
Risk-based 73,333 25,374 47,959 23.12% 8.00%
</TABLE>
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The Association is a member of the SAIF.
The FDIC maintains a risk-based assessment system by which institutions are
assigned to one of three categories based on their capitalization and one of
three subcategories based on examination ratings and other supervisory
31
<PAGE>
information. An institution's assessment rate depends upon the categories to
which it is assigned. Assessment rates for SAIF member institutions are
determined semiannually by the FDIC and currently range from zero basis points
for the healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1999,
FICO payments for SAIF members approximated 6.1 basis points, while Bank
Insurance Fund ("BIF") members paid 1.2 basis points. By law, there is equal
sharing of FICO payments between SAIF and BIF members beginning on January 1,
2000.
The Association's assessment rate for 1999 was 5.9 basis points and the
premium paid as payments towards the FICO bonds for this period was $281,000.
The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Association. Management
cannot predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Association does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. As of
December 31, 1999, the Association's limit on loans to one borrower was $10.7
million, and the Association's largest aggregate outstanding balance of loans to
one borrower was $5.7 million.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
A savings institution that fails the qualified thrift lender test is subject
to certain operating restrictions and may be required to convert to a bank
charter. As of December 31, 1999, the Association maintained 98.3% of its
portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger. The rule effective in the first quarter of
1999
32
<PAGE>
established three tiers of institutions based primarily on an institution's
capital level. An institution that exceeded all capital requirements before and
after a proposed capital distribution ("Tier 1 Bank") and had not been advised
by the OTS that it was in need of more than normal supervision, could, after
prior notice but without obtaining approval of the OTS, make capital
distributions during the calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would reduce
by one-half the excess capital over its capital requirements at the beginning of
the calendar year or (ii) 75% of its net income for the previous four quarters.
Any additional capital distributions would require prior regulatory approval.
Effective April 1, 1999, the OTS's capital distribution regulation changed.
Under the new regulation, an application to and the prior approval of the OTS is
required prior to any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under OTS regulations (i.e.,
generally, examination ratings in the two top categories), the total capital
distributions for the calendar year exceed net income for that year plus the
amount of retained net income for the preceding two years, the institution would
be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with OTS. If an
application is not required, the institution must still provide prior notice to
OTS of the capital distribution if, like the Bank, it is a subsidiary of a
holding company. In the event the Association's capital fell below its
regulatory requirements or the OTS notified it that it was in need of more than
normal supervision, the Association's ability to make capital distributions
could be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.
Liquidity. The Association is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any amount within the range of 4% to 10%. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Association's liquidity ratio for December 31, 1999 was 45.5%, which exceeded
the applicable requirements. The Association has never been subject to monetary
penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the OTS
to fund the agency's operations. The general assessments, paid on a semi-annual
basis, are computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Association's latest quarterly
thrift financial report. The assessments paid by the Association for the year
ended December 31, 1999 totaled $154,000.
Transactions with Related Parties. The Association's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
33
<PAGE>
The Association's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
also governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans the Association may make to insiders based, in
part, on the Association's capital position and requires certain board approval
procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Home Loan Bank System
The Association is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. The
Association, as a member of the Federal Home Loan Bank, is required to acquire
and hold shares of capital stock in that Federal Home Loan Bank in an amount at
least equal to 1.0% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the Federal Home Loan Bank, whichever is greater.
The Association was in compliance with this requirement with an investment in
Federal Home Loan Bank stock as of December 31, 1999 of $15.5 million.
The Federal Home Loan Banks are required to provide funds for the resolution
of insolvent thrifts in the late 1980s and to contribute funds for affordable
housing programs. These requirements could reduce the amount of dividends that
the Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members. If dividends were reduced, or interest on future Federal Home Loan
Bank advances increased, The Association's net interest income would likely also
be reduced. Recent legislation has changed the structure of the Federal Home
Loan Banks funding obligations for insolvent thrifts, revised the capital
structure of the Federal Home Loan Banks and implemented entirely voluntary
membership for Federal Home Loan Banks. Management
34
<PAGE>
cannot predict the effect that these changes may have with respect to its
Federal Home Loan Bank membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $44.3 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $5.0 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Association complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Association report their income on a calendar
year, consolidated basis and the accrual method of accounting, and are subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company. The Association was last audited
by the IRS for 1995. Tax years 1996 through 1999 are still open for examination
under the statute of limitations. For its 1999 taxable year, the Association is
subject to a maximum federal income tax rate of 34.0%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986 (the "Code") were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans (generally secured
by interests in real property improved or to be improved) under (i) the
Percentage of Taxable Income Method (the "PTI Method") or (ii) the Experience
Method. The reserve for nonqualifying loans was computed using the Experience
Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts for tax years beginning after 1995 and requires savings institutions to
recapture (i.e., take into income) certain portions of their accumulated bad
debt reserves. The thrift institutions eligible to be treated as "small banks"
(assets of $500 million or less) are allowed to use the Experience Method
applicable to such institutions, while thrift institutions that are treated as
large banks (assets exceeding $500 million) are required to use only the
specific charge-off method. The PTI Method of accounting for bad debts is no
longer available for any financial institution.
35
<PAGE>
A thrift institution required to change its method of computing reserves for
bad debts will treat such change as a change in method of accounting, initiated
by the taxpayer, and having been made with the consent of the IRS. Any Section
481(a) adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to a 2-year
suspension if the "residential loan requirement" is satisfied.
Under the residential loan requirement provision, the recapture required by
the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Association's 1996 taxable year, in which the Association
originates a minimum of certain residential loans based upon the average of the
principal amounts of such loans made by the Association during its six taxable
years preceding its current taxable year.
The Association is required to recapture (i.e., take into income) over a six
year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 other than its supplemental reserve for losses on loans, if
any over the balance of such reserves as of December 31, 1987 (or a lesser
amount since the Association's loan portfolio decreased since December 31,
1987). As a result of such recapture, the Association will incur an additional
tax liability of approximately $765,000 which is to be paid beginning in 1998
over a six year period.
Distributions. Under the 1996 Act, if the Association makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Association's unrecaptured tax bad debt reserves (including
the balance of its reserves as of December 31, 1987) to the extent thereof, and
then from the Association's supplemental reserve for losses on loans, to the
extent thereof, and an amount based on the amount distributed (but not in excess
of the amount of such reserves) will be included in the Association's income.
Non-dividend distributions include distributions in excess of the Association's
current and accumulated earnings and profits, as calculated for federal income
tax purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Association's current or
accumulated earnings and profits will not be so included in the Association's
income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if the Association makes a non-dividend
distribution to the Company, approximately one and one-half times the amount of
such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate. The Association does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
36
<PAGE>
Additional Item. Executive Officers of the Registrant.
- ------------------------------------------------------
The following table sets forth certain information regarding the executive
officers of the Company and the Association who are not also directors.
<TABLE>
<CAPTION>
Name Age at 12/31/99 Position
- ---------------- --------------- -----------------------------------
<S> <C> <C>
Todd L. Cover 38 Executive Vice President and Chief
Operating Officer of the Association
Andrew R. Getsy 61 Vice President and Treasurer of the
Association
Raymond G. Suchta 51 Chief Financial Officer and Treasurer of
the Company and Vice President and
Chief Financial Officer of the
Association
Lawrence A. Michael 50 Secretary of the Company and Vice
President and Secretary of the
Association
Aaron T. Flaitz, Jr. 49 Vice President and Assistant Secretary
of the Association
Norman A. Litterini 58 Vice President - Lending of the
Association
Wayne A. Callen 50 Vice President - Data Processing of the
Association
Judith A. Stoeckle 59 Vice President - Systems Coordinator of
the Association
</TABLE>
Item 2. Properties.
- -------------------
The Association presently conducts its business through an administrative and
full service office located in the Borough of Whitehall and fourteen other full
service branch offices, all of which are located in the greater Pittsburgh
metropolitan area. The Association owns the building and land for eight of its
offices and leases its remaining seven offices. As of December 31, 1999, Great
American Federal's land, building and equipment had a net book value of $5.7
million.
37
<PAGE>
Item 3. Legal Proceedings.
- ---------------------------
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ---------------------------------------------------------------------------
Matters.
- -------
Information relating to the market for the Registrant's common equity and
related stockholder matters appears under "Stock Information" and "Stock Price"
on the inside back cover of the Registrant's 1999 Annual Report to Stockholders
and is incorporated herein by reference.
Item 6. Selected Financial Data.
- ---------------------------------
The above-captioned information appears under "Selected Consolidated
Financial and Other Data" in the Registrant's 1999 Annual Report to Stockholders
on page 5 and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations.
- ---------------------
The above-captioned information appears under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Registrant's
1999 Annual Report to Stockholders on pages 6 though 14 and is incorporated
herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- --------------------------------------------------------------------
This information contained in the Section captioned, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Management of Interest Rate Risk and Market Risk Analysis" on pages 6 through 8
of the 1999 Annual Report to Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
The Consolidated Financial Statements of GA Financial, Inc. and its
subsidiaries, together with the report thereon by KPMG LLP for the 1999
financial statements appears in the Registrant's 1999 Annual Report to
Stockholders on pages 15 through 38 and are incorporated herein by reference. In
addition, the report by PriceWaterhouseCoopers LLP on the consolidated financial
statements of GA Financial, Inc. and its subsidiaries as of December 31, 1998
and each of the years in the two year period then ended is filed herewith as
exhibit 99.2.
Item 9. Changes In and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure.
- --------------------
On February 24, 1999, the Company engaged KPMG LLP as its principal
accountant to audit the Company's consolidated financial statements for the
fiscal year ended December 31, 1999. The Company issued a Form 8-K on March 3,
1999.
38
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 26, 2000,
at pages 4 through 6.
Item 11. Executive Compensation.
- --------------------------------
The information relating to directors' compensation and executives'
compensation is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 26, 2000,
at pages 7 through 10 and pages 12 through 17 (excluding the Executive
Compensation Committee Report and Stock Performance Graph).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 26, 2000,
at page 3.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 26, 2000, at page 18.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1999 Annual Report to
Stockholders.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report for 1999 Financial Statements.......... 15
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998........................................ 16
Consolidated Statements of Income and Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997...................... 17
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997...................... 18
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1999, 1998 and 1997.............. 19
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1999, 1998 and 1997...................... 20-38
</TABLE>
The remaining information appearing in the 1999 Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly provided
herein.
(2) All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements
or the notes thereto.
40
<PAGE>
(3) Exhibits
(a) The following exhibits are filed as part of this report.
3.1 Certificate of Incorporation of GA Financial, Inc.*
3.2 Amended Bylaws of GA Financial, Inc.**
4.0 Stock Certificate of GA Financial, Inc.*
10.1 Amended and Restated GA Financial Inc. 1996 Stock-Based
Incentive Plan***
10.2 Form of Great American Federal Savings and Loan Association
Employee Stock Ownership Plan*
10.3 Employment Agreement between Great American Federal Savings and
Loan Association and John M. Kish****
10.4 Employment Agreement between GA Financial, Inc. and John M.
Kish****
10.5 Change in Control Agreement between Great American Federal Savings
and Loan Association and Todd Cover (filed herewith)
10.6 Change in Control Agreement between GA Financial, Inc. and Raymond
G. Suchta*
13.0 Portions of the 1999 Annual Report to Stockholders (filed
herewith)
21.0 Subsidiary information is incorporated herein by reference to
"Part I - Subsidiaries"
23.0 Consent of KPMG LLP (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
27.0 Financial Data Schedule (field herewith)
99.1 Proxy Statement, dated March 24, 2000, for the 2000 Annual Meeting
of Stockholders (filed herewith)
99.2 PricewaterhouseCoopers LLP Report of Independent Accountants
(filed herewith)
(b) Reports on Form 8-K
None.
__________________________________
* Incorporated by reference into this document from the Exhibits to
Form S-1, Registration Statement, filed on December 21, 1995, as
amended, Registration No. 33-80715.
** Incorporated by reference into this document from the Company's
Form 10-Q filed on November 15, 1999.
*** Incorporated by reference into this document from the Proxy
Statement for the 1999 Annual Meeting of Shareholders filed on
March 26, 1999.
**** Incorporated by reference into this document from the Company's
Form 10-Q filed on May 13, 1998.
41
<PAGE>
CONFORMED SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ John M. Kish
--------------------------------------------
John M. Kish
Chairman of the Board and
Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ John M. Kish Chairman of the Board and March 30, 2000
- --------------------- Chief Executive Officer
John M. Kish (principal executive officer)
/s/ Raymond G. Suchta Chief Financial Officer March 30, 2000
- --------------------- and Treasurer
Raymond G. Suchta (principal accounting and
financial officer)
/s/ Thomas E. Bugel Director March 30, 2000
- ---------------------
Thomas E. Bugel
/s/ Darrell J. Hess Director March 30, 2000
- ---------------------
Darrell J. Hess
/s/ Thomas M. Stanton Director March 30, 2000
- ---------------------
Thomas M. Stanton
/s/ David R. Wasik Director March 30, 2000
- ---------------------
David R. Wasik
/s/ Robert J. Ventura Director March 30, 2000
- ---------------------
Robert J. Ventura
42
<PAGE>
EXHIBIT 10.5
Change in Control Agreement Between Great American Federal
Savings and Loan Association and Todd Cover
<PAGE>
GREAT AMERICAN FEDERAL SAVINGS AND LOAN ASSOCIATION
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of April 20, 1998 and among Great
American Federal Savings and Loan Institution (the "Institution"), a federally
chartered savings institution, with its principal administrative office
at 4750 Clairton Boulevard, Pittsburgh, Pennsylvania 15236, Todd L. Cover
("Executive"), and GA Financial, Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware which is the holding company
of the institution.
WHEREAS, the Insitution anticipates the substantial contribution Executive
will make to the Institution and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Institution.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided,
the parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of the Great American Federal Savings and Loan Association
Two Year Change in Control Agreement ("Agreement") shall be deemed to have
commenced as of the date first above written and shall continue for a period
of twenty-four (24) full calendar months thereafter. Commencing on the first
anniversary date of this Agreement and continuing at each anniversary date
thereafter, the Board of Directors of the Institution ("Board") may extend
the Agreement for an additional year. The Board will review the Agreement
and Executive's performance annually for purposes of determining whether
to extend the Agreement, and the results thereof shall be included in the
minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or
the Holding Company (as herein defined) followed at any time during the
term of this Agreement by the termination of Executive's employment, other
than for Cause, as defined in Section 2(c) hereof, the provisions of Section
3 shall apply. Upon the occurrence of a Change in Control, Executive shall
have the right to elect to voluntarily terminate his employment at any time
during the term of this Agreement following any demotion,
1
<PAGE>
loss of title, office or significant authority, reduction in his annual
compensation or benefits, or relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control; provided, however, the Executive may consent in writing to any such
demotion, loss, reduction or relocation. The effect of any written consent of
the Executive under this Section 2(a) shall be strictly limited to the terms
specified in such written consent.
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") ; or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the
date hereof (provided, that in applying the definition of change in control as
set forth under the rules and regulations of the OTS, the Board shall
substitute its judgment for that of the OTS); or (iii) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Institution
or the Holding Company representing 25% or more of the Institution's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution purchased by the
Holding Company and any voting securities purchased by any employee benefit
plan of the Institution or the Holding Company, or (B) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved
by a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a
member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Institution
or the Holding Company or similar transaction occurs in which the Institution
or Holding Company is not the resulting entity; provided, however, that such an
event listed above will be deemed to have occurred or to have been effectuated
upon the receipt of all required regulatory approvals not including the lapse
of any statutory waiting periods.
2
<PAGE>
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of Executive's personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been Terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits
for any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 4 hereof
through the Date of Termination, stock options and related limited rights
granted to Executive under any stock option plan shall not be exercisable nor
shall any unvested awards granted to Executive under any stock benefit plan of
the institution, the Holding Company or any subsidiary or affiliate thereof
vest. At the Date of Termination, such stock options and related limited rights
and such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such Date of
Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by termination of the Executive's employment
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Institution and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five years,
such average annual compensation shall include any bonuses, and any other
compensation paid or to be paid to Executive in any such year, the amount of
benefits paid or accrued to Executive pursuant
3
<PAGE>
to any employee benefit plan maintained by the Institution of Holding Company
in any such year and the amount of any contributions made or to be made on
behalf of Executive pursuant to any employee benefit plan maintained by the
Institution or the Holding Company in any such year. At the election of
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life,
medical and disability coverage substantially identical to the coverage
maintained by the Institution or Holding Company for Executive prior to his
severance, except to the extent such coverage may be changed in its application
to all Institution or Holding Company employees on a nondiscriminatory basis.
Such coverage and payments shall cease upon the expiration of thirty-six (36)
full calendar months from the Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Internal Revenue Code of
1986, as amended, or any successor thereto, and in order to avoid such a result
Termination Benefits will be reduced, if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount," as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs of
this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in
4
<PAGE>
the Notice of Termination (which, in the instance of Termination for Cause,
shall not be less than thirty (30) days from the date such Notice of
Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
------------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and
Executive, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5
<PAGE>
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVE.
----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. RETIRED REGULATORY-PROVISIONS.
-----------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, other than Termination
for Cause, shall not prejudice Executive's right to compensation or other
benefits under this Agreement. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Institution's affairs by a notice
served under Section 8(e) (3) or 8 (g) (1) of the Federal Deposit Insurance Act
(12 U.S.C. (S) 1818 (e) (3) or (g) (1), the Institution's obligations under
this contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice
6
<PAGE>
are dismissed, the Institution may in its discretion (i) pay Executive all or
part of the compensation withheld while their contract obligations were
suspended and (ii) reinstate (in whole or in part) any of the obligations which
were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Institution's affairs by an order issued
under Section 8 (e) (4) or 8 (g) (1) of the Federal Deposit Insurance Act (12
U. S. C - (S)1818 (e) (4) or (g) (1)), all obligations of the Institution
under this contract shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
(d) If the Institution is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Institution under this
contract shall terminate as of the date of default, but this paragraph shall
not affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to
the extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her designee) at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the Institution under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to
operation of the Institution or when the Institution is determined by the
Director to be in an unsafe or unsound condition. Any right of the parties that
have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. (S)
1828(k) and any rules and regulations promulgated thereunder.
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
---------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Institution's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change of Control, as defined herein, occurs, the Institution will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Institution's receipt of a dismissal of charges in the Notice of Termination.
7
<PAGE>
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The hearings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware but only to
the extent not preempted by Federal law.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive within
fifty (50) miles from the location of the Institution's main office, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Institution (which payments are
guaranteed by the Holding Company pursuant to Section 5 hereof) if Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement.
8
<PAGE>
16. INDEMNIFICATION.
---------------
The Institution shall provide Executive (including his or her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal
representatives, successors and assigns) for reasonable costs and expenses
incurred by Executive in defending or settling any judicial or administrative
proceeding, or threatened proceeding, whether civil, criminal or otherwise,
including any appeal or other proceeding for review.
Indemnification by the Institution shall be made only upon the final
judgment on the merits in the favor of Executive, in case of settlement, in
case of final judgment against Executive or in the case of final judgment in
favor of Executive other than on the merits, if a majority of the
disinterested directors of the Institution determine Executive was acting in
good faith within the scope of Executive's employment or authority in
accordance with 12 C.F.R. section 545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Section 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of Directors of the
Institution, if such action is brought against Executive in his or her capacity
as a officer or director of the Institution, however, shall not extend to
matters as to which Executive is finally adjudged to be liable for willful
misconduct in the performance of his or her duties.
17. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same mariner and to the same extent that the
Institution would be required to perform if no such succession or assignment
had taken place.
9
<PAGE>
SIGNATURE
IN WITNESS WHEREOF, Great American Federal Savings and Loan Association
and GA Financial, Inc. have caused this Agreement to be executed by their duly
authorized officers, and Executive has signed this Agreement, on the 20th day of
April, 1998.
ATTEST: GREAT AMERICAN FEDERAL SAVINGS
AND LOAN ASSOCIATION
/s/ Lawrence A. Michael By: /s/ John M. Kish
- -------------------------- -------------------------------
Lawrence A. Michael John M. Kish
Secretary Chief Executive Officer
SEAL
ATTEST: GA FINANCIAL, INC.
(Guarantor)
/s/ Lawrence A. Michael By: /s/ John M. Kish
- -------------------------- -------------------------------
Lawrence A. Michael John M. Kish
Secretary Chairman of the Board and
Chief Executive Officer
SEAL
WITNESS:
/s/ Lawrence A. Michael By: /s/ Todd L. Cover
- -------------------------- -------------------------------
Lawrence A. Michael Todd L. Cover
Executive
10
<PAGE>
EXHIBIT 13.0
Portions of the 1999 Annual Report to Stockholders
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $882,980 $823,322 $783,948 $634,048 $521,398
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale 150,960 163,108 151,265 119,347 71,060
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities available for sale 306,724 273,124 284,161 244,482 168,779
- -----------------------------------------------------------------------------------------------------------------------------------
Loans held for sale 19,158 20,040 18,853 15,383 --
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 334,351 310,688 287,674 216,376 180,275
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 297,160 222,545 198,237 51,525 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total equity/2/ $ 84,571 $109,216 $116,126 $122,404 $ 48,230
SELECTED OPERATING DATA:
Interest income $ 56,645 $ 55,205 $ 52,680 $ 40,350 $ 32,833
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense 33,388 31,639 27,233 17,545 16,543
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses 23,257 23,566 25,447 22,805 16,290
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 390 360 300 210 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 22,867 23,206 25,147 22,595 16,290
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest income 3,826 4,774 2,648 3,460 422
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense 17,258 15,580 14,752 16,972 12,280
- -----------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 9,435 12,400 13,043 9,083 4,432
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 2,320 4,158 4,726 3,481 1,612
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,115 $ 8,242 $ 8,317 $ 5,602 $ 2,820
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share 1.22 1.23 1.15 .71 --
-----------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
P E R F O R M A N C E R A T I O S:
Return on average assets 0.81% 1.01% 1.15% 1.00% 0.59%
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average equity 7.61 7.73 7.19 5.21 6.27
- -----------------------------------------------------------------------------------------------------------------------------------
Average equity to average assets 10.67 13.11 15.92 19.22 9.49
- -----------------------------------------------------------------------------------------------------------------------------------
Equity to total assets at end of period 9.58 13.26 14.81 19.31 9.25
- -----------------------------------------------------------------------------------------------------------------------------------
Average interest rate spread 2.46 2.37 2.81 3.27 3.08
- -----------------------------------------------------------------------------------------------------------------------------------
Net-interest margin 2.99 3.03 3.61 4.20 3.54
- -----------------------------------------------------------------------------------------------------------------------------------
Average interest-earning assets to average 113 116 121 129 113
interest-bearing liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest expense to average assets 1.83 1.92 2.03 2.54/1/ 2.59
- -----------------------------------------------------------------------------------------------------------------------------------
Efficiency ratio 59 59 54 58 68
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per share 0.64 0.54 0.42 0.13 --
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 52.46 43.90 36.52 18.31 --
- -----------------------------------------------------------------------------------------------------------------------------------
R E G U L A T O R Y C A P I T A L R A T I O S :
Tier I leverage capital 8.11 12.02 12.59 15.26 8.76
- -----------------------------------------------------------------------------------------------------------------------------------
Tier I risk-based capital 22.44 30.90 33.30 43.59 18.30
- -----------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital 23.12 31.78 33.76 44.08 18.63
A S S E T Q U A L I T Y R A T I O S :
Non-performing loans as a percent of gross loans receivable 0.51 0.56 0.56 0.38 0.81
- -----------------------------------------------------------------------------------------------------------------------------------
Non-performing assets as a percent of total assets 0.21 0.23 0.22 0.14 0.28
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percent of gross loans receivable 0.48 0.48 0.43 0.44 0.45
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percent of
non-performing assets 95 86 76 115 56
- -----------------------------------------------------------------------------------------------------------------------------------
N U M B E R O F F U L L - S E R V I C E C U S T O M E R
F A C I L I T I E S 15 14 13 13 10
</TABLE>
/1/Excludes one-time SAIF assessment of $2.8 million.
/2/The Company completed its conversion to a stock company on March 25, 1996.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
GA Financial, Inc. (the "Company") was incorporated on December 14, 1995, and is
the holding company for Great American Federal Savings and Loan Association (the
"Association") and New Eagle Capital, Inc. On March 25, 1996 the Association
completed its conversion from a federally chartered mutual savings and loan
association to a stock form of ownership, and simultaneously, the Company issued
8,900,000 shares of common stock, utilizing a portion of the net proceeds to
acquire all of the outstanding stock of the Association. 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.
The Company conducts business primarily through its ownership of the
Association which operates its administrative/branch office in Whitehall,
Pennsylvania and twelve other branch offices in Allegheny County and two offices
in Westmoreland County, all of which are located in southwestern Pennsylvania.
The Company's primary business is attracting retail deposits from the general
public and investing those deposits and other borrowed funds in loans, mortgage-
related securities, U.S government and federal agency securities and other
investments. The Company's revenues are derived principally from interest on
mortgage loans, mortgage-related securities, consumer loans and, to a lesser
extent, interest and dividends on its investment portfolio. The Company also
generates non-interest income from service fees. The Company's primary sources
of funds are retail deposits, principal and interest repayments on loans, sales
of investments and mortgage-related securities, Federal Home Loan Bank of
Pittsburgh ("FHLB") advances and, to a significantly lesser extent, sales of
loans.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on interest-
earning assets and the interest expense incurred on interest-bearing
liabilities. Non-interest income is the result of service fees, sales of data
processing services and net gains on the sale of loans and securities. The
Company previously announced that it will no longer continue to provide data
processing to other companies. The Company's operating expenses consist
primarily of compensation and employee benefits, occupancy and equipment
expenses, deposit insurance premiums, data processing service 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.
MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS
The principal objective of the Company's interest rate risk management function
is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Board of
Directors approved guidelines. Through such management, the Company seeks to
reduce the vulnerability of its operations to changes in interest rates. The
Company monitors its interest rate risk as such risk relates to its operating
strategies. The Company's Board of Directors has established an Asset/Liability
Management committee, which is responsible for reviewing its asset/liability
policies and interest rate risk position, and which meets at least on a
quarterly basis. The Asset/Liability Management committee reviews trends in
interest rates, the financial position of the Company, the Company's actual
performance to budgeted performance, the Company's interest rate position as
measured by changes in its net income and net portfolio value under certain
interest rate scenarios and the projected impact of such interest rate scenarios
on its earnings and capital.The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.
The Company has only limited involvement with derivative financial instruments.
In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) purchasing adjustable interest rate mortgage-related
securities; (2) investing in short-term fixed-rate corporate and government
agency bonds or in such types of bonds with adjustable interest rates; and (3)
attempting to reduce the overall interest rate sensitivity of liabilities by
emphasizing longer term deposits. The Company has not emphasized the origination
of adjustable-
6
<PAGE>
rate mortgages due to customer preference for fixed-rate loans in its primary
market area and competitive pricing of such loans by other lenders in its market
area. The Company has attempted to address the lack of demand for adjustable-
rate mortgage loans by emphasizing the purchase of adjustable-rate mortgage-
related securities. To manage the interest rate risk of the Company, the Board
of Directors has also established parameters relating to the types of securities
in which the Company may invest and parameters relating to the types of deposits
which may be offered by the Company and rates which may be paid on such
deposits. The primary tool utilized by the Company for its interest rate risk
management is a modeling program which estimates the effect various market
interest rate scenarios will have on the Company's net portfolio value, interest
income, net income and capital position. Such interest rate scenarios range from
an increase in market interest rate of 300 basis points to a decrease in market
interest rates of 300 basis points.
Market risk is the risk of losses resulting from adverse changes in market
pricing and rates. The Company's market risk is primarily its interest rate risk
associated with its lending, investing, deposit and borrowing functions.
Interest rate risk arises when interest rates on assets change in a different
time period or in a different proportion from that of liabilities. Management
actively monitors its interest rate sensitivity position 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. Interest rate
risk is considered by management to be the Company's most significant market
risk that could materially impact the Company's financial position or result of
operations. In its normal course of business, the Company is not exposed to
other types of market risk such as risk associated with commodity prices or
foreign currencies.
NET PORTFOLIO VALUE
The Association's interest rate sensitivity is monitored by management through
the use of a third party generated model which estimates the change in the
Association's net portfolio value ("NPV") over a range of interest rate
scenarios. NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. The NPV ratio, under any interest
rate scenario, is defined as the NPV in that scenario divided by the market
value of assets in that same scenario. The Office of Thrift Supervision ("OTS")
also produces a similar analysis using its own model, based on data submitted on
the Association's quarterly Thrift Financial Reports, the results of which may
vary from the Association's third party model primarily due to differences in
assumptions utilized between the Association's third party model and the OTS
model, including estimated loan and securities prepayment rates, reinvestment
rates, and deposit decay rates. There was no material difference between the
Association's NPV as calculated by the OTS model and the NPV as calculated by
the third party model. The following table indicates the Association's NPV as of
December 31, 1999, as calculated by the OTS, and indicates the value of the
Association's assets and liabilities would result in a decline in the
Association's NPV in a rising interest rate environment. Specifically, the table
indicates that, as of December 31, 1999, the Association's NPV was $79.7 million
(or 9.2% of the market value of total assets) and that, based upon the
assumptions utilized by the OTS, an immediate increase in market interest rates
of 300 basis points would result in a $61.8 million, or 78% decrease in the
Association's NPV, and an immediate decrease in market rates of 300 basis points
would result in a $26.5 million, or 33% increase in the Association's NPV.
- --------------------------------------------------------------------------------
As of December 31, 1999 (Dollars in thousands)
<TABLE>
<CAPTION>
CHANGE IN INTEREST
RATES IN BASIS POINTS NPV AS A % OF PORTFOLIO
(RATE SHOCK) NET PORTFOLIO VALUE VALUE OF ASSETS
AMOUNT $ CHANGE % CHANGE NPV RATIO % CHANGE
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
+300 bp $ 17,899 ($61,760) -78% 2.3% -690bp
- --------------------------------------------------------------------------------------------------------------------
+200 bp 37,915 (41,744) -52% 4.7% -451bp
- --------------------------------------------------------------------------------------------------------------------
+100 bp 58,866 (20,793) -26% 7.0% -217bp
- --------------------------------------------------------------------------------------------------------------------
Static 79,659 -- -- 9.2% --
- --------------------------------------------------------------------------------------------------------------------
- -100 bp 95,590 15,931 +20% 10.7% +154bp
- --------------------------------------------------------------------------------------------------------------------
- -200 bp 102,463 22,804 +29% 11.3% +212bp
- --------------------------------------------------------------------------------------------------------------------
- -300 bp 106,152 26,493 +33% 11.6% +237bp
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in the NPV require the making
of certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV model presented assumes that the composition of the Association's
interest rate sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Association's interest rate risk exposure at
a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Association's net interest income and will differ from actual results.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND DECEMBER 31, 1998
The Company's total assets were $883.0 million at December 31, 1999, an increase
of $59.7 million or 7.2% over total assets of $823.3 at December 31, 1998. The
increase was funded primarily through FHLB borrowings consistent with
management's strategy of funding asset growth partly through the use of FHLB
borrowings as opposed to aggressively increasing deposit pricing to attract
increased deposits. Changes in the components of assets are discussed herein.
Cash and federal funds sold increased $3.1 million or 13.4% to $26.6 million
at December 31, 1999 due to an increase in liquid funds on hand in preparation
for year 2000 related issues.
Investment securities decreased $12.1 million or 7.4% to $151.0 million at
December 31, 1999 due to maturities.
Mortgage-related securities increased $33.6 million or 12.3% to $306.7 million
at December 31, 1999 due to purchases of securities funded primarily through
FHLB borrowings.
Loan receivables increased $23.7 million or 7.6% to $334.4 million at December
31, 1999 due to loan purchases of $57.7 million.
The Company's non-performing loans decreased $53,000 to $1.8 million at
December 31, 1999. The foregone interest on these loans amounted to $138,000 in
1999 and $147,000 in 1998.
FHLB stock increased $4.0 million or 35.4% to $15.5 million at December 31,
1999 due to increased borrowings at the FHLB. The Association is required to own
FHLB stock based partly on the levels of borrowings at the FHLB.
Prepaid expenses and other assets increased $8.0 million or 84.4% to $17.6
million at December 31, 1999 primarily due to a deferred tax benefit of $8.4
million related to the unrealized loss on the available for sale securities and
an increase in the surrender values of bank owned life insurance policies of
$538,000.
Savings accounts increased $12.6 million or 2.6% to $495.1 million due
primarily to interest crediting on the savings accounts.
Borrowed funds increased $74.6 million or 33.5% to $297.2 million. This
increase is a result of management's decision to continue the utilization of
FHLB borrowings to fund asset growth, particularly in investment and mortgage-
related securities. FHLB borrowings can be invested at yields higher than the
cost of the borrowed funds thereby increasing net interest income. The maximum
amount of borrowings outstanding at any month end during the year 1999 was
$307.2 million.
Accrued interest payable increased $963,000 or 60.0% to $2.6 million at
December 31, 1999 due to an increase in savings accounts and borrowed funds
during the year.
There were $29,000 of securities purchased, not settled, at December 31, 1999.
These securities settled in January, 2000. Securities purchased, not settled,
was $1.9 million at December 31, 1998 due to the purchases of municipal
securities which settled in January, 1999.
Shareholder's equity decreased $24.6 million or 22.6% to $84.6 million at
December 31, 1999. This was due to a decrease of $17.6 million in accumulated
other comprehensive income, net of tax, cash dividends paid of $3.8 million,
purchases of GA Financial stock of $13.7 million, ESOP payment of $1.0 million
and the related $521,000 to record the allocated shares at fair value, and
stock-based compensation of $1.8 million which was partially offset by net
income of $7.1 million.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Average Balance Sheet. The following table sets forth certain information
relating to the Company's average balance sheet and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods presented. Average balances
are daily averages during the periods.
<TABLE>
<CAPTION>
Dollar amounts in thousands Year ended Dec. 31, 1999 Year ended Dec. 31, 1998 Year ended Dec. 31, 1997
-------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------------------------------------------------------------
ASSETS :
I N T E R E S T - E A R N I N G
A S S E T S :
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning deposits and
short-term investments $ 12,488 $ 552 4.42% $ 10,637 $ 637 5.99% $ 7,829 $ 517 6.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Investment securities, net/1,2/ 161,720 9,101 6.75 161,531 10,084 6.24 134,660 8,693 6.46
- -----------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net/1,3/ 343,179 25,426 7.41 325,190 25,465 7.83 273,547 22,310 8.16
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities, net/1/ 307,612 20,628 6.71 268,440 18,290 6.81 280,376 20,706 7.39
- -----------------------------------------------------------------------------------------------------------------------------------
FHLB stock 14,366 938 6.53 11,291 729 6.46 7,543 454 6.02
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 839,365 56,645 6.97 777,089 55,205 7.10 703,955 52,680 7.48
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets 36,784 -- -- 36,125 -- -- 22,055 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $876,149 -- -- $813,214 -- -- $726,010 -- --
-------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
I N T E R E S T - B E A R I N G
L I A B I L I T I E S :
Money market accounts $ 18,770 $ 687 3.66% $ 14,342 $ 329 2.29% $ 16,152 $ 397 2.46%
- -----------------------------------------------------------------------------------------------------------------------------------
Passbook accounts 157,920 3,808 2.41 159,374 4,394 2.76 160,155 4,805 3.00
- -----------------------------------------------------------------------------------------------------------------------------------
NOW accounts 33,744 613 1.82 31,886 570 1.78 28,339 552 1.95
- -----------------------------------------------------------------------------------------------------------------------------------
Certificate accounts 242,384 12,837 5.30 239,819 13,383 5.58 229,620 12,688 5.53
- -----------------------------------------------------------------------------------------------------------------------------------
Total 452,818 17,945 3.96 445,421 18,676 4.19 434,266 18,442 4.25
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 286,034 15,413 5.39 222,057 12,931 5.82 146,481 8,755 5.98
- -----------------------------------------------------------------------------------------------------------------------------------
Other 1,539 30 1.95 1,628 32 1.97 1,780 36 2.02
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 740,391 33,388 4.51 669,106 31,639 4.73 582,527 27,233 4.67
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing liabilities 42,274 -- -- 37,492 -- -- 27,887 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Equity 93,484 -- -- 106,616 -- -- 115,596 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $876,149 -- -- $813,214 -- -- $726,010 -- --
-------------------------------------------------------------------------------------
Net earning assets $ 98,974 -- -- $107,983 -- -- $121,428 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income -- $23,257 -- -- $23,566 -- -- $25,447 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread/4/ -- -- 2.46% -- -- 2.37% -- -- 2.81%
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin/5/ -- -- 2.99% -- -- 3.03% -- -- 3.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of interest-earning assets to
interest-bearing liabilities -- -- 113.37% -- -- 116.14% -- -- 120.85%
- -----------------------------------------------------------------------------------------------------------------------------------
</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
interest-earning assets and the cost of interest-bearing liabilities.
/5/ Net interest margin represents net interest income divided by interest-
earning assets.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
Net Income. Net income for the year ended December 31, 1999 decreased $1.1
million or 13.7% from the previous year to $7.1 million. Changes in the
components of net income are discussed herein.
Interest Income. Total interest income increased $1.4 million or 2.6% to $56.6
million for the year ended 1999. This is substantially the result of an increase
of $62.3 million in the average balances of interest-earning assets offset
slightly by a decrease in the weighted average yield from 7.10% in 1998 to 6.97%
in 1999. Interest on deposits and short-term investments decreased $85,000 or
13.3% to $552,000 during 1999 due to lower yields on short-term investments.
Interest on investment securities decreased $983,000 or 9.7% due to lower
yields. Also, interest on loans receivable decreased $39,000 or 0.2% to $25.4
million due to the increase in average balances of 18.0 million or 5.5% offset
slightly by the decline in the weighted average yield on loans. The Company
purchased $57.6 million of loans in 1999 as compared to $66.8 million in 1998.
Borrowed funds were used to purchase investment securities and mortgate-related
securities in 1999. Interest on mortgage-related securities increased $2.3
million or 12.8% due to the average balances increasing $39.2 million or 14.6%
offset slightly by the decrease of the weighted average yield of 6.81% in 1998
to 6.71% in 1999 due to the interest rate environment. The dividends on FHLB
stock increased $209,000 or 28.7% to $938,000 in 1999 due to an increase of $3.1
million in the weighted average balance resulting from the purchase of
additional FHLB stock. The Association is required to own FHLB stock based
partly on the levels of FHLB borrowings.
Interest Expense. Total interest expense on interest-bearing liabilities
increased $1.7 million or 5.5% due to an increase in the weighted average
balance of interest-bearing liabilities of $71.3 million or 10.7% to $740.4
million offset by a decrease in the weighted average cost from 4.73% to 4.51%.
The interest on savings accounts decreased $731,000 or 3.9% to $17.9 million for
1999 due primarily to the weighted average cost decreasing 23 basis points. The
interest on borrowings increased $2.5 million or 19.2% due to an increase of
$64.0 million or 28.8% in the weighted average balances of borrowings offset by
the weighted average cost decrease from 5.82% to 5.39% for 1999. Funding asset
growth through FHLB borrowings is one of the strategies management is currently
employing. Management believes the FHLB borrowings can be invested at yields
higher than the cost of the borrowed funds, thereby increasing net interest
income. FHLB borrowings have been invested in residential mortgage loans,
mortgage-related securities, and other investment securities.
Rate/Volume Analysis. The following table presents the extent to which changes
in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
interest expense during the period indicated. Information is provided with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated to
changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 COMPARED TO THE
YEAR ENDED DEC. 31, 1998 INCREASE (DECREASE)
DUE TO
(Dollars in thousands) Volume Rate Net
---------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits and short-term investments $ 111 $ (196) $ (85)
- -----------------------------------------------------------------------------------------------------------------------------
Investments securities, net 12 (995) (983)
- -----------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 1,409 (1,448) (39)
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities 2,668 (330) 2,338
- -----------------------------------------------------------------------------------------------------------------------------
FHLB Stock 199 10 209
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 4,399 (2,959) 1,440
---------------------------------------------------
Interest-bearing liabilities:
Money market savings accounts 101 257 358
- -----------------------------------------------------------------------------------------------------------------------------
Passbook savings accounts (40) (546) (586)
- -----------------------------------------------------------------------------------------------------------------------------
NOW accounts 33 10 43
- -----------------------------------------------------------------------------------------------------------------------------
Certificate accounts 143 (689) (546)
- -----------------------------------------------------------------------------------------------------------------------------
Borrowings 3,723 (1,241) 2,482
- -----------------------------------------------------------------------------------------------------------------------------
Other (2) (0) (2)
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,958 (2,209) 1,749
- -----------------------------------------------------------------------------------------------------------------------------
Net Change in Net Interest Income $ 441 $ (750) $ (309)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Provision for Loan Losses. The Company provided $390,000 for loan losses during
1999 as compared to $360,000 during 1998 due to an analysis of the allowance for
loan losses in connection with a review of the Company's loan portfolio. The
Company purchased $57.6 million and $66.8 million, including premiums, of loans
in 1999 and 1998, respectively. The allowance for loan losses is maintained at
an amount management considers appropriate to cover estimated losses on loans
receivable which are deemed probable and estimable based on information
currently known to management. While management believes the Company's allowance
for loan losses is sufficient to cover losses inherent in its portfolio at this
time, no assurance can be given that the Company's level of allowance for loan
losses will be sufficient to cover future loan losses incurred by the Company,
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.
Net Interest Income. Net interest income after the loan loss provision for 1999
was $22.9 million, a decrease of $339,000 or 1.5% compared to 1998.
Non-interest Income. Non-interest income consists of service fees, net gains on
sale of securities and education loans, data processing service fees and other
miscellaneous non-interest income. Service fees increased $526,000 or 28.7% to
$2.4 million for 1999 primarily due to a restructuring of the service fees and
products beginning Sept. 1, 1999. Net gains on the sale of securities decreased
by $203,000 or 73.3%. Net gains on the sale of education loans decreased $31,000
or 12.7% to $214,000 for 1999 due to the timing of education loan sales.
Education loans are sold as they reach repayment status. Data processing fees
decreased $161,000 or 21.4% to $593,000 for 1999 due to the previously announced
discontinuation of its data services. The Company previously announced that it
will no longer continue to provide data processing services for other companies.
The information services department will concentrate on providing data
processing services to the Company only. Other miscellaneous income decreased
$1.1 million or 64.8% to $586,000 for 1999 primarily due to a one-time $876,000
Pennsylvania foreign franchise tax refund recorded in 1998.
Non-interest Expense. Total non-interest expense increased $1.7 million or 10.8%
to $17.3 million for 1999. Compensation and employee benefits increased $1.3
million or 15.7% to $9.2 million for 1999 due to the opening of an additional
branch office, salary increases, a one time pre-tax charge of $579,000 related
to the Employee Stock Ownership Plan and a one-time pre-tax charge of $650,000
related to the retirement of a former executive. Occupancy and equipment expense
increased $223,000 or 12.5% to $2.0 million due to the opening of an additional
branch office in 1999. Deposit insurance premiums, and data processing expenses
remained substantially the same for both 1999 and 1998. Other miscellaneous
expenses increased $323,000 or 8.1% to $4.3 million for 1999 due substantially
to increases in real estate owned expenses of $205,000.
Income Tax Expense. The provision for income taxes decreased $1.8 million or
44.2% to $2.3 million for 1999. The effective tax rate for 1999 is 24.6% as
compared to 33.5% for 1998. This decrease is primarily a result of a reduction
in pretax income, coupled with an increase in the level of non-taxable income
and a decrease in the current year state tax expense.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPARISON OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
Net Income. Net income for the year ended December 31, 1998 decreased $75,000 or
0.9% to $8.2 million from the previous year. Changes in the components of net
income are discussed herein.
Interest Income. Total interest income increased $2.5 million or 4.8% to $55.2
million for the year ended 1998. This is substantially the result of an increase
of $73.1 million in the average balances of interest-earning assets even though
the weighted average yield fell from 7.48% in 1997 to 7.10% in 1998. This yield
decrease is due to the declining interest rate environment. Interest on deposits
and short-term investments increased $120,000 or 23.2% to $637,000 during 1998
due to the Company having more short-term investments as a result of prepayments
on loans and mortgage-related investment securities. Interest on investment
securities increased $1.4 million or 16.0% due to the Company purchasing
securities with the increased borrowings from the FHLB. Also, interest on loans
receivable increased $3.2 million or 14.1% to $25.5 million due to an increase
in the average balances of loans. The Company purchased $66.8 million of loans
in 1998 as compared to $71.2 million in 1997. Borrowed funds were used to
purchase loans, investment securities and mortgage-related securities. Interest
on mortgage-related securities decreased $2.4 million or 11.7% due to the
average balances declining $11.9 million or 4.3% and yields declining from a
weighted average yield of 7.39% in 1997 to 6.81% in 1998 due to the interest
rate environment. The dividend on FHLB stock increased $275,000 or 60.6% to
$729,000 in 1998 due to an increase of $3.7 million in the weighted average
balance resulting from the purchase of additional FHLB stock. The Association is
required to own FHLB stock based on the levels of FHLB borrowings.
Interest Expense. Total interest on interest-bearing liabilities increased $4.4
million or 16.2% due to an increase in the weighted average balance of interest-
bearing liabilities of $86.6 million or 14.9% to $669.1 million and an increase
in the weighted average cost from 4.67% to 4.73%. The interest on savings
accounts increased $234,000 or 1.3% to $18.7 million for 1998 due to an increase
in the average balances of $11.2 million or 2.6% to $445.4 million. The interest
on borrowings increased $4.2 million or 47.7% due to an increase of $75.6
million or 51.6% in the weighted average balances of borrowings. Funding asset
growth through FHLB borrowings is one of the strategies management is currently
employing. Management believes the FHLB borrowings can be invested at yields
higher than the cost of the borrowed funds, thereby increasing net interest
income. FHLB borrowings have been invested in residential mortgage loans,
mortgage-related securities, and other investment securities.
Rate/Volume Analysis. The following table presents the extent to which changes
in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
interest expense during the period indicated. Information is provided with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated to
changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1998COMPARED TO THE
YEAR ENDED DEC. 31, 1997INCREASE (DECREASE)
DUE TO
(Dollars in thousands) Volume Rate Net
--------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits and short-term investments $ 185 $ (65) $ 120
- ----------------------------------------------------------------------------------------------------------------------------
Investments securities, net 1,735 (344) 1,391
- ----------------------------------------------------------------------------------------------------------------------------
Loans receivable, net 4,212 (1,057) 3,155
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities (881) (1,535) (2,416)
- ----------------------------------------------------------------------------------------------------------------------------
FHLB Stock 226 49 275
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,477 (2,952) 2,525
--------------------------------------------------
Interest-bearing liabilities:
Money market savings accounts (44) (24) (68)
- ----------------------------------------------------------------------------------------------------------------------------
Passbook savings accounts (23) (388) (411)
- ----------------------------------------------------------------------------------------------------------------------------
NOW accounts 69 (51) 18
- ----------------------------------------------------------------------------------------------------------------------------
Certificate accounts 564 131 695
- ----------------------------------------------------------------------------------------------------------------------------
Borrowings 4,517 (341) 4,176
- ----------------------------------------------------------------------------------------------------------------------------
Other (3) (1) (4)
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,080 (674) 4,406
- ----------------------------------------------------------------------------------------------------------------------------
Net Change in Net Interest Income $ 397 $(2,278) $(1,881)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Provision for Loan Losses. The Company provided $360,000 for loan losses during
1998 as compared to $300,000 during 1997 due to an analysis of the allowance for
loan losses in connection with a review of the Company's loan portfolio. The
Company purchased $66.8 million and $97.6 million, including premiums, of loans
in 1998 and 1997, respectively. The allowance for loan losses is maintained at
an amount management considers appropriate to cover estimated losses on loans
receivable which are deemed probable and estimable based on information
currently known to management. While management believes the Company's allowance
for loan losses is sufficient to cover losses inherent in its portfolio at this
time, no assurance can be given that the Company's level of allowance for loan
losses will be sufficient to cover future loan losses incurred by the Company,
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.
Net Interest Income. Net interest income after the loan loss provision for 1998
was $23.2 million, a decrease of $1.9 million or 7.7% compared to 1997.
Non-interest Income. Non-interest income consists of service fees, net gains on
sale of securities and education loans, data processing service fees and other
miscellaneous non-interest income. Service fees increased $534,000 or 41.1% to
$1.8 million for 1998 due to the increase in checking account fees. Net gains on
the sale of securities decreased $162,000 or 36.9% in 1998. Net gains on the
sale of education loans increased $58,000 or 31.0% to $245,000 for 1998 due to
the timing of education loan sales. Education loans are sold as they reach
repayment status. Data processing service fees increased $122,000 or 19.3% to
$754,000 for 1998 due primarily to the additional services provided to clients.
The Company announced that after a comprehensive study of its DataOne data
processing division, it has concluded that it will no longer continue to provide
data processing services for other companies. The information services
department will concentrate on providing data processing services to the Company
only. Other miscellaneous income increased $1.6 million or greater than 100% to
$1.7 million for 1998 due primarily to earnings of $420,000 on the bank owned
life insurance policies the Company purchased in 1997 and $876,000 Pennsylvania
foreign franchise tax receivable.
Non-interest Expense. Total non-interest expense increased $828,000 or 5.6% to
$15.6 million for 1998. Compensation and employee benefits increased $365,000 or
4.8% to $7.9 million for 1998 due to the opening of an additional branch office
and salary increases. Occupancy and equipment, deposit insurance premiums, and
data processing expenses remained substantially the same for both 1998 and 1997.
Other miscellaneous expenses increased $460,000 or 13.0% to $4.0 million for
1998 due substantially to increases in professional fees. The Company engaged
consulting firms to review operational procedures and human resources at all
levels of the Company.
Income Tax Expense. The provision for income taxes decreased $568,000 or 12.0%
to $4.2 million for 1998 due to an increase in municipal bonds and tax credit
investment security purchases for 1998. The effective tax rate for 1998 is 33.5%
as compared to 36.2% for 1997.
OTHER MATTERS
Liquidity and Capital Resources. The Company'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
and short-term borrowings as defined by the OTS regulations. The total liquidity
for the month of December, 1999 was 45.5%. The higher than required levels of
liquidity are used to better manage interest rate risk.
Liquidity can be further analyzed by utilizing the Consolidated Statement of
Cash Flows. There was an increase in net cash provided by financing activities
of $69.7 million during the year ended December 31, 1999. This was primarily due
to a net increase in borrowings of $74.6 million. Net cash used in investing
activities was $79.1 million, consisting primarily of a $22.8 million net
increase in loans. Net cash provided by operating activities was $12.6 million.
Overall, cash and cash equivalents increased $3.1 million at year-end 1999
compared to year-end 1998.
At December 31, 1999, the Association had commitments to extend credit of
$42.2 million.
At December 31, 1999, the Association had exceeded each of the OTS' capital
requirements for tangible, core, and risk-based capital. The OTS requires the
Association to maintain a minimum regulatory tangible capital of at least 1.50%
of tangible assets, a minimum 3.0% core capital ratio (expressed as a percentage
of adjusted total assets) and a minimum risk-based capital of 8.0% (expressed as
a percentage of risk-weighted assets, which includes off-balance sheet items) as
defined by the OTS. The Company is not required by the OTS to maintain minimum
levels of capital for regulatory purposes. Refer to footnote 11 for capital
requirements and regulatory restrictions.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Year 2000 Compliance. In 1996, the Company's data processing division began to
address the risks associated with the coming millennium. The Company completed
the preparations related to this event in 1999. These preparations involved
examining all computer hardware and software as well as third-party systems and
equipment to identify and remediate date recognition problems. In addition, the
Company developed contingency plans to address potential risks in the event of
Year 2000 failures. To date, the Company has experienced no known distruptions
as a result of the Year 2000 date change.
Although considered unlikely, unanticipated problems could still occur,
including problems associated with non-compliant third parties and disruptions
to the economy in general, despite efforts to date to remediate affected systems
and develop contingency plans. Management will continue to monitor all business
processes throughout 2000 to address any issues and ensure all processes
continue to function properly.
Through 1999, the Year 2000 project totaled approximately $250,000 in costs
primarily related to internal and external personnel who worked on the project.
No additional material costs are estimated to be incurred in future periods
related to this event.
Other. The Company announced that after a 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 review of the
competition in the data processing service arena. Two of the three external
clients of DataOne were deconverted prior to the year 2000 and the other client
is scheduled to be deconverted during the first six months of the year 2000.
New Accounting Pronouncements. SFAS No. 133; "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133," requires 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 as amended will be adopted by the Company for
its quarterly and annual reporting beginning January 1, 2001. 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.
Impact of Inflation and Changing Prices. The Consolidated Financial Statements
of the Company and Notes thereto, presented elsewhere herein, have been prepared
in accordance with generally accepted accounting principles ("GAAP"), which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the direction or to the same extent as the price of
goods and services.
Recent Developments. The Board of Directors declared a dividend of $.18 per
share to shareholders of record on February 9, 2000, payable on February 23,
2000.
The Company's Board of Directors approved the repurchase of up to 5% of the
outstanding shares of the Company, or 311,172 shares of GA Financial, Inc.
common stock in January 2000. The plan must be completed by January, 25, 2001.
The total treasury shares of the Company's stock were 2,887,941 as of March 7,
2000.
Private Securities Litigation Reform Act Safe Harbor Statement. In addition to
historical information, this Annual Report may include certain forward looking
statements based on current management expectations. The Company's actual
results could differ materially from those management expectations. Factors that
could cause future results to vary from current management expectations include,
but are not limited to, general economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the federal government, changes in tax
policies, rates and regulations of federal, state and local tax authorities,
changes in interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the quality or
composition of the Company's loan and investment portfolios, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. Further description of the risks and
uncertainties to the business are included in detail in Item 1, "Business," of
the Company's 1999 Form 10-K.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
GA FINANCIAL, INC.
We have audited the accompanying consolidated statement of financial condition
of GA Financial, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The accompanying
consolidated financial statements of GA Financial, Inc. and subsidiaries as of
December 31, 1998, and for each of the years in the two-year period ended
December 31, 1998, were audited by other auditors whose report thereon dated
January 27, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GA
Financial, Inc. and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
January 28, 2000
15
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
Dollar amounts in thousands, except share data
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
-------------------------------
A S S E T S
<S> <C> <C>
Cash (including interest-bearing demand deposits of $12,457 in 1999 and $7,705 in 1998) $ 26,632 $ 22,987
- -------------------------------------------------------------------------------------------------------------------------------
Federal funds sold -- 500
- -------------------------------------------------------------------------------------------------------------------------------
Available for sale securities, at fair value (Note 4):
- -------------------------------------------------------------------------------------------------------------------------------
Investment securities 150,960 163,108
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities 306,724 273,124
- -------------------------------------------------------------------------------------------------------------------------------
Loans receivable, net of allowance for loan losses of $1,731 and $1,604, respectively (Note 5) 334,351 310,688
- -------------------------------------------------------------------------------------------------------------------------------
Education loans held for sale (Note 5) 19,158 20,040
- -------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable on investments 3,482 3,518
- -------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable on loans 2,612 2,532
- -------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank stock (Note 3) 15,458 11,413
- -------------------------------------------------------------------------------------------------------------------------------
Office, property and equipment, net (Note 6) 5,670 5,114
- -------------------------------------------------------------------------------------------------------------------------------
Foreclosed assets 345 758
- -------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 17,588 9,540
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $882,980 $823,322
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
L I A B I L I T I E S :
Non-interest-bearing demand deposits (Note 7) $ 29,418 $ 30,373
- -------------------------------------------------------------------------------------------------------------------------------
Savings accounts (Note 7) 465,706 452,175
- -------------------------------------------------------------------------------------------------------------------------------
Borrowed funds (Note 3) 297,160 222,545
- -------------------------------------------------------------------------------------------------------------------------------
Advances from borrowers for taxes and insurance 1,444 1,514
- -------------------------------------------------------------------------------------------------------------------------------
Accrued interest payable 2,569 1,606
- -------------------------------------------------------------------------------------------------------------------------------
Securities purchased, not settled (Note 4) 29 1,901
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities (Note 8) 2,083 3,992
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 798,409 714,106
Commitments and contingencies (Notes 9 and 12)
S H A R E H O L D E R S ' E Q U I T Y :
Preferred stock, (.01 par value); 1,000,000 shares authorized; 0 shares outstanding -- --
- -------------------------------------------------------------------------------------------------------------------------------
Common stock, (.01 par value); 23,000,000 shares authorized; 8,900,000 shares issued 89 89
- -------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 86,722 86,467
- -------------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost (2,676,561 shares at December 31, 1999
and 1,858,865 shares at December 31, 1998) (45,036) (32,255)
- -------------------------------------------------------------------------------------------------------------------------------
Unearned employee stock ownership plan (ESOP) shares (4,488) (5,520)
- -------------------------------------------------------------------------------------------------------------------------------
Unearned recognition and retention plan (RRP) shares (1,317) (2,431)
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive (loss) income, net of taxes (Note 4) (14,332) 3,306
- -------------------------------------------------------------------------------------------------------------------------------
Retained earnings, substantially restricted (Note 2) 62,933 59,560
- -------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 84,571 109,216
Total Liabilities and Shareholders' Equity $882,980 $823,322
-------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Dollar amounts in thousands, except share data
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
I N T E R E S T I N C O M E :
<S> <C> <C> <C>
Loans, including fees $ 25,426 $ 25,465 $ 22,310
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage-related securities 20,628 18,290 20,706
- ----------------------------------------------------------------------------------------------------------------------------
Investment securities:
Taxable interest 3,854 6,758 6,437
- ----------------------------------------------------------------------------------------------------------------------------
Taxable dividend 3,083 2,623 2,181
- ----------------------------------------------------------------------------------------------------------------------------
Nontaxable interest 3,102 1,432 529
- ----------------------------------------------------------------------------------------------------------------------------
Bank deposits 552 637 517
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 56,645 55,205 52,680
- ----------------------------------------------------------------------------------------------------------------------------
I N T E R E S T E X P E N S E :
Savings accounts 17,945 18,676 18,442
- ----------------------------------------------------------------------------------------------------------------------------
Interest on borrowed funds 15,413 12,931 8,755
- ----------------------------------------------------------------------------------------------------------------------------
Other 30 32 36
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 33,388 31,639 27,233
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for losses on loans 23,257 23,566 25,447
- ----------------------------------------------------------------------------------------------------------------------------
Provision for losses on loans (Note 5) 390 360 300
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 22,867 23,206 25,147
- ----------------------------------------------------------------------------------------------------------------------------
N O N - I N T E R E S T I N C O M E :
Service fees 2,359 1,833 1,299
- ----------------------------------------------------------------------------------------------------------------------------
Net gain on sales of securities (Note 4) 74 277 439
- ----------------------------------------------------------------------------------------------------------------------------
Gain on sale of education loans 214 245 187
- ----------------------------------------------------------------------------------------------------------------------------
Data processing service fees 593 754 632
- ----------------------------------------------------------------------------------------------------------------------------
Other 586 1,665 91
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 3,826 4,774 2,648
- ----------------------------------------------------------------------------------------------------------------------------
N O N - I N T E R E S T E X P E N S E :
Compensation and employee benefits 9,202 7,935 7,570
- ----------------------------------------------------------------------------------------------------------------------------
Occupancy and equipment 2,005 1,782 1,770
- ----------------------------------------------------------------------------------------------------------------------------
Deposit insurance premiums (Note 14) 281 282 283
- ----------------------------------------------------------------------------------------------------------------------------
Data processing service expenses 1,456 1,590 1,598
- ----------------------------------------------------------------------------------------------------------------------------
Other 4,314 3,991 3,531
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 17,258 15,580 14,752
- ----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 9,435 12,400 13,043
- ----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes (Note 8) 2,320 4,158 4,726
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,115 $ 8,242 $ 8,317
- ----------------------------------------------------------------------------------------------------------------------------
O T H E R C O M P R E H E N S I V E I N C O M E :
Unrealized holding gains (losses) on available for sale securities, net of taxes (17,724) (756) 3,306
- ----------------------------------------------------------------------------------------------------------------------------
Reclassification adjustment for net gains included in net income 86 338 330
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (17,638) (418) 3,636
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (10,523) $ 7,824 $ 11,953
----------------------------------------
Basic earnings per share $1.24 $1.26 $1.18
- ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $1.22 1.23 1.15
----------------------------------------
Average shares outstanding - Basic 5,756,793 6,516,237 7,021,900
- ----------------------------------------------------------------------------------------------------------------------------
Average shares outstanding - Diluted 5,819,577 6,696,898 7,218,088
----------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Dollar amounts in thousands 1999 1998 1997
--------------------------------------------
C A S H F L O W S F R O M O P E R A T I N G A C T I V I T I E S :
<S> <C> <C> <C>
Net income $ 7,115 $ 8,242 $ 8,317
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for losses on loans 390 360 300
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for writedown of REO -- 51 --
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation on office, property and equipment 698 766 921
- -----------------------------------------------------------------------------------------------------------------------------------
Net premium amortization on securities 69 253 103
- -----------------------------------------------------------------------------------------------------------------------------------
Accretion of net deferred loan fees (252) (416) (215)
- -----------------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 185 185 185
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on sale of office, property and equipment -- (32) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on sales of assets (114) (508) (518)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on sale of education loans (214) (245) (187)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized loss (gain) on sale of REO 169 (38) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Allocation of ESOP shares 1,553 1,343 1,161
- -----------------------------------------------------------------------------------------------------------------------------------
Allocation of recognition and retention plan shares 1,791 801 812
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income tax benefit (459) (328) (99)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in accrued interest receivable (44) (73) (1,725)
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease (Increase) in prepaid expenses and other assets 642 (1,485) (6,486)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in other liabilities 63 168 328
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in accrued interest payable 963 221 686
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,555 9,265 3,580
- -----------------------------------------------------------------------------------------------------------------------------------
C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S :
Proceeds from sale of available for sale securities 56,751 118,952 136,090
- -----------------------------------------------------------------------------------------------------------------------------------
Repayments and maturities of available for sale securities 84,284 129,471 53,157
- -----------------------------------------------------------------------------------------------------------------------------------
Purchases of available for sale securities (192,339) (247,738) (260,487)
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of education loans 10,023 9,089 6,176
- -----------------------------------------------------------------------------------------------------------------------------------
Purchases of loans (57,610) (66,831) (97,612)
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in loans 24,477 32,842 16,764
- -----------------------------------------------------------------------------------------------------------------------------------
Purchases of office, property and equipment, net (1,254) (694) (480)
- -----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from sale of REO 648 229 9
- -----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from sale of office, property and equipment -- 49 --
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of Federal Home Loan Bank stock (4,045) (1,580) (7,507)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (79,065) (26,211) (153,890)
- -----------------------------------------------------------------------------------------------------------------------------------
C A S H F L O W S F R O M F I N A N C I N G A C T I V I T I E S :
Net increase in demand and savings deposits 10,118 11,702 2,723
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in certificates of deposit 2,458 8,692 9,865
- -----------------------------------------------------------------------------------------------------------------------------------
Payments of borrowed funds (481,285) (471,479) (703,963)
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowed funds 555,900 495,787 850,675
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends paid (3,742) (4,007) (3,413)
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in advances from borrowers for taxes and insurance (70) (88) (178)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock (13,724) (12,872) (12,696)
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of recognition and retention plan shares -- -- (4,095)
- -----------------------------------------------------------------------------------------------------------------------------------
Payments made under capital lease obligations -- (44) (165)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 69,655 27,691 138,753
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,145 10,745 (11,557)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 23,487 12,742 24,299
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 26,632 $ 23,487 $ 12,742
--------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Dollar amounts and number of stock shares in thousands
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
NUMBER OF COMPRE- TOTAL
COMMON ADDITIONAL UNEARNED UNEARNED HENSIVE SHARE-
STOCK COMMON PAID- TREASURY ESOP RRP INCOME RETAINED HOLDERS'
SHARES(1) STOCK IN CAPITAL STOCK SHARES SHARES (LOSS) EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996 7,794 $89 $86,316 ($6,768) ($6,612) ($523) $ 88 $49,814 $122,404
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- -- -- 8,317 8,317
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax -- -- -- -- -- -- 3,636 -- 3,636
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (737) -- -- (12,696) -- -- -- (12,696)
- -----------------------------------------------------------------------------------------------------------------------------------
Recognition and retention
plan shares purchased (259) -- (699) -- -- (3,396) -- -- (4,095)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.42 per share) -- -- -- -- -- -- -- (3,135) (3,135)
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated to ESOP 51 -- 375 -- 508 -- -- -- 883
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated
stock-based compensation 259 -- -- -- -- 812 -- -- 812
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 7,108 $89 $85,992 ($19,464) ($6,104) ($3,107) $ 3,724 $54,996 $116,126
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- -- -- 8,242 8,242
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax -- -- -- -- -- -- (418) -- (418)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (678) -- -- (12,872) -- -- -- -- (12,872)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.54 per share) -- -- -- -- -- -- -- (3,678) (3,678)
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated to ESOP 59 -- 431 -- 584 -- -- -- 1,015
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated
stock-based compensation -- -- 44 81 -- 676 -- -- 801
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 6,489 $89 $86,467 ($32,255) ($5,520) ($2,431) $ 3,306 $59,560 $109,216
- -----------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- -- -- -- 7,115 7,115
- -----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax -- -- -- -- -- -- (17,638) -- (17,638)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (868) -- -- (13,724) -- -- -- -- (13,724)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.64 per share) -- -- -- -- -- -- -- (3,776) (3,776)
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated to ESOP 103 -- 521 -- 1,032 -- -- -- 1,553
- -----------------------------------------------------------------------------------------------------------------------------------
Shares allocated
stock-based compensation 51 -- (266) 943 -- 1,114 -- 34 1,825
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 5,775 $89 $86,722 ($45,036) ($4,488) ($1,317) ($14,332) $62,933 $ 84,571
--------------------------------------------------------------------------------------
</TABLE>
Other comprehensive income for 1999, 1998, and 1997 is net of (tax benefit) tax
of ($10,359), ($246), and $2,137, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
/1/ Does not include unallocated ESOP Shares.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
The significant accounting policies followed by GA Financial, Inc. (the
"Company") and subsidiaries are as follows:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of GA
Financial, Inc. and its subsidiaries, Great American Federal Savings and Loan
Association (the "Association") and New Eagle Capital, Inc., and the
Association's wholly owned subsidiary, Great American Financial Services, Inc.,
as of December 31, 1999 and December 31, 1998. Intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, including interest-bearing demand deposits, and
federal funds sold. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES
Securities classified as "available for sale" include investments management
intends to use as part of its asset/liability management strategy, and that may
be sold in response to changes in interest rates, resultant prepayment risk and
other factors. Unrealized holding gains and losses, net of tax, on available for
sale securities are reported as a net amount in a separate component of
shareholders' equity until realized. Declines in the fair value of individual
available for sale securities below their cost that are other than temporary
will result in write-downs of the individual securities to their fair value. Any
related write-downs will be included in earnings as realized losses. Realized
gains and losses on the sale of securities are recognized using the specific
identification method and are included in non-interest income in the
Consolidated Statements of Income and Comprehensive Income. Premiums and
discounts on securities are recognized in interest income using the interest
method over the period to maturity.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's evaluation of losses in
the current loan portfolio, which includes an assessment of economic conditions,
changes in the nature of the loan portfolio, loan loss experience and other
relevant factors. While management uses the best information available to make
such evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluations. Additions are made to the allowance through periodic provisions
charged to income and recovery of principal and interest on loans previously
charged-off. Losses of principal are charged directly to the allowance when a
loss actually occurs or when a determination is made that a specific loss is
probable.
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" an amendment of SFAS No. 114. SFAS No. 114
addresses the accounting by creditors for impairment of loans by specifying how
reserves for credit losses related to certain loans should be measured.
Within the context of SFAS No. 114 for loan losses, a loan is considered to be
impaired when, based upon current information and events, it is probable that
the Company will be unable to collect all amounts due for principal and interest
according to the original contractual terms of the loan agreement. Impairment is
measured based on the present value of expected future cash flows discounted at
a loan's effective interest rate, or as a practical expedient, the observable
market price or, if the loan is collateral dependent, the fair value of the
underlying collateral. When the measurement of an impaired loan is less than the
recorded investment in the loan, the impairment is recorded in a specific
valuation allowance through a charge to provision for losses on loans. This
specific valuation allowance is periodically adjusted for significant changes in
the amount or timing of expected future cash flows, observable market price or
fair value of the collateral. The specific valuation allowance, or allowance for
impaired loan losses, is part of the total allowance for loan losses. Cash
20
<PAGE>
payments received on impaired loans are recorded as a direct reduction of the
recorded investment in the loan. When the recorded investment has been fully
collected, receipts are recorded as recoveries to the allowance for loan losses
until the previously charged-off interest is fully recovered. Subsequent amounts
collected are recognized as interest income. Impaired loans are not returned to
accrual status until all amounts due, both principal and interest, are current
and a sustained payment history has been demonstrated. At December 31, 1999 and
1998, the Company did not have any recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 and 118. Since
the Company had no loans considered impaired under SFAS No. 114 during the years
ended December 31, 1999, 1998 or 1997, there was no interest income recognized
on impaired loans during the years ended December 31, 1999, 1998, or 1997.
Generally, management considers all nonaccrual loans and certain renegotiated
debt, when it exists, for impairment. The maximum period without payment that
typically can occur before a loan is considered for impairment is ninety days.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans
that are collectively evaluated for impairment. Generally, the Company
collectively reviews for impairment smaller balance homogeneous loans (i.e.
primarily residential and consumer loans).
LOANS
Interest income is recognized on a level yield basis. Loan origination fees, net
of certain direct origination costs, are deferred and recognized over the
contractual life of the related loan as a yield adjustment using the interest
method. Discounts and premiums on purchased loans are amortized to income using
the interest method over the remaining period to contractural maturity,
adjusting for anticipated prepayments. The accrual of interest is discontinued,
when in management's judgment, it is determined that the collectibility of
interest, but not necessarily principal, is doubtful. Interest accrual is
normally discontinued when the loan becomes delinquent 90 days or more past due.
Interest receipts on such nonaccrual loans are first applied to principal.
A nonaccrual loan is not returned to accruing status until all amounts due, both
principal and interest, are current and a sustained payment history has been
demonstrated. Loans held for sale are education loans, which are recorded at
cost which approximates market value.
OFFICE, PROPERTY AND EQUIPMENT
Office, property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the assets. Estimated useful lives range from 20 to 50 years for
buildings, 10 years for site improvements and 3 to 5 years for furniture,
fixtures and equipment. Maintenance and repairs are charged to expense as
incurred. Expenditures for renovations and major improvements are capitalized
and depreciated over their estimated useful lives.
INTANGIBLE ASSETS
Premiums paid for branch deposits are allocated to core deposit intangibles and
are recorded in other assets. Core deposit intangibles are amortized on a
straight-line basis over seven years. Core deposit intangibles amounted to
$725,000 and $910,000 at December 31, 1999 and 1998, respectively. Management
periodically evaluates the carrying value and remaining amortization period of
intangible assets for possible impairment. Adjustments will be recorded when the
purchased deposits decay at an earlier period than the amortization period.
FORECLOSED ASSETS
Foreclosed assets consist of property acquired in settlement of real estate loan
indebtedness. Such assets are carried at the lower of cost or market value less
estimated costs to sell. Net costs to maintain the foreclosed assets and
subsequent gains and losses attributable to their disposal are included in other
expense.
TREASURY STOCK
The purchase of the Company's stock is recorded at cost. If reissuance occurs,
the treasury stock account will be reduced by the cost of such stock using the
average cost method, with any difference in proceeds being debited or credited
to additional paid-in capital.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company joins with its wholly owned subsidiaries in filing a consolidated
federal income tax return.
The Company accounts for income taxes using the asset and liability method.
The objective of the asset and liability method is to establish deferred tax
assets and liabilities for temporary differences between the financial reporting
and tax basis of the Company's assets and liabilities based on enacted tax rates
expected to be in effect when such amounts are realized or settled.
In tax years prior to fiscal year 1997, the Company was permitted, under the
Internal Revenue Code, ("Code"), to deduct an annual addition to a reserve for
bad debts in determining taxable income, subject to certain limitations. Bad
debt deductions for income tax purposes are included in taxable income of later
years only if the bad debt reserve is used subsequently for purposes other than
to absorb bad debt losses. Because the Company does not intend to use the
reserve for purposes other than to absorb losses, no deffered income taxes have
been provided prior to fiscal year 1987. Retained earnings at December 31, 1999
includes approximately $13.3 million representing such bad debt deductions for
which no deferred income taxes have been provided.
DERIVATIVE FINANCIAL INSTRUMENTS
Gains and losses on unconditional forward commitments (Note 9) to purchase
Government National Mortgage Association Securities are deferred and
incorporated in the carrying amount of the securities purchased.
RECLASSIFICATIONS
For comparative purposes, reclassifications have been made to certain amounts
previously reported to conform with the current period presentation in the
consolidated financial statements.
NOTE 2. THE CONVERSION
On March 22, 1996, the members of the Association approved a Plan of Conversion
to convert the Association from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings and loan association,
with the concurrent sale of all of the newly-converted Association's outstanding
capital stock to the Company, and the sale of the Company's common stock to the
public. The Company, on March 25, 1996, sold 8,900,000 shares of common stock at
$10.00 per share to depositors, directors, officers and certain employees of the
Company and to certain other eligible subscribers. The net proceeds from the
sale of the common stock, after conversion expenses of $2.6 million, were $86.4
million. The Company purchased all of the capital stock of the Association in
exchange for 50% of the net proceeds, or $43.3 million, and utilized $7.1
million to fund the Employee Stock Ownership Plans'(the "ESOP") purchase of
conversion stock.
At the time of Conversion, the Association established a liquidation account
in an amount equal to its capital as of December 31, 1995. The liquidation
account will be maintained for the benefit of eligible account holders who
continue to maintain their accounts at the Association after the Conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. Dividends cannot be paid from retained earnings
allocated to the liquidation account. A liquidation account was established in
the amount of $45.3 million in 1996.
22
<PAGE>
NOTE 3. FEDERAL HOME LOAN BANK STOCK AND ADVANCES AND OTHER BORROWINGS
The Association is a member of the Federal Home Loan Bank system. As a member,
the Association is required to maintain an investment in the capital stock of
the Federal Home Loan Bank (FHLB), which is carried at cost. The required
investment is based on 1% of its outstanding home loans, and also a percentage
of FHLB borrowings.
The Association can take short-term and long-term advances with the FHLB. FHLB
advances by year of maturity as of December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 WEIGHTED
(Dollars in Thousands) AMOUNT AVERAGE RATE
- ------------------------------------------------------------------------------
<S> <C> <C>
2000 $115,160 5.82%
- ------------------------------------------------------------------------------
2001 34,000 5.58
- ------------------------------------------------------------------------------
2002 25,000 5.47
- ------------------------------------------------------------------------------
2003 -- --
- ------------------------------------------------------------------------------
2004 -- --
- ------------------------------------------------------------------------------
2005 and thereafter 123,000 5.29
- ------------------------------------------------------------------------------
Total $297,160 5.54%
--------------------------------------
<CAPTION>
DECEMBER 31, 1998 WEIGHTED
(Dollars in Thousands) AMOUNT AVERAGE RATE
- ------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 90,785 5.91%
- ------------------------------------------------------------------------------
2000 29,760 5.67
- ------------------------------------------------------------------------------
2001 4,000 5.90
- ------------------------------------------------------------------------------
2002 25,000 5.47
- ------------------------------------------------------------------------------
2003 -- --
- ------------------------------------------------------------------------------
2004 and thereafter 68,000 5.28
- ------------------------------------------------------------------------------
Total $217,545 5.63%
--------------------------------------
</TABLE>
Advances from the FHLB are collateralized by qualifying securities and loans.
Qualifying collateral includes U.S. Treasury, government agency and mortgage-
backed securities and real estate loans based upon the amount of outstanding
advances. These advances are subject to restrictions or penalties related to
prepayments.
As of December 31, 1998 the Company also maintained securities sold under
agreements to repurchase.
Securities sold under agreement to repurchase as of December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) AMOUNT RATE
- --------------------------------------------------------------------------
<S> <C> <C>
Securities sold under
agreements to repurchase $5,000 6.25%
----------------------------------
</TABLE>
Securities sold under agreements to repurchase were collateralized by a
mortgage-backed security with an amortized cost and fair value of $3.9 million
at December 31, 1998. The $5 million was comprised of one commitment which
matured on August 26, 1999.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENT SECURITIES AND MORTGAGE-RELATED SECURITIES
As of December 31, 1999, there were $29,000 of securities purchased which did
not settle until January, 2000 and accordingly, have been reflected as
"Securities purchased, not settled" in the accompanying consolidated statements
of financial condition.
The amortized cost and estimated fair value of investment securities and
mortgage-related securities as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1999
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
AVAILABLE FOR SALE SECURITIES: COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed certificates $248,193 $ 323 $(10,525) $237,991
- -----------------------------------------------------------------------------------------------
Marketable equity securities 42,839 1,850 (2,237) 42,452
- -----------------------------------------------------------------------------------------------
U.S. government agency debt 40,070 -- (2,922) 37,148
- -----------------------------------------------------------------------------------------------
Municipal obligations 64,640 1 (4,757) 59,884
- -----------------------------------------------------------------------------------------------
Corporate obligations 12,109 -- (633) 11,476
- -----------------------------------------------------------------------------------------------
Collateralized mortgage obligations 72,581 14 (3,862) 68,733
- -----------------------------------------------------------------------------------------------
Total $480,432 $2,188 $(24,936) $457,684
-----------------------------------------------------
<CAPTION>
(Dollars in thousands) December 31, 1998
-----------------------------------------------------
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
- -----------------------------------------------------------------------------------------------
Marketable equity securities 33,750 2,808 (530) 36,028
- -----------------------------------------------------------------------------------------------
U.S. government agency debt 58,689 858 (267) 59,280
- -----------------------------------------------------------------------------------------------
Municipal obligations 39,863 154 (19) 39,998
- -----------------------------------------------------------------------------------------------
Corporate obligations 27,457 345 -- 27,802
- -----------------------------------------------------------------------------------------------
Collateralized mortgage obligations 87,913 821 (1,338) 87,396
- -----------------------------------------------------------------------------------------------
Total $430,984 $7,693 $ (2,445) $436,232
-----------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of investment securities and
mortgage-related securities at December 31, 1999, by contractural maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or to prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1999
-----------------------------------------------------
AMORTIZED
AVAILABLE FOR SALE SECURITIES: COST FAIR VALUE
-----------------------------------------------------
<S> <C> <C>
Due in one year or less 5,973 5,963
- -----------------------------------------------------------------------------------------------
Due after one year through five years 23,517 23,193
- -----------------------------------------------------------------------------------------------
Due after five years through ten years 34,225 33,100
- -----------------------------------------------------------------------------------------------
Due after ten years 373,878 352,976
- -----------------------------------------------------------------------------------------------
Total 437,593 415,232
- -----------------------------------------------------------------------------------------------
Marketable equity securities 42,839 42,452
- -----------------------------------------------------------------------------------------------
Total 480,432 457,684
-----------------------------------------------------
</TABLE>
Proceeds from sales of available for sale securities for the year ended
December 31, 1999 were approximately $56.8 million. Gross gains of approximately
$253,000 were realized on those sales and gross losses of approximately $179,000
were realized for the year ended December 31, 1999.
24
<PAGE>
Proceeds from sales of available for sale securities for the year ended
December 31, 1998 were approximately $119.0 million. Gross gains of
approximately $348,000 and gross losses of approximately $71,000 were realized
for the year ended December 31, 1998.
Proceeds from sales of available for sale securities for the year ended
December 31, 1997 were approximately $136.1 million. Gross gains of
approximately $1.7 million and gross losses of approximately $1.3 million were
realized for the year ended December 31, 1997.
NOTE 5. LOANS RECEIVABLE
Loans receivable as of December 31, 1999 and 1998 consist of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
--------------------------------------------------------------------
<S> <C> <C>
M O R T G A G E S :
One to four family residential $256,172 $239,648
- -------------------------------------------------------------------------------------------------------------------
Multi-family 4,405 5,293
- -------------------------------------------------------------------------------------------------------------------
Real estate-commercial 17,592 7,329
- -------------------------------------------------------------------------------------------------------------------
Construction and development 3,658 2,371
- -------------------------------------------------------------------------------------------------------------------
C O N S U M E R L O A N S :
Home equity 52,819 54,953
- -------------------------------------------------------------------------------------------------------------------
Educational loans 19,158 20,040
- -------------------------------------------------------------------------------------------------------------------
O T H E R :
Loans on savings accounts 1,725 2,003
- -------------------------------------------------------------------------------------------------------------------
Unsecured personal loans and other 3,317 3,013
- -------------------------------------------------------------------------------------------------------------------
Total 358,846 334,650
- -------------------------------------------------------------------------------------------------------------------
L E S S :
Undisbursed mortgage loans 2,905 1,350
- -------------------------------------------------------------------------------------------------------------------
Deferred loan fees 701 968
- -------------------------------------------------------------------------------------------------------------------
Allowance for loan losses 1,731 1,604
- -------------------------------------------------------------------------------------------------------------------
Net loans $353,509 $330,728
--------------------------------------------------------------------
</TABLE>
The Company purchased approximately $57.6 million and $66.8 million, including
premiums, in 1999 and 1998, respectively, of residential mortgage loans
collateralized by single-family properties located outside its primary market
area, such as other regions of Pennsylvania, Ohio and New York. The sellers have
retained the servicing rights on these purchases.
In the ordinary course of business, the Company has transactions, including
loans, with the Company's principal officers and directors and their related
interests. Related party loans outstanding were approximately $996,000 and
$938,000 at December 31, 1999 and 1998, respectively.
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars in Thousands) 1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $1,604 $1,322 $1,031
- ------------------------------------------------------------------------------------------------------
Provision charged to operations 390 360 300
- ------------------------------------------------------------------------------------------------------
Loan charge-offs (269) (116) (78)
- ------------------------------------------------------------------------------------------------------
Loan recoveries 6 38 69
- ------------------------------------------------------------------------------------------------------
Balance, end of year $1,731 $1,604 $1,322
---------------------------------------------
</TABLE>
At December 31, 1999 and 1998, the Company had approximately $1.5 million and
$1.1 million, respectively, in loans which were 90 days or more past due and
were not accruing interest. In addition, the Company had $345,000 and $758,000
of foreclosed assets as of December 31, 1999 and 1998, respectively.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. OFFICE, PROPERTY AND EQUIPMENT
Office, property and equipment as of December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
-------------------------------------------------
<S> <C> <C>
Office buildings $ 8,736 $ 8,522
- ------------------------------------------------------------------------------------------------------------------
Equipment 10,049 9,638
- ------------------------------------------------------------------------------------------------------------------
Land and land improvements 1,630 1,001
- ------------------------------------------------------------------------------------------------------------------
Subtotal 20,415 19,161
- ------------------------------------------------------------------------------------------------------------------
Less: accumulated depreciation and amortization 14,745 14,047
- ------------------------------------------------------------------------------------------------------------------
Net office, property and equipment $ 5,670 $ 5,114
-------------------------------------------------
</TABLE>
The Company recognized depreciation of approximately $698,000, $766,000 and
$921,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 7. NON-INTEREST BEARING DEMAND DEPOSITS AND SAVINGS ACCOUNTS
Non-interest bearing demand deposits and savings accounts are summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
------------------------------------------------------------
AVERAGE AVERAGE
RATE AMOUNT PERCENT RATE AMOUNT PERCENT
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts $ 29,418 5.94% $ 30,373 6.29%
- ---------------------------------------------------------------------------------------------------------------
I N T E R E S T B E A R I N G A C C O U N T S :
Non-certificate accounts:
NOW accounts 1.63% 35,708 7.21 1.80% 34,298 7.11
- ---------------------------------------------------------------------------------------------------------------
Money market 4.76% 34,509 6.97 2.00% 13,710 2.84
- ---------------------------------------------------------------------------------------------------------------
Passbook savings 2.43% 148,376 29.97 2.75% 159,512 33.06
- ---------------------------------------------------------------------------------------------------------------
Total non-certificate accounts 218,593 44.15 207,520 43.01
- ---------------------------------------------------------------------------------------------------------------
C E R T I F I C A T E S O F D E P O S I T :
------------------------------------------------------------
0% to 4.00% 3.13% 1,917 0.39 3.10% 1,268 0.26
- ---------------------------------------------------------------------------------------------------------------
4.00% to 4.99% 4.58% 88,720 17.92 4.55% 52,889 10.96
- ---------------------------------------------------------------------------------------------------------------
5.00% to 5.99% 5.45% 85,549 17.28 5.47% 116,924 24.23
- ---------------------------------------------------------------------------------------------------------------
6.00% and above 6.78% 70,927 14.32 6.72% 73,574 15.25
- ---------------------------------------------------------------------------------------------------------------
Total certificates of deposit 5.50% 247,113 49.91 5.68% 244,655 50.70
- ---------------------------------------------------------------------------------------------------------------
Total interest bearing accounts 465,706 94.06 452,175 93.71
- ---------------------------------------------------------------------------------------------------------------
Total deposits $495,124 100.00% $482,548 100.00%
------------------------------------------------------------
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $19.7 million and $17.4 million at December 31, 1999 and 1998,
respectively. Deposits in excess of $100,000 are not federally insured.
26
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated and the
periods to maturity of the certificate of deposit accounts outstanding at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands) Period to Maturity at December 31, 1999 Period to Maturity at December 31, 1998
---------------------------------------------------------------------------------------------
WITHIN ONE TO TWO TO OVER WITHIN ONE TO TWO TO OVER
ACTUAL RATES ONE YR. TWO YRS 3 YRS 3 YRS TOTAL ONE YR. TWO YR 3 YRS 3 YRS TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate:
Less than 4% $ 1,917 $ -- $ -- $ -- $ 1,917 $ 1,268 $ -- $ -- $ -- $ 1,268
- -------------------------------------------------------------------------------------------------------------------------
4.00% to 4.99% 71,851 8,000 3,442 5,427 88,720 50,254 1,608 1,027 -- 52,889
- -------------------------------------------------------------------------------------------------------------------------
5.00% to 5.99% 57,019 16,820 6,958 4,752 85,549 52,391 49,969 10,326 4,238 116,924
- -------------------------------------------------------------------------------------------------------------------------
6.00% and over 32,982 2,095 19,449 16,401 70,927 28,470 33,529 4,346 7,229 73,574
- -------------------------------------------------------------------------------------------------------------------------
Total $163,769 $26,915 $29,849 $26,580 $247,113 $132,383 $85,106 $15,699 $11,467 $244,655
---------------------------------------------------------------------------------------------
</TABLE>
Interest expense on savings accounts for the years ended December 31, 1999,
1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
(Dollars in Thousands) 1999 1998 1997
<S> <C> <C> <C>
Passbook accounts $ 3,808 $ 4,394 $ 4,805
- -----------------------------------------------------------------------------
NOW accounts 613 570 552
- -----------------------------------------------------------------------------
Money market accounts 687 329 397
- -----------------------------------------------------------------------------
Certificates of deposit 12,837 13,383 12,688
- -----------------------------------------------------------------------------
Total $17,945 $18,676 $18,442
-------------------------
</TABLE>
NOTE 8. INCOME TAXES
The provision for income taxes was allocated as following:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
(Dollars in Thousands) 1999 1998 1997
<S> <C> <C> <C>
Income before income taxes $ 2,320 $4,158 $4,726
- ----------------------------------------------------------------------------------------------------
Shareholders' equity for unrealized gain (loss) on securities
available for sale (10,359) (246) 2,137
- ----------------------------------------------------------------------------------------------------
$ (8,039) $3,912 $6,863
</TABLE>
Income tax expense (benefit) applicable to income before taxes consist of:
<TABLE>
<S> <C> <C> <C>
F E D E R A L :
Current $ 2,374 $3,831 $4,098
- ----------------------------------------------------------------------------------------------------
Deferred (459) (346) (99)
- ----------------------------------------------------------------------------------------------------
1,915 3,485 3,999
----------------------------------
S T A T E :
Current 405 673 727
- ----------------------------------------------------------------------------------------------------
Provision for income taxes $ 2,320 $4,158 $4,726
----------------------------------
</TABLE>
A reconciliation of the federal statutory tax rate to the tax rate applicable
to income before federal income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
----------------------------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
- ----------------------------------------------------------------------------------------------------
State income taxes, net of federal benefit 2.8 3.6 3.7
- ----------------------------------------------------------------------------------------------------
Tax exempt income, net (11.2) (3.7) --
- ----------------------------------------------------------------------------------------------------
Other (1.0) (0.4) (1.5)
- ----------------------------------------------------------------------------------------------------
24.6% 33.5% 36.2%
----------------------------------
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax assets and deferred tax liabilities recorded on the
statements of financial condition are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
---------------------------------------------------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax bad debt reserve $ -- $ 510 $ -- $ 638
- ---------------------------------------------------------------------------------------------------------------------------
Reserve for possible loan loss 589 -- 545 --
- ---------------------------------------------------------------------------------------------------------------------------
Loan origination fees/costs -- 3 32 --
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation/amortization -- 526 -- 634
- ---------------------------------------------------------------------------------------------------------------------------
Net unrealized holding gains/losses
on securities available for sale 8,416 -- -- 1,943
- ---------------------------------------------------------------------------------------------------------------------------
Other 225 -- 11 --
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax asset/liability $9,230 $1,039 $588 $3,215
---------------------------------------------------------------------------
</TABLE>
Net accumulated deferred income tax (assets) liabilities at December 31, 1999
and 1998 were $8.2 million and $2.6 million, respectively.
The Company determined that it was not required to establish a valuation
allowance for deferred tax assets because it is management's assertion that the
deferred tax assets are likely to be realized through carryback to taxable
income in prior years, future reversals of existing taxable temporary
differences, and, to a lesser extent, future taxable income.
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company had only limited involvement with derivative financial instruments.
Periodically, the Company entered into unconditional forward commitments to
purchase mortgage-backed certificates, such as those issued by the Government
National Mortgage Association ("GNMA"), at a fixed price and coupon rate to be
delivered, typically, no longer than six months in the future. In addition, the
Company also entered into 50-50 flexible commitments to purchase GNMA's whereby
the broker delivered at least 50% of the commitment amount or up to 150% of the
total commitment amount on the settlement date. In effect, 50% of the commitment
represented an unconditional forward commitment and the remaining portion of the
commitment represented standby commitments (put options) with certain brokers
approved by the Board of Directors. The Company only entered into these
commitments when it had available liquidity to meet the full amount of the
commitment. Certain purchase commitments were "paired off" against sale
commitments for the same type of security bearing the same contact amount, rate,
and settlement date.
Risks associated with these commitments arose from the possible inability of
counterparties to meet the terms of their contracts and from movements in
securities values and interest rates. Under standby commitments, the Company
bore the risk of an unfavorable change in the price of the mortgage-backed
certificates underlying the options. The Company reviewed the creditworthiness
of the parties to these commitments.
No such forward commitments were entered into subsequent to June 1999. The
last purchase commitment settled in September 1999. Accordingly, the Company had
no forward or standby commitments outstanding as of December 31, 1999. Such
activity did not result in a material impact to operations for the years ended
December 31, 1999, 1998, and 1997, respectively.
NOTE 10. EMPLOYEE BENEFIT PLANS
Currently, the Company offers a 401(k) program for all eligible employees
permitting participants to defer a maximum of 15% of their base salary with the
Company contributing a 50% match on the first 6% of the employee's deferred
salary. Compensation expense relating to the 401(k) match was $111,000 for 1999,
$124,000 for 1998, and $127,000 for 1997.
28
<PAGE>
The Company has established for full-time employees who have attained the age
of 21 a separate ESOP in connection with the conversion (See Note 2). The ESOP
borrowed an aggregate of $7.1 million from the Company and purchased 712,000
common shares issued in the conversion. The Association intends to make
scheduled discretionary cash contributions to the ESOP sufficient to service and
repay the amounts borrowed over a period of up to 14 years. In connection with
the formation of the ESOP, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-6. As shares in the ESOP
are earned and committed to be released, compensation expense will be recorded
based on their fair value during each reporting period. The difference between
the fair value of the shares committed to be released and the cost of those
shares to the ESOP will be charged or credited to additional paid-in capital.
The balance of unearned shares held by the ESOP is shown as a reduction of
shareholders' equity. Only those shares in the ESOP which have been earned and
are committed to be released will be included in the computation of earnings per
share. At December 31, 1999 and 1998, 263,168 and 159,960, respectively, of the
shares in the ESOP were earned and committed to be released. Compensation
expense related to the ESOP amounted to $1.5 million, $1.0 million and $883,000
for the years ended December 31, 1999, 1998 and 1997, respectively. Dividends
received on unallocated ESOP shares in 1999, 1998, and 1997 amounted to
$361,000, $330,000, and $278,000, respectively, and are included in compensation
expense and were used to reduce current principal payments on the ESOP loan. The
fair value at December 31, 1999 and 1998 of the unearned shares in the ESOP was
$5.9 million and $8.6 million, respectively, based on the last sales price of
the company's common stock of approximately $13.25 and $15.50, respectively on
those dates.
NOTE 11. CAPITAL REQUIREMENTS AND REGULATORY RESTRICTIONS
As a savings and loan holding company, GA Financial, Inc. is not required to
maintain any minimum level of capital; however, Great American Federal Savings
and Loan 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 Tier I
capital to total assets. Management believes, as of December 31, 1999 that the
Association meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from 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.
As of December 31, 1999 and 1998, the Association exceeded all fully phased-in
capital requirements and had not been notified by the OTS that it is in need of
more than normal supervision.
The Office of Thrift Supervision ("OTS") imposes limitations upon all capital
distributions by savings institutions, including cash dividends. An institution
that exceeds all fully phased-in capital requirements before and after a
proposed capital distribution and has not been notified by the OTS that it is in
need of more than normal supervision could, after prior notice but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. Any additional capital distributions would require prior regulatory
approval. The Association can declare dividends subsequent to December 31, 1999,
of up to approximately $6.2 million of retained earnings. The Association paid a
special dividend of $32.5 million to the Company in 1999, and dividends of $6.0
million and $4.1 million for 1998 and 1997, respectively.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(Dollars in Thousands) Tier I Leverage Capital Tier I Risk-based Capital Total Risk-based Capital
-------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1999:
Equity capital/1/ $ 58,871 $ 58,871 $ 58,871
- ----------------------------------------------------------------------------------------------------------------------------------
General valuation allowance/2/ -- -- 1,731
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized losses on certain available-
for-sale securities 13,018 13,018 13,456
- ----------------------------------------------------------------------------------------------------------------------------------
Less core deposit intangible (725) (725) (725)
- ----------------------------------------------------------------------------------------------------------------------------------
Total regulatory capital 71,164 71,164 73,333
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum regulatory capital 35,089 12,687 25,374
- ----------------------------------------------------------------------------------------------------------------------------------
Excess regulatory capital $ 36,075 $ 58,477 $ 47,959
------------------------------------------------------------------------------
Regulatory capital as a percentage 8.11% 22.44% 23.12%
- ----------------------------------------------------------------------------------------------------------------------------------
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Excess regulatory capital as a percentage 4.11% 18.44% 15.12%
------------------------------------------------------------------------------
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
------------------------------------------------------------------------------
Adjusted assets as reported to the OTS $877,230 $317,174 $317,174
------------------------------------------------------------------------------
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 OTS.
/2/ Limited to 1.25% of risk-weighted assets.
Pursuant to Regulation D of the Federal Reserve, the Association is required
to maintain certain balances which include both cash on hand and deposits with
the Federal Reserve. The amount of these balances as of December 31, 1999 and
1998 approximated $2.4 million and $2.3 million, respectively.
NOTE 12. CONTINGENT LIABILITIES
The Company is subject to a number of asserted and unasserted potential claims
encountered in the normal course of business. In the opinion of management,
after consultation with legal counsel, the resolution of these claims will not
have a material adverse effect on the Company's financial position, liquidity or
results of operations.
30
<PAGE>
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS/CONCENTRATIONS OF CREDIT RISK
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the determination of fair value for certain of the Company's assets, liabilities
and off balance sheet liabilities. The following methods and assumptions were
used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value.
CASH
The carrying amount of cash, which includes interest-bearing demand deposits,
approximates fair value.
FEDERAL FUNDS SOLD
The carrying amount of these overnight federal funds approximates fair value.
INVESTMENTS SECURITIES
The fair values of some investments are based on quoted market prices or on bid
quotations received from security dealers. If a quoted market price is not
available, fair value is estimated using quoted market prices for securities
with similar remaining maturities, comparable credit risk and coupon rates.
MORTGAGE-RELATED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS
The fair values are based on quoted market prices or dealer quotes.
LOANS RECEIVABLE
Fair values were estimated for loan portfolios with similar financial
characteristics by discounting contractural cash flows with adjustments for
prepayment. Assumptions regarding cash flows and discount rates were
judgmentally determined using available internal information which management
believes to be reasonable, taking into consideration the credit rating of the
counter-parties, current interest rates and remaining maturities.
FEDERAL HOME LOAN BANK STOCK
The stock can be redeemed at its carrying amount: therefore, the carrying amount
approximates fair value.
NON-INTEREST-BEARING DEMAND DEPOSITS
The fair value on these deposits is the amount payable on demand on the
reporting date.
SAVINGS ACCOUNTS
The fair value of Passbook, NOW and Money Market accounts is the amount payable
on demand at the reporting date. The fair value of fixed-maturity certificates
of deposit is estimated based on present value computations using as a discount
rate the rates currently offered on advances from the FHLB with similar
maturities.
BORROWED FUNDS
Fair value is determined by discounting the borrowings using current rates of
borrowings with comparable maturities as of the reporting date.
COMMITMENTS TO EXTEND CREDIT
Fair value was estimated using the fees currently charged, if any, to enter into
similar agreements, taking into account the remaining terms of the agreements
and the creditworthiness of the counterparties.
FORWARD AND STANDBY COMMITMENTS
Fair value was estimated based on bid quotations from security dealers.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the estimates of fair value of financial
instruments as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
-----------------------------------------------------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FINANCIAL ASSETS: FAIR VALUE VALUE FAIR VALUE VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 26,632 $ 26,632 $ 22,987 $ 22,987
- --------------------------------------------------------------------------------------------------------------------
Federal funds sold -- -- 500 500
- --------------------------------------------------------------------------------------------------------------------
FHLB stock 15,458 15,458 11,413 11,413
- --------------------------------------------------------------------------------------------------------------------
Investment securities 150,960 150,960 163,108 163,108
- --------------------------------------------------------------------------------------------------------------------
Mortgage-related securities 306,724 306,724 273,124 273,124
- --------------------------------------------------------------------------------------------------------------------
Loans receivable 346,015 353,509 335,180 330,728
- --------------------------------------------------------------------------------------------------------------------
$845,789 $853,283 $806,312 $801,860
-----------------------------------------------------------------
FINANCIAL LIABILITIIES:
Non-interest-bearing demand deposits $ 29,418 $ 29,418 $ 30,373 $ 30,373
- --------------------------------------------------------------------------------------------------------------------
Savings accounts 463,384 465,706 452,314 452,175
- --------------------------------------------------------------------------------------------------------------------
Borrowed funds 289,520 297,160 221,887 222,545
- --------------------------------------------------------------------------------------------------------------------
$782,322 $792,284 $704,574 $705,093
-----------------------------------------------------------------
<CAPTION>
ESTIMATED CONTRACT OR ESTIMATED CONTRACT OR
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS FAIR VALUE NOTIONAL AMT FAIR VALUE NOTIONAL AMT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments to extend credit -- 42,200 -- 28,100
-----------------------------------------------------------------
Forward and standby commitments -- -- 50,500 50,000
-----------------------------------------------------------------
</TABLE>
A reconciliation of forward and standby commitment activity for periods
presented as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) Forward Commitments Standby Commitments
--------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 $ 26,000 $ 16,000
- --------------------------------------------------------------------------------------------------------------------------------
Purchase commitments 149,380 16,000
- --------------------------------------------------------------------------------------------------------------------------------
Commitments matured / expired -- (24,000)
- --------------------------------------------------------------------------------------------------------------------------------
Commitments settled / purchased (94,780) --
- --------------------------------------------------------------------------------------------------------------------------------
Commitments sold (38,600) --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 42,000 $ 8,000
- --------------------------------------------------------------------------------------------------------------------------------
Purchase commitments 79,000 16,000
- --------------------------------------------------------------------------------------------------------------------------------
Commitments matured / expired -- (12,000)
- --------------------------------------------------------------------------------------------------------------------------------
Commitments settled / purchased (114,000) (12,000)
- --------------------------------------------------------------------------------------------------------------------------------
Commitments sold (7,000) --
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $ --
--------------------------------------------------------
</TABLE>
The Company also has loan commitments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
instruments involve elements of credit risk in excess of the amount recognized
in the consolidated financial statements. The Company's exposure to credit loss
in the event of nonperformance by the counterparty to the financial instruments
for commitments to extend credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments and the commitments expire within 60 days. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held includes residential real estate and income-producing
properties. Total commitments to extend credit at December 31, 1999 and 1998
were $42.2 million and $28.1 million, respectively, in loan commitments and
unused lines of credit which bear market rates at the time the commitments are
exercised. The loan
32
<PAGE>
commitments are held other than for trading. Since many of the loan commitments
may expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements.
The Company believes that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of active
secondary markets for many financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity to these
estimated values.
The Company's origination of loans is primarily concentrated in the local
southwestern Pennsylvania market. At December 31, 1999, the Company had
approximately $190.0 million of residential real estate loans located outside of
its primary market area. These loans are concentrated in other regions of
Pennsylvania, Ohio, Delaware and New York and are not serviced by the Company.
The Company has no significant concentrations of credit risk with any individual
counterparty.
The Company has various operating leases on branches which commit the Company
to future lease payments.
NOTE 14. SAIF ASSESSMENT
Effective January 1, 1997, Savings Association Insurance Fund ("SAIF") members
have the same risk-based assessment schedule as Bank Insurance Fund ("BIF")
members. The Association, as a well capitalized bank, will pay no assessment for
deposit insurance coverage. However, all SAIF and BIF institutions including the
Association will be responsible for sharing the cost of interest payments on the
Financing Corporation ("FICO") bonds. For the years ended December 31, 1999,
1998, and 1997, the cost to the Association approximated 5.9, 6.1, and 6.5 basis
points, respectively, for SAIF deposits. The annual cost of interest payments
for the Association was $281,000, $282,000 and $283,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
NOTE 15. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid during the years ended December 31, for interest and income taxes was
approximately $32.4 million and $2.7 million, respectively, in 1999, $31.4
million and $5.1 million, respectively, in 1998 and $26.5 million and $4.5
million, respectively, in 1997. Noncash investing and financing activity
consisted of the following: In December, 1999 and 1998, the Company purchased
investment securities that did not settle with the brokers until subsequent to
December 31. Accordingly, amount due to broker of $29,000 and $1.9 million is
shown separately on the consolidated statements of financial condition as of
December 31, 1999 and 1998, respectively. The Company transferred $404,000 and
$997,000 of loans to foreclosed assets during 1999 and 1998, respectively.
NOTE 16. NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133; "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
requires 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 as amended, will be adopted by the Company
for its quarterly and annual reporting beginning January 1, 2001. 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.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," which became effective for the Company for financial
statements issued for periods ending after December 15, 1997. Under the
provisions of SFAS No. 128, primary and fully-diluted earnings per share were
replaced with basic and diluted earnings per share in an effort to simplify the
computation of these measures and align them more closely with the methodology
used internationally. Basic earnings per share is arrived at by dividing net
income available to common stockholders by the weighted-average number of common
shares outstanding and does not include the impact of any potentially dilutive
common stock equivalents. The diluted earnings per share calculation method is
similar to, but slightly different from, the previously required fully-diluted
earnings per share method and is arrived at by dividing net income by the
weighted-average number of shares outstanding, adjusted for the dilutive effect
of outstanding stock options and the conversion impact of convertible equity
securities and other common stock equivalents. The adoption of this statement
did not have a material impact on the Company's earnings per share computation.
The calculation of earnings per share follows:
<TABLE>
<CAPTION>
For the Calendar Year
(Dollars in Thousands, Except Per Share Amounts) 1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
B A S I C :
Net income $ 7,115 $ 8,242 $ 8,317
- -------------------------------------------------------------------------------------------------------------
Average common shares outstanding - basic 5,756,793 6,516,237 7,021,900
-------------------------------------
Basic earnings per share $ 1.24 $ 1.26 $ 1.18
-------------------------------------
D I L U T E D :
Net income $ 7,115 $ 8,242 $ 8,317
- -------------------------------------------------------------------------------------------------------------
Average common shares outstanding - basic 5,756,793 6,516,237 7,021,900
- -------------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Shares issuable upon exercise of outstanding stock options and stock
awards 62,784 180,661 196,188
- -------------------------------------------------------------------------------------------------------------
Average common shares outstanding - diluted 5,819,577 6,696,898 7,218,088
-------------------------------------
Diluted earnings per share $ 1.22 $ 1.23 $ 1.15
-------------------------------------
</TABLE>
NOTE 18. GA FINANCIAL, INC. (PARENT COMPANY)
The following are the parent company's condensed financial statements:
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31, 1999 December 31, 1998
-------------------------------------------
<S> <C> <C>
STATEMENT OF FINANCIAL CONDITION
A S S E T S
Cash $ 440 $ 396
- ---------------------------------------------------------------------------------------------------
Investment securities, at fair value 3,993 1,304
- ---------------------------------------------------------------------------------------------------
Investment in the Association 58,871 101,688
- ---------------------------------------------------------------------------------------------------
Investment in New Eagle Capital, Inc. 25,947 7,312
- ---------------------------------------------------------------------------------------------------
Prepaid expenses and other assets 603 1,201
- ---------------------------------------------------------------------------------------------------
Total Assets $89,854 $111,901
-------------------------------------------
L I A B I L I T I E S A N D S H A R E H O L D E R S '
E Q U I T Y
Other liabilities $ 5,283 $ 2,685
- ---------------------------------------------------------------------------------------------------
Shareholder's Equity 84,571 109,216
- ---------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $89,854 $111,901
-------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended
(Dollars in Thousands) December 31, 1999 December 31, 1998 December 31, 1997
-------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF INCOME
Dividend from Association $ -- $ 6,000 $ 4,117
- ------------------------------------------------------------------------------------------------------------------------------
Investment and mortgage-related securities interest income 186 1,128 1,699
- ------------------------------------------------------------------------------------------------------------------------------
Net gain on sale of investment securities -- 205 196
- ------------------------------------------------------------------------------------------------------------------------------
Capital stock tax refund -- 876 --
- ------------------------------------------------------------------------------------------------------------------------------
Other income 135 86 --
- ------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses (576) (495) (407)
- ------------------------------------------------------------------------------------------------------------------------------
State franchise taxes (132) (196) (495)
- ------------------------------------------------------------------------------------------------------------------------------
Income taxes (475) (569) (360)
- ------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of Association
and investment subsidiary (862) 7,035 4,750
- ------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings of Association 6,191 1,207 3,567
- ------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings of investment subsidiary 1,786 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 7,115 $ 8,242 $ 8,317
-------------------------------------------------------------
<CAPTION>
For the Years Ended
(Dollars in Thousands) December 31, 1999 December 31, 1998 December 31, 1997
-------------------------------------------------------------
STATEMENT OF CASH FLOWS
C A S H F L O W S F R O M O P E R A T I N G
A C T I V I T I E S :
Net income $ 7,115 $ 8,242 $ 8,317
- ------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of Association (6,191) (1,207) (3,567)
- ------------------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings of investment subsidiary (1,786) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on securities -- (205) (196)
- ------------------------------------------------------------------------------------------------------------------------------
Net premium amortization on investment securities -- -- (59)
- ------------------------------------------------------------------------------------------------------------------------------
Decrease in accrued interest receivable -- 53 664
- ------------------------------------------------------------------------------------------------------------------------------
Allocation of recognition and retention plan shares 1,791 801 812
- ------------------------------------------------------------------------------------------------------------------------------
Allocation of ESOP Plan shares 1,553 1,343 1,161
- ------------------------------------------------------------------------------------------------------------------------------
(Decrease) Increase in prepaid expenses and other assets 598 (690) (427)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in other liabilities 2,598 2,584 (42)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,678 10,921 6,663
- ------------------------------------------------------------------------------------------------------------------------------
C A S H F L O W S F R O M I N V E S T I N G
A C T I V I T I E S :
-------------------------------------------------------------
Proceeds from sale of available for sale securities 18,162 46,895 50,001
- ------------------------------------------------------------------------------------------------------------------------------
Investment in Association 32,500 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Investment in investment subsidiary (17,893) (7,536) --
- ------------------------------------------------------------------------------------------------------------------------------
Repayments, maturities and calls of available for sale
securities -- -- 372
- ------------------------------------------------------------------------------------------------------------------------------
Purchases of available for sale securities (20,937) (33,071) (36,787)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 11,832 6,288 13,586
- ------------------------------------------------------------------------------------------------------------------------------
C A S H F L O W S F R O M F I N A N C I N G
A C T I V I T I E S :
-------------------------------------------------------------
Purchase of treasury stock (13,724) (12,872) (12,696)
- ------------------------------------------------------------------------------------------------------------------------------
Purchase of recognition and retention stock -- -- (4,095)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends paid to shareholders (3,742) (4,007) (3,413)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,466) (16,879) (20,204)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 44 330 45
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 396 66 21
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 440 $ 396 $ 66
-------------------------------------------------------------
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. SUBSEQUENT EVENTS (UNAUDITED)
The Board of Directors declared a dividend of $.18 per share to shareholders of
record on February 9, 2000, payable on February 23, 2000. The Board of Directors
approved up to a 5% repurchase of the outstanding common stock of GA Financial,
Inc., on January 25, 2000. The repurchase must be completed by January 25, 2001.
The total treasury shares of the Company's stock was 2,887,941 as of March 7,
2000.
NOTE 20. STOCK-BASED COMPENSATION PLANS
The Company has two stock-based compensation plans which are described below.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting For Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its stock-based compensation plans.
STOCK AWARDS
On October 16, 1996 shareholders approved the "GA Financial, Inc. 1996 Stock
Based Incentive Plan," as amended. Under this program up to 4% of the Company's
outstanding shares or 356,000 shares could be awarded to directors, officers, or
employees. The Company originally awarded 308,650 shares in October, 1996. The
awards vest at the rate of 20% per year for five years and can be forfeited if
an employee is dismissed for cause. Compensation expense recorded in the
consolidated financial statements under this plan for 1999, 1998, and 1997 was
$779,000, $801,000, and $812,000, respectively. The unearned compensation
expense as of December 31, 1999 and 1998 is $1.3 million and $2.4 million,
respectively.
STOCK OPTIONS
Under the "GA Financial, Inc., 1996 Stock Based Incentive Plan," as amended, the
Company was authorized to issue options of up to 890,000 shares. The Plan was
approved by shareholders on October 16, 1996. The options vest at the rate of
20% per year for five years and are exercisable over a period of ten years from
the date of the grant. Because the Company accounts for this stock option plan
using APB 25, no compensation expense has been recorded in the financial
statements for this plan. Had compensation cost for this stock option plan been
determined based on the fair value at the grant date consistent with the method
of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------
<S> <C> <C> <C> <C>
Net income (thousands) As reported $7,115 $8,242 $8,317
Pro forma 7,055 $7,979 $8,047
- -----------------------------------------------------------------------------
Basic earnings per share As reported $ 1.24 $ 1.26 $ 1.18
Pro forma 1.23 $ 1.22 $ 1.15
- -----------------------------------------------------------------------------
Diluted earnings per share As reported $ 1.22 $ 1.23 $ 1.15
Pro forma 1.21 $ 1.19 $ 1.11
- -----------------------------------------------------------------------------
</TABLE>
The fair value for the options described above was estimated at the date of
the grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1999: risk-free interest rate of 6.27%, dividend yield
of 5.54%, volatility factors of the expected market price of the Company's
common stock of .217, and an average life of the options of 3.8 years. The
following weighted average assumptions were used for 1998: risk free interest
rate of 5.18%, dividend yield of 4%, volatility factors of the expected market
price of the Company's common stock of .381, and an average life of the options
of 4.5 years. The following weighted average assumptions were used for 1997:
risk free interest rate of 5.64%, dividend yield of 2%, volatility factors of
the expected market price of the Company's common stock of .249, and an average
life of the options of 5.5 years. The Black-Scholes valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility.
36
<PAGE>
A summary of the status of the Company's stock awards and fixed stock option
plan as of December 31, 1999, 1998, and 1997 and changes during the year is
presented below:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------
WEIGHTED AVG.
STOCK STOCK EXERCISE PRICE
AWARDS OPTIONS ON OPTIONS
-----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at the beginning of the year 189,180 619,000 13.16
- -----------------------------------------------------------------------------------------------------------------------------
Granted -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Exercised -- (85,900) 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Vested and forfeited (85,440) (31,000) 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at year end 103,740 502,100 13.26
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 227,800
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998
-----------------------------------------------------------------
WEIGHTED AVG.
STOCK STOCK EXERCISE PRICE
AWARDS OPTIONS ON OPTIONS
-----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at the beginning of the year 240,800 614,000 $12.75
- -----------------------------------------------------------------------------------------------------------------------------
Granted 17,000 30,000 21.24
- -----------------------------------------------------------------------------------------------------------------------------
Exercised -- (9,000) 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Vested and forfeited (68,620) (16,000) 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at year end 189,180 619,000 13.16
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 233,800
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options/awards
granted during the year $20.97 $21.24
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997
-----------------------------------------------------------------
WEIGHTED AVG.
STOCK STOCK EXERCISE PRICE
AWARDS OPTIONS ON OPTIONS
-----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at the beginning of the year 308,650 626,500 $12.75
- -----------------------------------------------------------------------------------------------------------------------------
Granted -- --
- -----------------------------------------------------------------------------------------------------------------------------
Exercised -- --
- -----------------------------------------------------------------------------------------------------------------------------
Vested and forfeited (67,850) (12,500) 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at year end 240,800 614,000 12.75
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 124,400
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options
granted during the year -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information about the fixed-stock option plan is described below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVG. REMAINING WEIGHTED AVG. WEIGHTED AVG. NUMBER
EXERCISE PRICES EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 $12.75 $12.75 472,100 6.75 years $12.75 221,800
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 $19.76 $19.76 10,000 8.33 years $19.76 2,000
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 $21.99 $21.99 20,000 8.33 years $21.99 4,000
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 $12.75 $12.75 589,000 7.75 years $12.75 223,800
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 $19.76 $19.76 10,000 9.33 years $19.76 0
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 $21.99 $21.99 20,000 9.33 years $21.99 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Dollars in thousands, except per share data Three months ended
------------------------------------------------------------------------------
1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $13,343 $14,112 $14,510 $14,680
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 7,829 8,251 8,484 8,824
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income
before provision for losses on loans 5,514 5,861 6,026 5,856
- ---------------------------------------------------------------------------------------------------------------------------
Provision for losses on loans 60 90 90 150
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest income 819 824 1,309 874
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense 4,041 4,025 4,604 4,588
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,232 2,570 2,641 1,992
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 550 620 665 485
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,682 $ 1,950 $ 1,976 $ 1,507
------------------------------------------------------------------------------
Basic earnings per share/1/ $ 0.27 $ 0.33 $ 0.36 $ 0.27
------------------------------------------------------------------------------
Diluted earnings per share/1/ $ 0.27 $ 0.33 $ 0.35 $ 0.27
------------------------------------------------------------------------------
<CAPTION>
1998 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $14,039 $13,911 $13,822 $13,433
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 7,737 7,916 8,090 7,896
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income
before provision for losses on loans 6,302 5,995 5,732 5,537
- ---------------------------------------------------------------------------------------------------------------------------
Provision for losses on loans 90 90 90 90
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest income 807 888 1,764 1,315
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense 4,047 4,101 3,584 3,848
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,972 2,692 3,822 2,914
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 1,042 890 1,279 947
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1,930 $ 1,802 $ 2,543 $ 1,967
------------------------------------------------------------------------------
Basic earnings per share/1/ $ 0.28 $ 0.27 $ 0.40 $ 0.31
------------------------------------------------------------------------------
Diluted earnings per share/1/ $ 0.27 $ 0.26 $ 0.39 $ 0.31
------------------------------------------------------------------------------
</TABLE>
/1/ Quarterly earnings per share may vary from annual earnings per share due to
rounding.
38
<PAGE>
DIRECTORS AND OFFICERS
DIRECTORS
JOHN M. KISH
Chairman and Chief Executive Officer
GA Financial, Inc.
THOMAS E. BUGEL
Vice President
East Liberty Electro-Plating Company
DARRELL J. HESS
Owner
Dee Jay's Hallmark Card & Gift Shop
THOMAS M. STANTON
Securities Supervisor
Mass Mutual
ROBERT J. VENTURA
Merger and Acquisition Consultant
DAVID R. WASIK
Partner
Savolskis-Wasik-Glenn Funeral Home
JOSEPH E. BUGEL*
*Director Emeritus
OFFICERS OF GA FINANCIAL, INC.
JOHN M. KISH
Chairman of the Board and
Chief Executive Officer
LAWRENCE A. MICHAEL
Corporate Secretary
RAYMOND G. SUCHTA, CPA
Chief Financial Officer and Treasurer
OFFICERS OF NEW EAGLE
CAPITAL, INC.
JOHN M. KISH
President
RAYMOND G. SUCHTA, CPA
Secretary/Treasurer
PRINCIPAL OFFICERS OF
GREAT AMERICAN FEDERAL
SAVINGS AND LOAN ASSOCIATION
JOHN M. KISH
Chief Executive Officer
TODD L. COVER
Executive Vice President,
Chief Operating Officer
LAWRENCE A. MICHAEL
Vice President, Secretary
RAYMOND G. SUCHTA, CPA
Vice President, Finance
ANDREW R. GETSY
(Retired January 28, 1999)
Vice President, Treasurer
AARON T. FLAITZ, JR.
Vice President, Assistant Secretary
NORMAN A. LITTERINI
Vice President, Lending
WAYNE A. CALLEN
Vice President, Data Processing
JUDITH A. STOECKLE
Vice President, Systems Coordinator
CORPORATE HEADQUARTERS
GA FINANCIAL, INC.
4750 Clairton Boulevard, Pittsburgh, Pennsylvania 15236-2187
(412) 882-9946 . (412) 882-8580 FAX
ANNUAL MEETING
The annual meeting of shareholders will be held at 10:00 a.m., on Wednesday,
April 26, 2000 at The Bradley House, 5239 Brownsville Road, Pittsburgh, PA
15236. Shareholders are encouraged to attend.
ANNUAL REPORT ON FORM 10-K
A copy of GA Financial, Inc.'s Annual Report on Form 10-K without exhibits is
available without charge to shareholders upon written request. Requests should
be sent to Mr. Raymond G. Suchta, Chief Financial Officer and Treasurer.
STOCK TRANSFER/REGISTER
Questions regarding the transfer of stock, lost certificates, address changes,
account consolidation and cash dividends should be addressed to Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016 (800) 866-1340.
SPECIAL COUNSEL
Muldoon, Murphy and Faucette LLP, 5101 Wisconsin Avenue, NW Washington, D.C.
20016.
INDEPENDENT ACCOUNTANTS
KPMG LLP, One Mellon Bank Center, Pittsburgh, PA 15219.
INQUIRIES
Security analysts, retail brokers and shareholders seeking financial information
should contact Mr. Raymond G. Suchta, Chief Financial Officer and Treasurer.
Requests for written materials can be forwarded to the attention of Mr. Lawrence
A. Michael, Corporate Secretary.
DIVIDEND REINVESTMENT PLAN
GA Financial, Inc. maintains a Dividend Reinvestment/Cash Purchase Plan for
registered holders of its common stock. A brochure describing the Plan and an
application to participate may be obtained by contacting Mr. Lawrence A.
Michael, Corporate Secretary.
STOCK INFORMATION
GA Financial, Inc. is traded on the American Stock Exchange under the ticker
symbol "GAF." As of March 7, 2000, GA Financial, Inc. had 6,012,059 shares of
common stock outstanding and approximately 1,693 shareholders of record.
STOCK PRICE
The following table illustrates GA Financial, Inc.'s high and low closing stock
price on the American Stock Exchange and the cash dividend per share paid during
1999.
<TABLE>
<CAPTION>
1999
- ----------------------------------------------------
Quarter High Low Cash Dividend
<S> <C> <C> <C>
QI $16.375 $14.625 $.16
QII $15.875 $14.000 $.16
QIII $15.813 $12.875 $.16
QIV $13.625 $12.500 $.16
</TABLE>
<PAGE>
EXHIBIT 23.0
Consent of KPMG LLP
<PAGE>
EXHIBIT 23.0
The Board of Directors and Shareholders
GA Financial, Inc.:
We consent to incorporation by reference in the Registration Statement Nos.
333-66107 and 333-37837 on Form S-8 of GA Financial, Inc. of our report dated
January 28, 2000, relating to the consolidated statement of financial condition
of GA Financial, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of income and comprehensive income, shareholders'
equity, and cash flows for the year ended December 31, 1999, which report is
incorporated by reference in the December 31, 1999 annual report on Form 10-K
of GA Financial, Inc.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
March 30, 2000
<PAGE>
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of GA
Financial, Inc. on Form S-8 (File No. 333-66107 and 333-37837) of our report
dated January 27, 1999, except as to the information presented in Note 19, for
which the date is February 26, 1999, on our audits of the consolidated financial
statements of GA Financial, Inc. as of December 31, 1998 and for the years ended
December 31, 1998 and 1997, which report is incorporated by reference in the
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1999
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,175
<INT-BEARING-DEPOSITS> 12,457
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 457,684
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 355,240
<ALLOWANCE> 1,731
<TOTAL-ASSETS> 882,980
<DEPOSITS> 495,124
<SHORT-TERM> 115,160
<LIABILITIES-OTHER> 6,125
<LONG-TERM> 182,000
0
0
<COMMON> 89
<OTHER-SE> 84,482
<TOTAL-LIABILITIES-AND-EQUITY> 882,980
<INTEREST-LOAN> 25,426
<INTEREST-INVEST> 31,219
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 56,645
<INTEREST-DEPOSIT> 17,945
<INTEREST-EXPENSE> 33,388
<INTEREST-INCOME-NET> 23,257
<LOAN-LOSSES> 390
<SECURITIES-GAINS> 74
<EXPENSE-OTHER> 17,258
<INCOME-PRETAX> 9,435
<INCOME-PRE-EXTRAORDINARY> 9,435
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,115
<EPS-BASIC> 1.24
<EPS-DILUTED> 1.22
<YIELD-ACTUAL> 6.97
<LOANS-NON> 1,821
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,604
<CHARGE-OFFS> 269
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,731
<ALLOWANCE-DOMESTIC> 1,731
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
GA FINANCIAL, INC.
4750 Clairton Boulevard
Pittsburgh, Pennsylvania 15236
(412) 882-9946
March 24, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
GA Financial, Inc., the holding company for Great American Federal Savings and
Loan Association, Pittsburgh, Pennsylvania, which will be held on April 26,
2000, at 10:00 a.m., at The Bradley House, 5239 Brownsville Road, Pittsburgh,
Pennsylvania 15236.
The attached Notice of the Annual Meeting of Stockholders and Proxy
Statement describe the formal business to be transacted at the annual meeting.
Directors and officers of GA Financial, Inc., as well as a representative of
KPMG LLP, the independent auditors of GA Financial, Inc. for the fiscal year
ending December 31, 2000, will be present at the annual meeting to respond to
any questions that our stockholders may have.
The Board of Directors of GA Financial, Inc. has determined that the
matters to be considered at the annual meeting are in the best interests of GA
Financial, Inc. and its stockholders. For the reasons set forth in the Proxy
Statement, the Board unanimously recommends a vote "FOR" the nominees listed
under Proposal 1 and "FOR" the ratification of KPMG LLP as independent auditors
under Proposal 2.
Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business.
On behalf of the Board of Directors and all of the employees of GA
Financial, Inc. and Great American Federal Savings and Loan Association, I wish
to thank you for your past and continued support.
Sincerely yours,
/s/ John M. Kish
John M. Kish
Chairman of the Board of Directors
<PAGE>
GA FINANCIAL, INC.
4750 Clairton Boulevard
Pittsburgh, Pennsylvania 15236
(412) 882-9946
____________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On April 26, 2000
____________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of GA
Financial, Inc. will be held on Wednesday, April 26, 2000, at 10:00 a.m., at The
Bradley House, 5239 Brownsville Road, Pittsburgh, Pennsylvania 15236.
The annual meeting is for the purpose of considering and voting upon the
following matters:
1. the election of two directors for terms of three years each;
2. the ratification of KPMG LLP as independent auditors of GA Financial,
Inc. for the fiscal year ending December 31, 2000; and
3. such other matters as may properly come before the annual meeting or
any adjournments thereof.
The Board of Directors has established March 13, 2000 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
annual meeting and at any adjournments thereof. Only recordholders of the
common stock of GA Financial, Inc. as of the close of business on that date will
be entitled to vote at the annual meeting or any adjournments thereof. In the
event there are not sufficient votes for a quorum or to approve or ratify any of
the foregoing proposals at the time of the annual meeting, the annual meeting
may be adjourned in order to permit further solicitation of proxies by GA
Financial, Inc. A list of stockholders entitled to vote at the annual meeting
will be available at GA Financial, Inc., 4750 Clairton Boulevard, Pittsburgh,
Pennsylvania, for a period of ten days prior to the annual meeting and will also
be available for inspection at the annual meeting itself.
By Order of the Board of Directors
/s/ Lawrence A. Michael
Lawrence A. Michael
Corporate Secretary
Pittsburgh, Pennsylvania
March 24, 2000
<PAGE>
GA FINANCIAL, INC.
____________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
_____________________
April 26, 2000
Solicitation and Voting of Proxies
This proxy statement is being furnished to stockholders of GA Financial,
Inc. (the "Company") in connection with the solicitation by the Board of
Directors of the Company (the "Board of Directors") of proxies to be used at the
Annual Meeting of Stockholders (the "Meeting") to be held on April 26, 2000, at
10:00 a.m., at The Bradley House, 5239 Brownsville Road, Pittsburgh,
Pennsylvania 15236, and at any adjournments thereof. The 1999 Annual Report to
Stockholders, including the consolidated financial statements for the fiscal
year ended December 31, 1999, accompanies this proxy statement, which is first
being mailed to stockholders on or about March 24, 2000.
Regardless of the number of shares of common stock owned, it is important
that recordholders of a majority of the shares be represented by proxy or
present in person at the Meeting. Stockholders are requested to vote by
completing the enclosed proxy card and returning it signed and dated in the
enclosed postage-paid envelope. Stockholders are urged to indicate their vote
in the spaces provided on the proxy card. Proxies solicited by the Board of
Directors of the Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, signed proxies will be voted
"FOR" the election of each of the nominees for directors named in this proxy
statement and "FOR" the ratification of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Meeting. Execution of a proxy card, however,
confers on the designated proxyholders discretionary authority to vote the
shares in accordance with their best judgment on such other business, if any,
that may properly come before the Meeting or any adjournments thereof.
A proxy may be revoked at any time prior to its exercise by the filing of a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person. However, if you are a stockholder whose shares
are not registered in your own name, you will need appropriate documentation
from your recordholder to vote personally at the Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Georgeson
Shareholder Communications, Inc., a proxy solicitation firm, will assist the
Company in soliciting proxies for the Meeting and will be paid a fee of $3,000,
plus out-of-pocket expenses. Proxies may also be solicited personally or by
telephone or telegraph by directors, officers and regular employees of the
Company and its subsidiary, Great American Federal Savings and Loan Association
(the "Association"), without additional compensation therefor. The Company will
also request persons, firms and corporations holding shares in their names, or
in the names of their nominees, which are beneficially owned by others, to send
proxy material to, and obtain vote instructions from, such beneficial owners,
and will reimburse such holders for their reasonable expenses in doing so.
<PAGE>
Voting Securities
The securities which may be voted at the Meeting consist of shares of
common stock of the Company (the "Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Meeting except as
described below. There is no cumulative voting for the election of directors.
The close of business on March 13, 2000 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of, and to vote at, the Meeting and
any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 6,012,059 shares.
As provided in the Company's Certificate of Incorporation, recordholders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote in respect of the shares
held in excess of the Limit. A person or entity is deemed to beneficially own
shares owned by an affiliate of, as well as persons acting in concert with, such
person or entity. The Company's Certificate of Incorporation authorizes the
Board of Directors (i) to make all determinations necessary to implement and
apply the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit to supply information to the
Company to enable the Board of Directors to implement and apply the Limit.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the
Meeting. In the event there are not sufficient votes for a quorum or to approve
or ratify any proposal at the time of the Meeting, the Meeting may be adjourned
in order to permit the further solicitation of proxies.
As to the election of directors, the proxy card being provided by the Board
of Directors enables a shareholder to vote "FOR" the election of the nominees
proposed by the Board, or to "WITHHOLD AUTHORITY" to vote for one or more of the
nominees being proposed. Under Delaware law and the Company's Certificate of
Incorporation and Bylaws, directors are elected by a plurality of the votes
cast, without regard to either (i) broker non-votes, or (ii) proxies as to which
authority to vote for one or more of the nominees being proposed is withheld.
As to the ratification of KPMG LLP as independent auditors of the Company,
by checking the appropriate box, a shareholder may: (i) vote "FOR" the item;
(ii) "ABSTAIN" from voting on such item; or (iii) vote "AGAINST" the item.
Under the Company's Certificate of Incorporation and Bylaws, unless otherwise
required by law, all other matters shall be determined by a majority of the
votes cast, without regard to either (a) broker non-votes, or (b) proxies marked
"ABSTAIN" as to that matter.
Proxies solicited hereby will be returned to the Company, and will be
tabulated by inspectors of election designated by the Board of Directors, who
will not be employed by, or be directors of, the Company or any of its
affiliates.
2
<PAGE>
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the
outstanding shares of Common Stock on the Record Date, as disclosed in certain
reports regarding such ownership filed with the Company and with the Securities
and Exchange Commission (the "SEC"), in accordance with Section 13(d) or 13(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") by such
persons and groups. Other than those persons listed below, the Company is not
aware of any person or group, as such term is defined in the Exchange Act, that
owns more than 5% of the Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Number Percent
Name and Address of of of
Title of Class Beneficial Owner Shares Class
- --------------------------- ------------------------------------------ --------- -------
<S> <C> <C> <C>
Common Stock............... Great American Federal Savings and Loan 686,574(1) 11.4%
Association Employee Stock Ownership Plan
and Trust ("ESOP")
4750 Clairton Boulevard
Pittsburgh, Pennsylvania 15236
Common Stock............... Franklin Resources 423,500(2) 7.0%
777 Mariners Island Boulevard
San Mateo, California 94402
</TABLE>
___________________________
(1) First Bankers' Trust, N.A. has been appointed as the corporate trustee for
the ESOP ("ESOP Trustee"). The ESOP Trustee, subject to its fiduciary duty,
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. At December 31, 1999, 263,168 shares had
been allocated under the ESOP and 448,832 shares remain unallocated. Under
the ESOP, unallocated shares will be voted by the ESOP Trustee in a manner
calculated to most accurately reflect the instructions received from
participants regarding the allocated stock so long as such vote is in
accordance with the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
(2) Based on information disclosed in a Schedule 13G filed with the SEC on
January 24, 2000.
3
<PAGE>
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
Pursuant to its Bylaws, the number of directors of the Company is set at
six (6) unless otherwise designated by the Board of Directors. Directors are
elected for staggered terms of three years each, with a term of office of only
one of the three classes expiring each year. Directors serve until their
successors are elected and qualified.
The two nominees proposed for election at the Meeting are John M. Kish and
Darrell J. Hess. Messrs. Kish and Hess are presently directors of the Company.
No person being nominated as a director is being proposed for election pursuant
to any agreement or understanding between any person and the Company.
In the event that any nominee is unable to serve or declines to serve for
any reason, it is intended that proxies will be voted for the election of the
balance of those nominees named and for such other persons as may be designated
by the present Board of Directors. The Board of Directors has no reason to
believe that any of the persons named will be unable or unwilling to serve.
Unless authority to vote for the directors is withheld, it is intended that the
shares represented by the enclosed proxy card, if executed and returned, will be
voted "FOR" the election of all nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF BOTH OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with Respect to Nominees, Continuing Directors and Certain Executive
Officers
The following table sets forth, as of the Record Date, the names of the
nominees, continuing directors and the Named Executive Officers, as defined
below, as well as their ages, a brief description of their recent business
experience, including present occupations and employment, certain directorships
held by each, the year in which each became a director of the Association, and
the year in which their terms (or in the case of nominees, their proposed terms)
as director of the Company expire. This table also sets forth the amount of
Common Stock and the percent thereof beneficially owned by each director and
Named Executive Officer and all directors and executive officers as a group as
of the Record Date.
<TABLE>
<CAPTION>
Name and Principal Expiration Shares of Common Ownership
Occupation at Present Director of Term as Stock Beneficially as a Percent
and for the Past Five Years Age Since(1) Director Owned(2) of Class
- --------------------------- --- ----------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Nominees:
John M. Kish 54 1983 2003 96,213(3)(4) 1.60%
Mr. Kish is Chairman of the
Boards of Directors and Chief
Executive Officer of the
Company and the Association.
Darrell J. Hess 67 1991 2003 42,000(5)(6) *
Mr. Hess is the owner of Dee Jay's
Hallmark Card and Gift Shop and
D.J. Hess Advertising, a
promotional product company.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Expiration Shares of Common Ownership
Occupation at Present Director of Term as Stock Beneficially as a Percent
and for the Past Five Years Age Since(1) Director Owned(2) of Class
- --------------------------- --- ----------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Continuing Directors:
Thomas M. Stanton...................... 57 1992 2001 27,130(5)(6) *
Mr. Stanton is a securities
supervisor for Mass Mutual, an
insurance and financial services
company.
Robert J. Ventura...................... 50 1998 2001 10,000(7)(8) *
Since October 1998,
Mr. Ventura has been an
independent acquisitions and
divestitures consultant. Prior to
October 1998, Mr. Ventura was
the director of acquisitions and
divestitures for Rockwell
International Corporation.
Thomas E. Bugel........................ 55 1988 2002 46,709(5)(6) *
Mr. Bugel is an owner and Vice
President of East Liberty Electro-
Plating Company.
David R. Wasik......................... 58 1990 2002 43,014(5)(6) *
Mr. Wasik is a partner and
supervisor of Savolskis-Wasik-
Glenn Funeral Home.
Named Executive Officers:
(who are not also directors)
Andrew R. Getsy........................ 61 -- -- 24,856(3)(4) *
Mr. Getsy was Vice President and
Treasurer of the Association from
September 1983 until his
retirement on January 28, 2000.
Raymond G. Suchta...................... 51 -- -- 61,074(3)(4) 1.02%
Mr. Suchta is Treasurer and
Chief Financial Officer of the
Company and has been Vice
President and Chief Financial
Officer of the Association since
1981.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Expiration Shares of Common Ownership
Occupation at Present Director of Term as Stock Beneficially as a Percent
and for the Past Five Years Age Since(1) Director Owned(2) of Class
- --------------------------- --- ----------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Todd L. Cover 39 -- -- 12,675(9)(10) *
Mr. Cover has been Executive
Vice President and Chief
Operating Officer of the
Association since 1998.
From 1996 to 1998, Mr. Cover
was President and Chief
Executive Officer of West
Milton State Bank, West Milton,
Pennsylvania. From 1990 to
1996, Mr. Cover was Senior
Vice President of Portage
National Bank, Portage,
Pennsylvania.
Stock ownership of all directors and -- -- -- 655,331(11) 10.90%
executive officers of the Company
and the Association as a group (14
persons).
</TABLE>
______________________________
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Association.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting and dispositive power as to shares
reported.
(3) Includes 27,000, 6,700 and 21,400 shares awarded to Messrs. Kish, Getsy and
Suchta, respectively, under the Amended and Restated GA Financial, Inc.
1996 Stock-Based Incentive Plan (the "Incentive Plan"). Such awards began
vesting in five equal annual installments on October 16, 1997. Each
participant presently has voting power as to the shares awarded.
(4) Includes 45,000, 15,000 and 30,000 shares subject to options granted to
Messrs. Kish, Getsy, and Suchta, respectively, under the Incentive Plan
which are currently exercisable. Does not include the remaining 30,000 and
20,000 shares subject to options granted to Messrs. Kish and Suchta,
respectively, under the Incentive Plan, which are not currently
exercisable.
(5) Includes 10,000 shares awarded pursuant to the Incentive Plan, which began
vesting in five equal annual installments on October 16, 1997, the voting
of which currently can be directed by the recipient.
(6) Includes 12,000 shares subject to options granted under the Incentive Plan
which are currently exercisable. Does not include the remaining 8,000
shares subject to options granted under the Incentive Plan, which are not
currently exercisable.
(7) Includes 5,000 shares awarded pursuant to the Incentive Plan, which began
vesting in five equal annual installments on April 29, 1999, the voting of
which currently can be directed by the recipient.
(8) Includes 4,000 shares subject to options granted under the Incentive Plan
which are currently exercisable or will become exercisable within sixty
(60) days. Does not include the remaining 6,000 shares subject to options
granted under the Incentive Plan which are not currently exercisable.
(9) Includes 8,000 shares awarded pursuant to the Incentive Plan, 2000 shares
of which vested on April 20, 1999, the voting of which currently can be
directed by the recipient.
(10) Includes 4,000 shares subject to options granted under the Incentive Plan
which are currently exercisable. Does not include the remaining 12,000
shares subject to options granted under the Incentive Plan which are not
currently exercisable.
(11) Includes a total of 163,840 shares awarded under the Incentive Plan as to
which voting may be directed and a total of 246,000 shares which may be
acquired through the exercise of stock options under the Incentive Plan
which are currently exercisable or will become exercisable within sixty
(60) days.
6
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers (as defined
in regulations promulgated by the SEC thereunder) and directors, and persons who
own more than ten percent (10%) of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent (10%) shareholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of copies of such reports of ownership
furnished to the Company, or written representations that no forms were
necessary, the Company believes that during the past fiscal year all filing
requirements applicable to its officers, directors and greater than ten percent
(10%) beneficial owners were complied with.
Meetings of the Board and Committees of the Board
The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. The Board of Directors meets at least
on a quarterly basis and may have additional meetings as needed. During fiscal
1999, the Board of Directors of the Company held seven regular meetings. All of
the directors of the Company attended at least 75% in the aggregate of the total
number of the Company's Board meetings held and committee meetings on which such
directors served during 1999. The Board of Directors of the Company maintains
committees, the nature and composition of which are described below:
Audit and Compliance Committee. The Audit and Compliance Committee of the
Company and Association consists of Messrs. Bugel, Hess and Wasik. The purpose
of the Audit and Compliance Committee is to review the Company's audit reports
and management's actions regarding the implementation of audit findings and to
review compliance with all relevant laws and regulations. This committee is also
responsible for making recommendations to the full Board of Directors regarding
the selection of the independent auditor. The committee met five times in 1999.
Personnel, Compensation and Benefits Committee. The Personnel,
Compensation and Benefits Committee consists of Messrs. Hess, Stanton and Wasik.
This committee is responsible for making recommendations to the full Board of
Directors on all matters regarding compensation and fringe benefits. The
committee met two times in 1999.
Nominating Committee. The Company's Nominating Committee for the 2000
Annual Meeting consisted of Messrs. Bugel, Stanton, Ventura and Wasik. The
Nominating Committee considers and recommends the nominees for director to stand
for election at the Company's Annual Meeting of Stockholders. The Company's
Bylaws provide for stockholder nominations of directors. These provisions
require such nominations to be made pursuant to timely written notice to the
Secretary of the Company. The stockholders' notice of nominations must contain
all information relating to the nominee which is required to be disclosed by the
Company's Bylaws and by the Exchange Act. See "Additional Information - Notice
of Business to be Conducted at an Annual Meeting." The Nominating Committee met
on January 25, 2000.
Directors' Compensation
Directors' Fees. Non-employee members of the Board of Directors of the
Company currently receive an annual retainer fee of $1,000 and a fee of $400 for
each Board meeting and a fee of $175 for each committee meeting attended.
However, directors of the Company do not receive Company Board meeting fees on
dates when an Association Board of Directors meeting is held.
7
<PAGE>
Non-employee directors of the Association are currently paid an annual
retainer of $16,800. Non-employee directors of the Association are also
currently paid a fee of $175 for committee meetings attended and a fee of $400
for each special meeting of the Board of Directors attended. The Association
also maintains one Director Emeritus position that is currently filled by Joseph
E. Bugel, the former Chairman of the Board of Directors who served with the
Association from 1939 to 1988 and the father of Director Thomas E. Bugel. Mr.
Bugel is paid an annual retainer of $6,000 and a fee of $400 for each Board of
Directors meeting which he attends.
Incentive Plan. Under the Incentive Plan maintained by the Company, each
member of the Board of Directors of the Company who is not an officer or
employee of the Company or the Association, with the exception of Mr. Ventura,
received non-statutory stock options to purchase 20,000 shares of Common Stock
at an exercise price of $12.75, the fair market value of the Common Stock on
October 16, 1996, the date the option was granted (with Dividend Equivalent
Rights attached, as discussed below), and stock awards for 10,000 shares of
Common Stock (collectively "Directors' Awards"). On April 29, 1998, Mr. Ventura
received non-statutory stock options to purchase 10,000 shares of Common Stock
at an exercise price of $19.76 per share, the fair market value of the Common
Stock on April 29, 1998. Mr. Ventura also received stock awards for 5,000
shares of Common Stock. The Dividend Equivalent Rights provide a separate cash
benefit equal to 100% of the amount of any extraordinary dividend (as defined in
the Incentive Plan) declared by the Company on shares of Common Stock subject to
an option. The Directors' Awards initially granted under the Incentive Plan
will vest over a five-year period, at a rate of 20% each year commencing on
October 16, 1997, the first anniversary of the date of the grant. All
unexercised options granted under the Incentive Plan expire 10 years following
the date of grant. Mr. Ventura's awards vest at a rate of 20% each year
commencing on April 29, 1999. All Directors' Awards will immediately vest upon
death, disability, a change in control of the Company or the Association or, at
the discretion of the committee administering the Incentive Plan, retirement.
Executive Compensation
The report of the compensation committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 (the "Securities Act") or the Exchange Act, except as to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
Compensation Committee Report on Executive Compensation. Under rules
established by the SEC, the Company is required to provide certain data and
information in regard to the compensation and benefits provided to the Company's
chief executive officer and the other executive officers of the Company. The
disclosure requirements for these executive officers include the use of tables
and a report explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment of this
requirement, the Compensation Committee, at the direction of the Board of
Directors, has prepared the following report for inclusion in this proxy
statement.
Compensation Policies. The policies and objectives of the Compensation
Committee are designed to assist the Company in attracting and retaining
qualified executives, to recognize individual contributions towards achieving
strategic business initiatives and reward them for their achievement and to
closely align the financial interests of the executive officers with those of
its stockholders. In furtherance of these objectives, the Company and
Association maintain a compensation program for executives officers which
consists of both cash and equity based compensation.
8
<PAGE>
The Compensation Committee has discretion to recommend, relative to
performance and peer group comparisons, the base salaries of the executive
officers. The Compensation Committee recommends the level of annual salary for
the Chief Executive Officer, generally based upon a review of the performance of
the Chief Executive Officer and the Company during the prior year and
competitive data for that position. The Compensation Committee is then
responsible for recommending the base salaries of the remaining executive
officers.
In addition, in order to align the interests and performance of its
executive officers with the long-term interests of its stockholders, the Company
and the Association adopted plans which reward the executives for delivering
long-term value to the Company and the Association through stock ownership.
The compensation package available to executive officers is composed of the
following components:
(i) Base Salary;
(ii) Annual Cash Incentive Awards; and
(iii) Long Term Incentive Compensation, including Option and Stock
Awards.
Mr. Kish has an employment agreement which specifies a minimum base salary
and requires an annual review of such salary. In addition, Mr. Kish and all
other executive officers of the Company and the Association participate in other
benefit plans available to all employees including the Association's Employee
Stock Ownership Plan.
Base Salaries. The salary levels are intended to be consistent and
competitive with the practices of other comparable financial institutions and
each executives' level of responsibility. The Compensation Committee has
consulted with L.R. Webber Associates, Inc., an independent consulting firm, in
determining the compensation paid to executive officers performing similar
duties for depository institutions and their holding companies with particular
focus on the level of compensation paid by comparable institutions in
Pennsylvania and the Mid-Atlantic region.
Although the Compensation Committee's recommendations are discretionary and
no specific formula is used for decision making, salary increases are aimed at
reflecting the overall performance of the Company and the performance of the
individual executive officer.
Annual Cash Incentive Awards. As discussed under Base Salaries, cash
incentive awards are intended to be consistent with comparative practices of
other comparable financial institutions and each executive officer's level of
responsibility. Such awards are based on the Compensation Committee's
subjective determinations of the executive officer's performance during the year
in relation to the budgeted financial performance of the Company.
Long Term Incentive Compensation. The Company maintains the Incentive Plan
under which executive officers may receive grants and awards of Common Stock and
options to purchase Common Stock of the Company. The Compensation Committee
believes that stock ownership is a significant incentive in building shareholder
value and aligning the interests of employees with shareholders. As approved by
the Company's shareholders on October 16, 1996, all of the executive officers
received grants and awards of Common Stock and options to purchase Common Stock
which have vesting periods of 20% per year beginning one year from the date of
the respective grant. The exercise price of options granted was the market
value of the Common Stock on the date of shareholder approval. The value of
this component of compensation increases as the Common Stock of the Company
appreciates in value. The specific grants and awards for certain named
executive officers are reflected in the Summary Compensation Table.
9
<PAGE>
Chief Executive Compensation. The base compensation of John M. Kish,
Chairman and Chief Executive Officer of the Company, for fiscal 1999 was
$194,463. See the discussion under "Employment Agreements" for further
information regarding Mr. Kish's annual base salary.
Personnel, Compensation and Benefits Committee
Mr. Hess
Mr. Stanton
Mr. Wasik
10
<PAGE>
Stock Performance Graph. The following graph shows a comparison of
stockholder return on the Company's Common Stock based on the market price of
Common Stock assuming the reinvestment of dividends, with the cumulative total
returns for the companies on the American Stock Exchange Index and the SNL
Thrift Index for the period beginning on March 26, 1996, the day the Company's
Common Stock began trading, through December 31, 1999. The graph was derived
from a very limited period of time, and, as a result, may not be indicative of
possible future performance of the Company's Common Stock. The data was
supplied by SNL Securities, Inc., a data service provider for publicly traded
financial institutions.
Comparison of Cumulative Total Return Among the Company,
American Stock Exchange Index and SNL Thrift Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Period Ending
------------------------------------------------
Index 03/26/96 12/31/96 12/31/97 12/31/98 12/31/99
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GA Financial, Inc 100.00 134.33 171.78 145.63 129.86
Amex Major Market Index 100.00 116.34 148.74 179.20 211.02
SNL Thrift Index 100.00 129.41 220.20 193.67 158.20
</TABLE>
11
<PAGE>
Summary Compensation Table. The following table shows, for the years
ended December 31, 1999, 1998 and 1997, the cash compensation paid by the
Company and Association, as well as certain other compensation paid or accrued
for those years, to the Chief Executive Officer of the Company and the
Association and the four highest paid executive officers of the Company and the
Association, who earned and/or received salary and bonus in excess of $100,000
in fiscal year 1999 ("Named Executive Officers").
<TABLE>
<CAPTION>
Long term Compensation
----------------------------------
Annual Compensation(1) Awards Payouts
------------------------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Compensation Awards Options/SARs Payouts Compensation
Positions Year Salary($) Bonus($) ($)(2) ($) (#) ($)(3) ($)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. Kish 1999 $194,463 - - - - None $ 5,522
Chairman of the Board and 1998 175,048 - - - - None 36,744
Chief Executive Officer 1997 111,240 - - - - None 40,849
of the Company and the
Association
John G. Micenko (5) 1999 $145,184 - - - - None $542,838
Former Director and 1998 226,343 - - - - None 92,028
President of the Company 1997 211,603 - - - - None 92,214
and the Association
Andrew R. Getsy 1999 $134,635 - - - - None $ 5,066
Vice President and 1998 134,826 - - - - None 39,179
Treasurer of the 1997 125,291 - - - - None 49,774
Association
Raymond G. Suchta 1999 $120,353 - - - - None $ 3,965
Treasurer and Chief 1998 118,654 - - - - None 29,499
Financial Officer of the 1997 96,246 - - - - None 42,835
Company and Chief
Financial Officer of the
Association
Todd L. Cover 1999 $126,493 - - - - None $ 1,565
Executive Vice
President and Chief
Operating Officer of
the Association
</TABLE>
________________________
(1) The column titled "Bonus" consists of board approved discretionary cash
bonuses. See "Compensation Committee Report on Executive Compensation."
(2) For 1999, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; nor (e) preferential
discounts on stock.
(3) For 1999, 1998 and 1997, there were no payouts or awards under any long-
term incentive plan.
(4) Other compensation includes the $538,482 lump sum payment made to Mr.
Micenko, and Mr. Micenko's accelerated vesting of 38,000 stock options and
11,000 shares of restricted stock in connection with his retirement on
September 1, 1999. Other compensation also includes a taxable fringe
benefit group life insurance, employer contributions to the Association's
401(k) plan, contributions to the Association's non-qualified Supplemental
Executive Retirement Plan ("SERP"), and grants of common stock pursuant to
the Association's ESOP. In 1998, the Board voted to terminate the SERP.
During fiscal 1999, Messrs. Kish, Getsy, Suchta and Cover received
contributions of $659, $1,027, $354 and $201, respectively, under the group
life insurance. Contributions to Messrs. Kish, Getsy, Suchta and Cover
during fiscal 1999 pursuant to the 401(k) plan were $4,863, $4,039, $3,611
and $1,364, respectively. For 1999, other compensation does not reflect
accruals for Messrs. Kish, Micenko, Getsy, Suchta and Cover under the
Association's ESOP, since those amounts are not determinable as of the date
of this Proxy Statement.
(5) Mr. Micenko retired on September 1, 1999.
12
<PAGE>
Compensation Arrangements
Employment Agreements. The Association and the Company entered into
employment agreements with Messrs. Kish and Micenko (individually, the
"Executive"). These employment agreements were intended to ensure that the
Association and the Company would be able to maintain a stable and competent
management base. Mr. Micenko retired from the Company and the Association on
September 1, 1999, fulfilling his employment agreements. In connection with his
retirement and termination of his employment agreements, Mr. Micenko received a
lump sum payment of $538,482 less applicable taxes. Mr. Micenko also received
accelerated vesting of the 38,000 stock options granted under the Incentive
Plan, and the 11,000 shares of restricted stock under the Incentive Plan. The
continued success of the Association and the Company depends to a significant
degree on the skills and competence of Mr. Kish.
The employment agreements provide for a three-year term for Mr. Kish. The
Association employment agreement provides that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the Board of
the Association may extend the agreement for an additional year so that the
remaining term shall be three years, unless the Executive elects not to extend
the term of this agreement by giving written notice or written notice of non-
renewal is given by the Board of the Association after conducting a performance
evaluation of the Executive. The terms of the Company employment agreement are
also extended on an annual basis unless the Executive elects not to extend the
term of this agreement by giving written notice or written notice of non-renewal
is given by the Board of the Company. The agreements provide that the
Executive's base salary will be reviewed annually. The base salary of Mr. Kish
as Chief Executive Officer of the Company and the Association is $215,000. In
addition to the base salary, the agreements provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel.
The agreements provide for termination by the Association or the Company
for cause as defined in the agreements at any time. In the event the
Association or the Company chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from the Association and the Company upon: (i) failure to re-elect the
Executive to his current offices; (ii) a material change in the Executive's
functions, duties or responsibilities; (iii) a relocation of the Executive's
principal place of employment by more than 25 miles; (iv) a material reduction
in the benefits and perquisites to the Executive; (v) liquidation or dissolution
of the Association or the Company; or (vi) a breach of the agreement by the
Association or the Company, the Executive or, in the event of Executive's
subsequent death, his beneficiary, beneficiaries or estate, as the case may be,
would be entitled to receive an amount equal to the remaining base salary
payments due to the Executive and the contributions that would have been made on
the Executive's behalf to certain benefit plans of the Association or the
Company during the remaining term of the agreement. The Association and the
Company would also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the agreement. Upon any
termination of the Executive, the Executive is subject to a one year non-
competition agreement.
Under the agreements, if voluntary or involuntary termination follows a
change in control of the Association or the Company (as defined in the
employment agreements), the Executive or, in the event of the Executive's death,
his beneficiary, would be entitled to a severance payment equal to the greater
of: (i) the payments due for the remaining term of the agreement; or (ii) three
times the average of the five preceding taxable years' annual compensation. The
Association and the Company would also continue the Executive's life, health,
and disability coverage for thirty-six months. Notwithstanding that both
agreements provide for a severance payment in the event of a change in control,
the Executive would only be entitled to receive a severance payment under one
agreement. Based solely on the compensation reported in the
13
<PAGE>
Summary Compensation Table for 1999 in the case of Mr. Kish and excluding any
benefits under any employee plan which may be payable, following a change in
control and termination of employment Mr. Kish would receive severance payments
in the amount of approximately $583,389.
Payments under the employment agreements in the event of a change in
control may constitute some portion of an excess parachute payment under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") for executive
officers, resulting in the imposition of an excise tax on the recipient and
denial of the deduction for such excess amounts to the Company and the
Association.
Payments to the Executive under the Association's agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Association. Payment under the Company's agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the agreements
shall be paid by the Association or Company, respectively, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that the Association and
Company shall indemnify the Executive to the fullest extent allowable under
federal and Delaware law, respectively.
Change in Control Agreements. For similar reasons as with the employment
agreements, the Association and/or the Company have entered into change in
control agreements with Messrs. Suchta and Cover (collectively, the
"Executives"). Each change in control agreement provides for a two year term.
Commencing on the date of the execution of the Company's change in control
agreement, the term shall be extended for one day each day until such time as
the Board of Directors of the Company or the Executive elects by written notice
not to extend the term, at which time the change in control agreement will end
on the second anniversary of the date of notice. The Company's change in
control agreement provides that at any time following a change in control of the
Association or the Company (as defined in the agreement), if the Company
terminates the Executive's employment for any reason other than cause, or if the
Executive terminates his or her employment following demotion, loss of title,
office or significant authority, a reduction in compensation, or relocation of
the principal place of employment of more than 25 miles, the Executive, or in
the event of Executive's subsequent death, Executive's beneficiary or
beneficiaries or estate, as the case may be, would be entitled to a sum equal to
two (2) times the Executive's annual compensation, including bonuses, cash and
stock compensation and other benefits for the preceding twelve months. The
Company would also continue the Executive's life, medical and disability
coverage for twenty-four (24) full calendar months from the date of termination.
The Association's change in control agreement is similar to that of the Company,
with the exception that such agreement may be extended on an annual basis by the
Association and is subject to certain other limitations imposed by federal
regulation. Payments to the Executive under the Association's change in
control agreement will be guaranteed by the Company in the event that payments
or benefits are not paid by the Association. Based solely on the Compensation
reported in the Summary Compensation Table for 1999 and excluding any benefits
under any employee plan which may be payable, following a change in control and
termination of employment, Messrs. Suchta and Cover would receive a severance
payment in the amount of approximately $240,706 and $252,986, respectively.
Payments under the change in control agreements in the event of a change in
control may constitute some portion of an excess parachute payment under Section
280G of the Code for executive officers, resulting in the imposition of an
excise tax on the recipient and denial of the deduction for such excess amounts
to the Company and the Association.
14
<PAGE>
Incentive Plan. The Company maintains the Incentive Plan, which provides
discretionary awards of options to purchase Common Stock, option-related awards
and awards of Common Stock (collectively, "Awards") to officers, directors and
key employees as determined by a committee of the Board of Directors. Awards of
Common Stock to officers, directors and key employees is provided under
"Restricted Stock Awards" in the "Summary Compensation Table." No options were
granted under the Incentive Plan to the Named Executive Officers in fiscal 1999.
The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of December 31, 1999. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such existing stock options and the year end price of the Common
Stock.
Fiscal Year-End Option/SAR Value
<TABLE>
<CAPTION>
Value of
Number Unexercised
of Securities in-the-money
Underlying Unexercised Options, SARs
Options/SARs at Fiscal Year-
Name at Fiscal Year-End(#)(1) End($)(2)(3)
- ------------------ -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John M. Kish 45,000 30,000 $22,500 $15,000
Andrew R. Getsy 15,000 -- 7,500 --
Raymond G. Suchta 30,000 20,000 15,000 10,000
Todd L. Cover 4,000 12,000 -- --
</TABLE>
____________________
(1) The options in this table have an exercise price of $12.75, except for Mr.
Cover's options, whose exercise price is $21.99.
(2) The price of the Common Stock on December 31, 1999 was $13.25.
(3) Based on the market value of the underlying Common Stock at fiscal year
end, minus the exercise price.
15
<PAGE>
Retirement Plan. On October 1, 1999, the Association withdrew its
participation in the Financial Institutions Retirement Plan, administered by the
Pentegra Group, which is a defined benefit pension plan (the "Retirement Plan").
As discussed below, the Retirement Plan was modified as of July 1, 1996. For a
portion of 1999, eligible officers of the Association participated in the
Retirement Plan.
The following table indicates the annual retirement benefit payable under
the current terms of the Retirement Plan upon retirement at age 65 to those
participants who were not participants in the Retirement Plan as of July 1, 1996
and who elect to receive their retirement benefits in the standard form of
benefit, assuming various specified levels of plan compensation and various
specified years of credited service expressed in the form of a ten year certain
and life annuity. The benefits listed in the table below are based upon salary
only and are not subject to any social security adjustment. The following table
includes benefits under the current terms of the Retirement Plan.
<TABLE>
<CAPTION>
High-5 10 Years 15 Years 20 Years 25 Years 30 Years
Average Benefit Benefit Benefit Benefit Benefit
Compensation Service Service Service Service Service
- ------------------ ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 20,000 $ 2,400 $ 3,600 $ 4,800 $ 6,000 $ 6,000
30,000 3,600 5,400 7,200 9,000 9,000
50,000 6,000 9,000 12,000 15,000 15,000
75,000 9,000 13,500 18,000 22,500 22,500
100,000 12,000 18,000 24,000 30,000 30,000
150,000 18,000 27,000 36,000 45,000 45,000
200,000 24,000 36,000 48,000 60,000 60,000
250,000 30,000 45,000 60,000 75,000 75,000
</TABLE>
____________________
(1) The maximum amount of annual compensation which can be considered in
computing benefits under Section 401(a)(17) of the Code was $160,000 for
1999 and is $170,000 for 2000.
16
<PAGE>
Effective July 1, 1996, in conjunction with the Association's adoption of a
savings plan qualified under Section 401(k) of the Code (the "401(k) Plan") and
the ESOP, the Association modified the Retirement Plan from a self-administered
defined benefit plan with a 60 percent, High-3 formula and a 25 year target
service minimum to a defined benefit plan with a 30 percent, High-5 formula and
a 25 year target service minimum. As a result, participants in the Retirement
Plan as of July 1, 1996 will effectively receive a benefit under the Retirement
Plan equal to the greater of: (i) the amount of benefit payable under the
Retirement Plan prior to modification or (ii) the amount of benefit payable
under the terms of the modified terms of the Retirement Plan. The following
table indicates the annual retirement benefit payable to participants upon
retirement at age 65 who elect to receive their retirement benefit in the
standard form of benefit, assuming various specified levels of plan compensation
and various specified years of credited service, under the Retirement Plan prior
to its modification. The benefits listed in the retirement tables are based
upon salary only and are not subject to any Social Security adjustment. The
table below sets forth estimated annual pension benefits for individuals at age
65 as of the June 30, 1996 accrued benefit date.
<TABLE>
<CAPTION>
High-3 10 Years 15 Years 20 Years 25 Years 30 Years
Average Benefit Benefit Benefit Benefit Benefit
Compensation Service Service Service Service Service
- ------------------ ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 6,000 $ 9,000 $ 12,000 $ 15,000 $ 15,000
50,000 12,000 18,000 24,000 30,000 30,000
75,000 18,000 27,000 36,000 45,000 45,000
100,000 24,000 36,000 48,000 60,000 60,000
125,000 30,000 45,000 60,000 75,000 75,000
150,000 36,000 54,000 72,000 90,000 90,000
175,000 42,000 63,000 84,000 105,000 105,000
200,000 48,000 72,000 96,000 120,000 120,000
250,000 60,000 90,000 120,000 150,000 150,000
</TABLE>
____________________
(1) The maximum amount of annual compensation which can be considered in
computing benefits under Section 401(a)(17) of the Code was $160,000 for
1999 and is $170,000 for 2000.
The following table sets forth the years of credited service (i.e., benefit
service) as of September 30, 1999 for each Named Executive Officer.
<TABLE>
<CAPTION>
Credited Service
---------------------
Years Months
----- ------
<S> <C> <C>
John M. Kish..................... 2 6
John G. Micenko.................. 36 2
Andrew R. Getsy.................. 31 3
Raymond G. Suchta................ 17 3
Todd L. Cover.................... 0 5
</TABLE>
17
<PAGE>
Transactions With Certain Related Persons
The Association's past policy provided that all loans made by the
Association to its directors and executive officers ("insiders") be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present other unfavorable
features. The Financial Institutions Recovery, Reform and Enforcement Act of
1989 ("FIRREA"), subjected the Association to the restrictions of Section 22(g)
and (h) of the Federal Reserve Act and Regulation O promulgated thereunder.
Prior to FIRREA, the Association made loans to executive officers with
discounted interest rates. Recent legislation has created an exception to this
lending prohibition which allows the Association to extend the same lending
terms to insiders as are widely available to all employees within certain
limits. In November 1998, the Association revised its policy to allow insiders
to be eligible to receive the same discounted interest rate that is available to
all employees.
As of December 31, 1999, the Association has $995,662 of loans to executive
officers or directors. With the exception of the loans presented in the table
below, all loans to the Association's executive officers and directors were made
by the Association in the ordinary course of business, on substantially the same
terms, including interest rates and collateral prevailing at the time for
comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present unfavorable features. Set forth below
is certain information as of December 31, 1999, with respect to loans made by
the Association on preferential terms to executive officers and directors of the
Company and their affiliates which in the aggregate exceeded $60,000 at any time
since January 1, 1999. At the time of origination of the loans as set forth
below, preferential loan rates were available for all full-time employees. The
rates on such loans are equal to the Association's cost of funds rounded to the
next quarter (but in no event less than 6.25%) and such preferential interest
rates remain in effect as long as the employee maintains full-time status.
<TABLE>
<CAPTION>
Largest Balance
Amount as of Interest Rate
Date Maturity Date Outstanding Since December as of December Type of
Name and Position of Loan of Loan January 1, 1999 31, 1999 31, 1999 Loan
- ----------------- ------- ------- --------------- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
John M. Kish, 03/08/99 04/01/14 $160,000 $ 147,868 6.25% Mortgage
Chairman of the Board and
Chief Executive Officer of
the Company and the
Association
Darrell J. Hess, 02/09/99 11/01/11 $139,000 $ 133,153 6.25% Mortgage
Director of the Company
and the Association
Todd L. Cover, 09/16/98 10/01/28 $207,551 $ 202,985 6.25% Mortgage
Executive Vice President
and Chief Operating
Officer of the Association
Raymond G. Suchta, 01/09/87 06/01/17 $ 91,357 $ 81,985 6.50% Mortgage
Chief Financial Officer and
Treasurer of the Company
and Vice President of the
Association
Wayne A. Callen, 11/18/86 06/01/17 $104,437 $ 101,208 7.00% Mortgage
Vice President of the
Association
</TABLE>
18
<PAGE>
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG LLP to be its independent
auditors for the 2000 fiscal year, subject to the ratification by stockholders.
Representatives of KPMG LLP will be present at the Meeting. They will be
given an opportunity to make a statement if they so desire to do so and will be
available to respond to appropriate questions from stockholders present at the
Meeting.
Unless marked to the contrary, the shares represented by the enclosed proxy
will be voted "FOR" ratification of the appointment of KPMG LLP as the
independent auditors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
ADDITIONAL INFORMATION
Stockholder Proposals
To be considered for inclusion in the proxy statement and proxy relating to
the Annual Meeting of Stockholders to be held in 2001, a stockholder proposal
must be received by the Secretary of the Company at the address set forth in the
Notice of Annual Meeting of Stockholders, not later than November 25, 2000. Any
such proposal will be subject to Rule 14a-8 of the Rules and Regulations under
the Exchange Act.
Notice of Business to be Conducted at an Annual Meeting
The Bylaws of the Company provide an advance notice procedure for certain
business to be brought before an annual meeting. In order for a stockholder to
properly bring business before an annual meeting, the stockholder must give
written notice to the Secretary of the Company not less than ninety (90) days
before the time originally fixed for such meeting; provided, however, that in
the event that less than one hundred (100) days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. In order for
the notice of a stockholder proposal for consideration at the Company's 2001
Annual Meeting of Stockholders to be timely, the Company would have to receive
such notice no later than January 26, 2001 assuming the 2001 annual meeting is
held on April 26, 2001 and that the Company provides at least 100 days notice or
public disclosure of the date of the annual meeting. The notice must include
the stockholder's name and address, as it appears on the Company's record of
stockholders, a brief description of the proposed business, the reason for
conducting such business at the annual meeting, the class and number of shares
of the Company's common stock that are beneficially owned by such stockholder
and any material interest of such stockholder in the proposed business. In the
case of nominations to the Board, certain information regarding the nominee must
be provided. Nothing in this paragraph shall be deemed to require the Company
to include in its proxy statement and proxy relating to an annual meeting any
stockholder proposal which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal is received.
19
<PAGE>
Other Matters Which May Properly Come Before the Meeting
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Meeting, it is the intention of the persons named in the accompanying proxy
to vote the shares represented thereby on such matters in accordance with their
best judgment.
Whether or not you intend to be present at the Meeting, you are urged to
return your proxy promptly. If you are present at the Meeting and wish to vote
your shares in person, your proxy may be revoked by voting at the Meeting.
A copy of the Form 10-K (without exhibits) for the year ended December 31,
1999, as filed with the Securities and Exchange Commission will be furnished
without charge to stockholders of record upon written request to Raymond G.
Suchta, Chief Financial Officer, GA Financial, Inc., 4750 Clairton Boulevard,
Pittsburgh, Pennsylvania 15236.
By Order of the Board of Directors
/s/ Lawrence A. Michael
Lawrence A. Michael
Corporate Secretary
Pittsburgh, Pennsylvania
March 24, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND PROMPTLY RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
20
<PAGE>
REVOCABLE PROXY
GA FINANCIAL, INC.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
ANNUAL MEETING OF SHAREHOLDERS
April 26, 2000
10:00 a.m. Eastern Time
The undersigned hereby appoints the official proxy committee of the
Board of Directors of GA Financial, Inc. (the "Company"), each with full power
of substitution, to act as proxies for the undersigned, and to vote all shares
of Common Stock of the Company which the undersigned is entitled to vote only
at the Annual Meeting of Shareholders, to be held on April 26, 2000, at 10:00
a.m., Eastern Time, at The Bradley House, 5239 Brownsville Road, Pittsburgh,
Pennsylvania 15236, and at any and all adjournments thereof, with all of the
powers the undersigned would possess if personally present at such meeting, as
follows:
With- For All
For hold Except
1. The election as directors of all nominees [ ] [ ] [ ]
listed (except as marked to the contrary below)
Darrell J. Hess John M. Kish
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
___________________________________________________________________________
For Against Abstain
2. The ratification of the appointment of KPMG LLP [ ] [ ] [ ]
as independent auditors of GA Financial, Inc. for
the fiscal year ending December 31, 2000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted "FOR" each of the
proposals listed. If any other business is presented at the Annual Meeting,
including whether or not to adjourn the meeting, this proxy will be voted by
those named in this proxy in their best judgment. At the present time, the
Board of Directors knows of no other business to be presented at the Annual
Meeting.
Please be sure to sign and date
this Proxy in the box below. ______________________________
Date
_________________________________ ______________________________
Shareholder sign above Co-holder (if any) sign above
- --------------------------------------------------------------------------------
Detach above card, date, sign and mail in postage paid envelope provided.
GA FINANCIAL, INC.
The above signed acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of the Annual Meeting of Shareholders and of a Proxy
Statement dated March 24, 2000 and of the Annual Report to Shareholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE>
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
Exhibit 99.2
Report of Independent Accountants
To the Board of Directors and Shareholders of GA Financial, Inc.
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of GA Financial, Inc. and subsidiaries (the Company) at
December 31, 1998, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1998 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
January 27, 1999
except as to the information
presented in Note 19, for which
the date is February 26, 1999
