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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14154
GA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1780835
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4750 CLAIRTON BOULEVARD 15236
PITTSBURGH, PENNSYLVANIA (Zip Code)
(Address of principal executive offices)
(412) 882-9946
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
5,234,783 shares of common stock, par value $0.01 per share, were outstanding
as of October 31, 2002.
GA FINANCIAL, INC.
FORM 10-Q
SEPTEMBER 30, 2002
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION.............................................................. 1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME.................................................. 2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY.............................................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................................................... 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.............................................................. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................. 15
ITEM 4. CONTROLS AND PROCEDURES..................................................................................... 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................................................................... 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................................................................... 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................................. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................... 16
ITEM 5. OTHER INFORMATION........................................................................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................................................ 16
SIGNATURES ............................................................................................................ 17
CERTIFICATIONS ...................................................................................................... 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
GA FINANCIAL, INC.
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash (including interest-bearing deposits of $34,213 and $24,950)................. $ 37,697 $ 29,859
Held for trading securities, at fair value........................................ 119 159
Available for sale securities, at fair value...................................... 297,511 335,383
Held to maturity securities, at cost.............................................. 2,941 2,914
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities................................................................ 300,571 338,456
Education loans held for sale..................................................... 14,208 14,732
Loans (net of deferred fees of $294 and $330)..................................... 473,300 442,276
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans..................................................................... 487,508 457,008
Allowance for loan losses......................................................... (3,819) (3,210)
- ---------------------------------------------------------------------------------------------------------------------------------
Net loans....................................................................... 483,689 453,798
Accrued interest receivable on securities......................................... 2,575 2,192
Accrued interest receivable on loans.............................................. 3,146 3,429
Federal Home Loan Bank stock...................................................... 11,079 12,429
Premises and equipment, net....................................................... 6,473 7,069
Foreclosed assets................................................................. 32 154
Securities sold, not settled...................................................... -- 3,472
Prepaid expenses and other assets................................................. 13,421 12,978
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets.................................................................... $858,683 $863,836
=================================================================================================================================
LIABILITIES
Noninterest-bearing deposits...................................................... $ 31,696 $ 31,671
Interest-bearing deposits......................................................... 490,008 498,020
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits.................................................................. 521,704 529,691
Borrowed funds.................................................................... 221,575 229,575
Advances from customers for taxes, insurance, and other........................... 1,630 1,886
Accrued interest payable.......................................................... 5,919 2,129
Other liabilities................................................................. 7,335 3,615
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities............................................................... 758,163 766,896
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock ($0.01 par value); 1,000,000 shares authorized; 0 shares issued... -- --
Common stock ($0.01 par value); 23,000,000 shares authorized; 8,900,000 shares
issued.......................................................................... 89 89
Additional paid-in capital........................................................ 86,811 87,056
Retained earnings, substantially restricted....................................... 69,343 67,215
Accumulated other comprehensive income, net of taxes.............................. 6,898 2,044
Unearned employee stock ownership plan (ESOP) shares.............................. (3,081) (3,081)
Unearned stock-based compensation plan (SCP) shares............................... (346) (406)
Treasury stock, at cost (3,665,217 shares and 3,489,677 shares)................... (59,194) (55,977)
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity...................................................... 100,520 96,940
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity...................................... $858,683 $863,836
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
GA FINANCIAL, INC.
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans............................................................ $ 8,636 $ 8,378 $25,477 $24,231
Securities:
Taxable interest............................................... 3,116 4,083 9,499 13,902
Nontaxable interest............................................ 659 699 2,020 2,122
Dividends...................................................... 212 643 1,041 2,238
Interest-bearing deposits........................................ 116 264 354 909
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income.......................................... 12,739 14,067 38,391 43,402
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits........................................ 4,252 5,192 13,192 15,823
Borrowed funds................................................... 2,705 3,163 8,460 10,113
Escrow........................................................... 8 8 24 23
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense......................................... 6,965 8,363 21,676 25,959
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income............................................ 5,774 5,704 16,715 17,443
Provision for loan losses........................................ 135 315 690 735
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses............ 5,639 5,389 16,025 16,708
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service fees..................................................... 704 620 1,969 1,938
Net gain on sales of available for sale securities............... 202 21 193 160
Writedown of securities.......................................... -- (730) (141) (730)
Net (loss) gain on held for trading securities................... (28) (46) (40) 41
Gain on sales of education loans held for sale................... 47 84 85 127
Gain on sale of branch........................................... -- -- 905 --
Earnings on bank owned life insurance............................ 147 157 429 345
Other............................................................ 7 7 27 143
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income....................................... 1,079 113 3,427 2,024
- -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Compensation and employee benefits............................... 2,297 2,371 6,937 7,385
Occupancy........................................................ 366 474 1,302 1,396
Furniture and equipment.......................................... 372 350 1,100 966
Marketing........................................................ 179 221 398 492
Deposit insurance premiums....................................... 23 25 70 74
Loss on closure of branch........................................ -- -- 208 98
Other............................................................ 1,040 1,189 3,195 3,544
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense...................................... 4,277 4,630 13,210 13,955
- -----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes....................... 2,441 872 6,242 4,777
Provision for income taxes....................................... 617 -- 1,412 895
- -----------------------------------------------------------------------------------------------------------------------------
Net income..................................................... $ 1,824 $ 872 $ 4,830 $ 3,882
=============================================================================================================================
OTHER COMPREHENSIVE INCOME
Unrealized holding gains on available for sale securities,
net of taxes................................................... $ 2,315 $ 4,245 $ 4,891 $ 6,026
Reclassification adjustment for net (gains) losses included
in net income.................................................. (143) 567 (37) 1,278
- -----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income..................................... 2,172 4,812 4,854 7,304
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive income........................................... $ 3,996 $ 5,684 $ 9,684 $11,186
=============================================================================================================================
EARNINGS PER SHARE
Basic............................................................... $ 0.37 $ 0.17 $ 0.96 $ 0.76
Diluted............................................................. $ 0.36 $ 0.17 $ 0.94 $ 0.75
AVERAGE SHARES OUTSTANDING
Basic...............................................................4,974,992 5,124,585 5,018,741 5,096,880
Diluted.............................................................5,106,847 5,232,504 5,134,512 5,181,646
=============================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
GA FINANCIAL, INC.
ACCUMULATED
OTHER TOTAL
ADDITIONAL COMPRE- UNEARNED UNEARNED SHARE-
COMMON PAID- RETAINED HENSIVE ESOP SCP TREASURY HOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STOCK IN CAPITAL EARNINGS INCOME SHARES SHARES STOCK EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001..................... $89 $87,056 $67,215 $2,044 $(3,081) $(406) $(55,977) $ 96,940
Net income ................................... -- -- 4,830 -- -- -- -- 4,830
Other comprehensive income, net of tax(1)..... -- -- -- 4,854 -- -- -- 4,854
Cash dividends paid ($0.54 per share)......... -- -- (2,702) -- -- -- -- (2,702)
Treasury stock purchased...................... -- -- -- -- -- -- (3,246) (3,246)
SCP, net of tax:
Stock options exercised..................... -- (251) -- -- -- -- -- (251)
Stock awards granted........................ -- 6 -- -- -- (127) 122 1
Stock awards forfeited...................... -- -- -- -- -- 93 (93) --
Stock awards expensed....................... -- -- -- -- -- 94 -- 94
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002.................... $89 $86,811 $69,343 $6,898 $(3,081) $(346) $(59,194) $100,520
=================================================================================================================================
(1) Other comprehensive income for the nine months ended September 30, 2002 is
net of tax provision of $2,843.
The accompanying notes are an integral part of the consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
GA FINANCIAL, INC.
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income................................................................................... $ 4,830 $ 3,882
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses................................................................. 690 735
Depreciation.............................................................................. 720 735
Net loss on disposal of premises and equipment............................................ 189 --
Net (discount accretion) premium amortization on securities............................... (86) 120
Amortization of net deferred loan fees.................................................... 36 44
Amortization of intangibles............................................................... 139 139
Net loss (gain) on held for trading securities............................................ 40 (41)
Proceeds from sales of held for trading securities........................................ -- 799
Purchases of held for trading securities.................................................. -- (434)
Net gain on sales of available for sale securities........................................ (193) (160)
Writedown of securities................................................................... 141 730
Gain on sales of education loans held for sale............................................ (85) (127)
Net (gain) loss on sales of foreclosed assets............................................. (70) 55
Expense recognition of ESOP shares........................................................ 700 628
Expense recognition of SCP shares......................................................... 94 357
(Increase) decrease in accrued interest receivable........................................ (100) 307
Increase in bank owned life insurance..................................................... (429) (345)
Increase in prepaid expenses and other assets............................................. (153) (1,448)
Net increase in other liabilities......................................................... 177 1,152
Increase in accrued interest payable...................................................... 3,790 4,930
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities............................................... 10,430 12,058
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sales of available for sale securities...................................... 82,145 58,701
Repayments and maturities of available for sale securities................................ 180,637 48,041
Purchases of available for sale securities................................................ (213,630) (29,413)
Maturities of held to maturity securities................................................. -- 31,250
Purchases of held to maturity securities.................................................. -- (21,145)
Proceeds from sales of education loans held for sale...................................... 6,446 9,726
Funding of education loans held for sale.................................................. (5,837) (6,357)
Purchases of loans........................................................................ (38,152) (31,723)
Net decrease (increase) in loans.......................................................... 6,707 (17,963)
Proceeds from sale of premises and equipment.............................................. 8 --
Purchases of premises and equipment....................................................... (321) (500)
Proceeds from sales of foreclosed assets.................................................. 496 113
Redemption of FHLB stock.................................................................. 1,350 3,029
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities............................................... 19,849 43,759
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in noninterest and interest-bearing deposits...................... 19,913 (10,220)
Net (decrease) increase in certificates of deposit........................................ (27,900) 14,902
Payments from borrowed funds.............................................................. (158,000) (163,598)
Proceeds on borrowed funds................................................................ 150,000 128,575
Cash dividends paid....................................................................... (2,702) (2,734)
Net decrease in advances from customers for taxes, insurance, and other................... (256) (729)
Purchases of treasury stock............................................................... (3,246) (2,681)
(Decrease) increase in other stock transactions........................................... (250) 847
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities................................................... (22,441) (35,638)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents.................................................... 7,838 20,179
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period............................................. 29,859 22,730
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period................................................... $ 37,697 $ 42,909
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of GA
Financial, Inc. (the "Company") and its subsidiaries, Great American Federal
(the "Bank") and New Eagle Capital, Inc., and the Bank's wholly owned
subsidiaries, GA Financial Strategies, LLC and Great American Financial
Services, Inc. Intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
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.
In the opinion of the management of the Company, the accompanying
consolidated financial statements include all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented. Certain information and note disclosures
normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted. For comparative purposes, reclassifications have been
made to certain amounts previously reported to conform with the current period
presentation in the consolidated financial statements. It is suggested that the
accompanying consolidated financial statements be read in conjunction with the
Company's 2001 Annual Report to Shareholders and Form 10-K.
NOTE 2. SUBSIDIARY/SEGMENT REPORTING
The consolidated operating results of GA Financial, Inc. are presented as a
single financial services segment. GA Financial, Inc. is the parent company of
Great American Federal, a community bank and the Company's principal subsidiary,
New Eagle Capital, Inc., an investment company, and the Bank's wholly owned
subsidiaries, GA Financial Strategies, LLC, established in 2001 to provide
wealth management services, and Great American Financial Services, Inc.,
currently inactive. GA Financial, Inc. and New Eagle Capital, Inc. are
incorporated in the state of Delaware. Great American Federal, is a federally
chartered savings and loan institution while its wholly owned subsidiaries, GA
Financial Strategies, LLC, and Great American Financial Services are
incorporated in the state of Pennsylvania.
The following table sets forth selected financial data for the Company's
subsidiaries, parent company, and consolidated results:
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
Great
American New Eagle GA Financial Inc. Net
SEPTEMBER 30, 2002 Federal Capital, Inc. (Parent Company) Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Assets............................................. $841,438 $42,910 $123,454 $(149,119) $858,683
Liabilities........................................ 757,989 1,587 22,934 (24,347) 758,163
Shareholders' equity............................... 83,449 41,323 100,520 (124,772) 100,520
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2001
- -------------------------------------------------------------------------------------------------------------------------------
Assets............................................. $851,250 $33,601 $118,823 $(139,838) $863,836
Liabilities........................................ 766,801 1,097 21,883 (22,885) 766,896
Shareholders' equity............................... 84,449 32,504 96,940 (116,953) 96,940
- -------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002
- -------------------------------------------------------------------------------------------------------------------------------
Interest income.................................... $ 12,588 $ 447 $ 83 $ (379) $ 12,739
Interest expense................................... 7,048 -- 296 (379) 6,965
Provision for loan losses.......................... 135 -- -- -- 135
Noninterest income................................. 1,305 (235) 9 -- 1,079
Noninterest expense................................ 4,184 15 78 -- 4,277
Provision (benefit) for income taxes............... 646 63 (92) -- 617
Net income (loss).................................. 1,880 134 (190) -- 1,824
===============================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2002
- -------------------------------------------------------------------------------------------------------------------------------
Interest income.................................... $ 37,938 $ 1,287 $ 248 $ (1,082) $ 38,391
Interest expense................................... 21,924 -- 834 (1,082) 21,676
Provision for loan losses.......................... 690 -- -- -- 690
Noninterest income................................. 3,705 (303) 25 -- 3,427
Noninterest expense................................ 12,771 49 390 -- 13,210
Provision (benefit) for income taxes............... 1,416 313 (317) -- 1,412
Net income (loss).................................. 4,842 622 (634) -- 4,830
===============================================================================================================================
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------
Great
American New Eagle GA Financial Inc. Net
SEPTEMBER 30, 2001 Federal Capital, Inc. (Parent Company) Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------------
Assets............................................. $860,905 $30,922 $113,420 $(130,696) $874,551
Liabilities........................................ 774,789 (58) 18,493 (18,296) 774,928
Shareholders' equity............................... 86,116 30,980 94,927 (112,400) 99,623
- -------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2001
- -------------------------------------------------------------------------------------------------------------------------------
Interest income.................................... $ 13,920 $ 452 $ 101 $ (406) $ 14,067
Interest expense................................... 8,456 -- 313 (406) 8,363
Provision for loan losses.......................... 315 -- -- -- 315
Noninterest income................................. 144 (40) 9 -- 113
Noninterest expense................................ 4,472 18 140 -- 4,630
Provision (benefit) for income taxes............... 30 135 (165) -- --
Net income (loss).................................. 791 259 (178) -- 872
===============================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2001
- -------------------------------------------------------------------------------------------------------------------------------
Interest income.................................... $ 42,812 $ 1,578 $ 301 $ (1,289) $ 43,402
Interest expense................................... 26,241 -- 1,007 (1,289) 25,959
Provision for loan losses.......................... 735 -- -- -- 735
Noninterest income................................. 2,025 (25) 24 -- 2,024
Noninterest expense................................ 13,409 35 511 -- 13,955
Provision (benefit) for income taxes............... 785 515 (405) -- 895
Net income (loss).................................. 3,667 1,003 (788) -- 3,882
===============================================================================================================================
NOTE 3. SECURITIES
The amortized cost and estimated fair value of available for sale and held to
maturity securities are as follows:
SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 2002
- -------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
- --------------------------------------------------------------------------------------------------------------------------------
Available for Sale Securities:
U.S. government and agency debt.................................. $ 63,066 $ 1,537 $ -- $ 64,603
Mortgage-backed securities....................................... 135,784 4,371 (84) 140,071
Collateralized mortgage obligations.............................. 15,711 964 -- 16,675
Municipal obligations............................................ 56,056 1,425 -- 57,481
Corporate debt obligations....................................... 6,094 469 -- 6,563
Marketable equity securities..................................... 9,849 2,587 (318) 12,118
- --------------------------------------------------------------------------------------------------------------------------------
Total available for sale securities............................ $286,560 $ 11,353 $ (402) $297,511
================================================================================================================================
Held to Maturity Securities:
Corporate debt obligations....................................... $ 2,941 $ 226 $ -- $ 3,167
================================================================================================================================
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
DECEMBER 31,
(DOLLARS IN THOUSANDS) 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
Available for Sale Securities:
U.S. government and agency debt.................................. $ 5,017 $ 61 $ (15) $ 5,063
Mortgage-backed securities....................................... 139,637 1,090 (86) 140,641
Collateralized mortgage obligations.............................. 48,803 962 (41) 49,724
Municipal obligations............................................ 58,807 196 (1,288) 57,715
Corporate debt obligations....................................... 51,058 314 (46) 51,326
Marketable equity securities..................................... 28,809 2,775 (670) 30,914
- ----------------------------------------------------------------------------------------------------------------------------------
Total available for sale securities............................ $332,131 $5,398 $(2,146) $335,383
==================================================================================================================================
Held to Maturity Securities:
Corporate debt obligations....................................... $ 2,914 $ 224 $ -- $ 3,138
==================================================================================================================================
NOTE 4. LOANS
Loans consist of the following:
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2002 2001
- -----------------------------------------------------------------------------
Mortgage Loans:
Residential ................................ $ 239,440 $ 259,154
Multi-family ............................... 10,843 9,782
Commercial real estate ..................... 92,692 63,769
Commercial and residential construction
and development, net(1)................... 30,493 25,500
- -----------------------------------------------------------------------------
Total mortgage loans ..................... 373,468 358,205
Consumer Loans:
Home equity ................................ 68,565 62,249
Unsecured personal ......................... 2,896 2,775
Loans on deposit accounts .................. 1,023 1,322
Automobile ................................. 235 174
- -----------------------------------------------------------------------------
Total consumer loans ..................... 72,719 66,520
Commercial Business Loans:
Secured business ........................... 21,642 14,852
Unsecured business ......................... 5,765 3,029
- -----------------------------------------------------------------------------
Total commercial business loans .......... 27,407 17,881
Education loans held for sale ................. 14,208 14,732
Deferred fees ................................. (294) (330)
- -----------------------------------------------------------------------------
Total loans .............................. 487,508 457,008
Less:
Allowance for loan losses .................. (3,819) (3,210)
- -----------------------------------------------------------------------------
Net loans ................................ $ 483,689 $ 453,798
=============================================================================
(1) Amounts for September 30, 2002 and December 31, 2001 are net of loans in
process of $25.4 million and $19.0 million, respectively.
The Company purchased approximately $38.2 million and $31.7 million, for the
nine months ended September 30, 2002 and 2001, respectively, of residential
loans collateralized by single-family properties located inside and outside its
primary market area.
At September 30, 2002 and December 31, 2001, the Company had approximately
$1.5 million in loans which were 90 days or more past due that were not accruing
interest. These nonperforming loans were comprised primarily of residential
mortgages and consumer home equity loans. In addition, the Company had $32,000
and $154,000 of foreclosed assets as of September 30, 2002 and December 31,
2001, respectively.
The following table sets forth the changes in the allowance for loan losses
for the nine months ended September 30, 2002:
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------
Allowance for Loan Losses:
Balance at December 31, 2001.................. $3,210
Charge-offs................................. (109)
Recoveries.................................. 28
- -----------------------------------------------------------------------------
Net charge-offs........................... (81)
Provision for loan losses................... 690
- -----------------------------------------------------------------------------
Balance at September 30, 2002................. $3,819
=============================================================================
The following table presents information regarding the Company's
nonperforming assets as of the dates indicated:
SEPTEMBER 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2002 2001
- -----------------------------------------------------------------------------
Nonperforming Assets:
Nonperforming loans................. $1,527 $1,518
Foreclosed assets................... 32 154
- -----------------------------------------------------------------------------
Total nonperforming assets........ $1,559 $1,672
=============================================================================
Nonperforming loans to loans........... 0.31% 0.33%
Nonperforming assets to assets......... 0.18% 0.19%
Allowance for loan losses to loans..... 0.78% 0.70%
Allowance for loan losses to
nonperforming assets................ 244.96% 191.99%
=============================================================================
NOTE 5. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for the nine months ended September 30, for interest and income
taxes, was approximately $17.9 million and $1.3 million, respectively in 2002,
and $21.0 million and $1.4 million, respectively in 2001.
Noncash investing activity consisted of $304,000 and $409,000 of
loans transferred to foreclosed assets during the nine months ended September
30, 2002 and 2001, respectively.
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.
The calculation of basic and diluted earnings per share follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Net income..................................................... $ 1,824 $ 872 $ 4,830 $ 3,882
Basic average shares outstanding............................... 4,974,992 5,124,585 5,018,741 5,096,880
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share .................................... $ 0.37 $ 0.17 $ 0.96 $ 0.76
================================================================================================================================
Diluted Earnings Per Share:
Net income..................................................... $ 1,824 $ 872 $ 4,830 $ 3,882
Basic average shares outstanding............................... 4,974,992 5,124,585 5,018,741 5,096,880
Effect of dilutive securities:
Shares issuable upon exercise of outstanding stock options and
stock awards............................................... 131,855 107,919 115,771 84,766
- --------------------------------------------------------------------------------------------------------------------------------
Diluted average shares outstanding............................. 5,106,847 5,232,504 5,134,512 5,181,646
- --------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share................................... $ 0.36 $ 0.17 $ 0.94 $ 0.75
================================================================================================================================
NOTE 7. SUBSEQUENT EVENTS
On October 30, 2002, the Board of Directors declared a cash dividend of $0.18
per share to shareholders of record on November 12, 2002, payable on November
22, 2002.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, NOTES, AND TABLES INCLUDED IN THIS REPORT.
OVERVIEW
GA Financial, Inc. (the "Company") was incorporated on December 14, 1995, and
is the holding company for Great American Federal (the "Bank"), a community bank
and the Company's principal subsidiary, New Eagle Capital, Inc., an investment
company, and the Bank's wholly owned subsidiaries, GA Financial Strategies, LLC,
established in 2001 to provide wealth management services, and Great American
Financial Services, Inc., currently inactive.
On March 25, 1996, the Bank 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 Bank.
The Company currently transacts banking activities through Great American
Federal. The Bank, serving customers for over 85 years, operates its
administrative office in Whitehall, Pennsylvania and twelve community branch
offices in Allegheny County located in southwestern Pennsylvania. Through these
office locations, the Bank offers a broad array of consumer and commercial loan,
deposit, and wealth management products and services. In addition to conducting
community banking activities, the Bank invests in various marketable securities.
New Eagle Capital, Inc., the Company's other subsidiary, operating as an
investment company in Wilmington, Delaware, also invests in various marketable
securities as well as marketable equity securities.
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, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowed funds.
The Company also generates noninterest income, such as service fees, gains on
the sale of education loans and securities, trading account profits, wealth
management fees, and other noninterest income. The Company's operating expenses
consist primarily of compensation and employee benefits, occupancy, furniture
and equipment, marketing, deposit insurance premiums, and other noninterest
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.
Certain critical accounting policies affect the more significant judgments
and estimates used in the preparation of the consolidated financial statements.
The Company's single most critical accounting policy relates to the Company's
allowance for loan losses, which reflects the estimated losses resulting from
the inability of the Company's borrowers to make required loan payments. If the
financial condition of the Company's borrowers were to deteriorate, resulting in
an impairment of their ability to make payments, the Company's estimates would
be updated, and additional provisions for loan losses may be required.
Further discussion of the estimates used in determining the allowance for
loan losses is contained in the discussion on "Allowance for Loan Losses" on
page 10 of the Company's Form 10-K and page 26 of the Company's 2001 Annual
Report to Shareholders.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION AT SEPTEMBER 30, 2002 AND
DECEMBER 31, 2001
ASSETS
The Company's total assets were $858.7 million at September 30, 2002, a
decrease of $5.2 million or 0.6% compared to total assets of $863.8 million at
December 31, 2001.
Cash increased $7.8 million or 26.3% to $37.7 million at September 30, 2002
due to repayments of loans and securities, and sales, calls, and maturities of
securities.
Available for sale securities decreased $37.9 million or 11.3% to $297.5
million at September 30, 2002 due to repayments, sales, calls,
and maturities. The Company had no securities sold, not settled at September 30,
2002. The Company had $3.5 million of securities sold, not settled at December
31, 2001, which settled in January 2002.
Total loans increased $30.5 million or 6.7% to $487.5 million at September
30, 2002 primarily due to increases in commercial real estate, commercial
business, and home equity loans. This increase was partially offset by a decline
in residential mortgage loans of which $7.8 million was related to the Company's
sale of its North Huntingdon community branch office and the remaining amount
from loan repayments.
LIABILITIES
Total liabilities were $758.2 million at September 30, 2002, a decrease of
$8.7 million or 1.1% compared to total liabilities of $766.9 at December 31,
2001.
Total deposits decreased $8.0 million or 1.5% to $521.7 million due primarily
to a decline of $11.5 million in deposits related to the Company's sale of its
North Huntingdon community branch office.
Borrowed funds decreased $8.0 million or 3.5% to $221.6 million due to the
pay-off of maturing Federal Home Loan Bank ("FHLB") advances. Alternative
sources of funding were provided by repayments of loans and securities, and
sales, calls, and maturities of securities.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
Accrued interest payable increased $3.8 million or 178.0% to $5.9 million at
September 30, 2002. This was due to the timing of accrued interest payable on
deposit accounts and borrowed funds.
Other liabilities increased $3.7 million or 102.9% to $7.3 million at
September 30, 2002 due primarily to an increase in deferred taxes on available
for sale securities.
SHAREHOLDERS' EQUITY
Shareholders' equity increased $3.6 million or 3.7% to $100.5 million
at September 30, 2002. This was due to net income and an increase in accumulated
comprehensive income partially offset by purchases of treasury stock and cash
dividends paid.
AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the weighted average yield on assets and
weighted 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.
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets:
Deposits....................................................... $ 32,913 $ 116 1.41% $ 32,131 $ 264 3.29%
Securities(1,2)................................................ 301,172 4,283 5.69 358,392 5,624 6.28
Loans, net(3).................................................. 484,365 8,636 7.13 442,267 8,378 7.58
FHLB stock..................................................... 11,079 91 3.29 12,429 211 6.79
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets................................ 829,529 13,126 6.33 845,219 14,477 6.85
Noninterest-earning assets..................................... 28,443 27,515
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets................................................. $857,972 $872,734
=================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts.............................................. $ 39,503 $ 52 0.53% $ 39,343 $ 101 1.03%
Money market deposit accounts.................................. 65,986 388 2.35 66,405 561 3.38
Savings accounts............................................... 144,519 864 2.39 124,112 746 2.40
Certificates of deposit........................................ 242,353 2,948 4.87 266,222 3,784 5.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits.............................. 492,361 4,252 3.45 496,082 5,192 4.19
Borrowed funds................................................. 221,575 2,705 4.88 239,118 3,163 5.29
Escrow......................................................... 1,885 8 1.70 1,376 8 2.33
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities........................... 715,821 6,965 3.89 736,576 8,363 4.54
Noninterest-bearing liabilities................................ 39,857 35,753
Shareholders' equity........................................... 102,294 100,405
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity...................................... $857,972 $872,734
=================================================================================================================================
Net interest income................................................. $ 6,161 $ 6,114
Interest rate spread(4)............................................. 2.44% 2.31%
Net interest margin(5).............................................. 2.97% 2.89%
=================================================================================================================================
(1) Includes unamortized discounts and premiums.
(2) Includes municipal obligations; yield and interest are stated on a taxable
equivalent basis.
(3) Amount is net of deferred fees, undisbursed funds, discounts and premiums,
estimated allowances for loan losses, and includes education loans held for
sale and nonperforming loans.
(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities on a
taxable equivalent basis.
(5) Net interest margin represents net interest income on a taxable equivalent
basis divided by average interest-earning assets.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(DOLLARS IN THOUSANDS) 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets:
Deposits....................................................... $ 31,345 $ 354 1.51% $ 30,068 $ 909 4.03%
Securities(1,2)................................................ 316,987 13,436 5.65 384,647 18,802 6.52
Loans, net(3).................................................. 473,403 25,477 7.18 423,974 24,231 7.62
FHLB stock..................................................... 11,310 311 3.67 14,015 707 6.73
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets................................ 833,045 39,578 6.33 852,704 44,649 6.98
Noninterest-earning assets..................................... 28,868 27,626
- --------------------------------------------------------------------------------------------------------------------------------
Total assets................................................. $861,913 $880,330
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts.............................................. $ 40,396 $ 177 0.58% $ 39,303 $ 334 1.13%
Money market deposit accounts.................................. 66,381 1,154 2.32 68,282 2,034 3.97
Savings accounts............................................... 139,618 2,477 2.37 124,411 2,218 2.38
Certificates of deposit........................................ 251,496 9,384 4.98 262,525 11,237 5.71
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits.............................. 497,891 13,192 3.53 494,521 15,823 4.27
Borrowed funds................................................. 223,011 8,460 5.06 252,923 10,113 5.33
Escrow......................................................... 2,129 24 1.50 1,615 23 1.90
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities........................... 723,031 21,676 4.00 749,059 25,959 4.62
Noninterest-bearing liabilities................................ 39,512 35,019
Shareholders' equity........................................... 99,370 96,252
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity...................................... $861,913 $880,330
================================================================================================================================
Net interest income................................................. $ 17,902 $ 18,690
Interest rate spread(4)............................................. 2.33% 2.36%
Net interest margin(5).............................................. 2.87% 2.92%
================================================================================================================================
(1) Includes unamortized discounts and premiums.
(2) Includes municipal obligations; yield and interest are stated on a taxable
equivalent basis.
(3) Amount is net of deferred fees, undisbursed funds, discounts and premiums,
estimated allowances for loan losses, and includes education loans held for
sale and nonperforming loans.
(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities on a
taxable equivalent basis.
(5) Net interest margin represents net interest income on a taxable equivalent
basis divided by average interest-earning assets.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
REVIEW OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001
NET INCOME
Net income for the three months ended September 30, 2002 increased $952,000
or 109.2% from the previous period to $1.8 million. Changes in the components of
net income are discussed herein.
INTEREST INCOME
Total interest income decreased $1.3 million ($1.4 million on a taxable
equivalent basis) or 9.4% to $12.7 million for the three months ended September
30, 2002. This was primarily the result of a decrease of $15.7 million in
average interest-earning assets and a decrease of 52 basis points in the average
yield on interest-earning assets. Taxable equivalent interest on securities
decreased $1.3 million or 23.8%, due to the average balances decreasing $57.2
million or 16.0%, and a decrease in the average yield of 59 basis points. The
dividends on FHLB stock decreased $120,000 or 56.9% to $91,000 in 2002 due to a
decrease of $1.4 million in the average balance resulting from the redemption of
FHLB stock and a decrease in the average yield of 351 basis points. The Bank is
required to own FHLB stock based partly on the levels of its FHLB borrowings.
Interest on loans increased $258,000 or 3.1% to $8.6 million due to the increase
in average balances of $42.1 million or 9.5%, partially offset by a decrease in
the average yield on loans of 45 basis points.
INTEREST EXPENSE
Total interest expense decreased $1.4 million or 16.7% due to a decrease in
average interest-bearing liabilities of $20.8 million or 2.8% to $715.8 million
and a decrease in the average cost of 65 basis points. The interest expense on
interest-bearing deposits decreased $940,000 or 18.1% to $4.3 million for 2002
due to a decrease in the average balance of $3.7 million and a decrease in the
average cost of 74 basis points. The interest expense on borrowed funds
decreased $458,000 or 14.5% due to a decrease in the average balance of $17.5
million or 7.3% and a decrease in the average cost of 41 basis points. This
reduction was due to the pay-off of maturing FHLB advances.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30, 2002
was $135,000 compared to $315,000 for the three months ended September 30, 2001.
The current quarter provision was influenced by loan production with strategic
growth in commercial real estate, commercial business, and commercial and
residential construction/ development loans as well as current economic
conditions. The allowance for loan losses to loans and nonperforming assets was
0.78% and 245%, respectively, at September 30, 2002 as compared to 0.70% and
192%, respectively, at December 31, 2001 and 0.64% and 141%, respectively, at
September 30, 2001. Nonperforming loans, primarily comprised of residential
mortgages and consumer home equity loans were $1.5 million at September 30,
2002, and December 31, 2001, and $1.6 million at September 30, 2001. The Company
monitors all nonperforming loans which could impact the provision for loan
losses. The allowance for loan losses is maintained at an amount management
considers appropriate to cover estimated losses on loans which are deemed
probable based on information currently known to management. While management
believes the Company's allowance for loan losses is sufficient to cover losses
in its loan 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.
NONINTEREST INCOME
Total noninterest income increased $966,000 to $1.1 million for the three
months ended September 30, 2002. This was due primarily to a decrease in the
writedown of securities of $730,000, and increases in net gains on sales of
available for sale securities of $181,000, and service fees of $84,000. This
increase was partially offset by a decline in gains on the sales of education
loans of $37,000.
NONINTEREST EXPENSE
Total noninterest expense decreased $353,000 or 7.6% to $4.3 million for the
three months ended September 30, 2002. This was due primarily to decreases in
other noninterest expenses of $149,000, occupancy expenses of $108,000,
compensation and employee benefit costs of $74,000, and marketing expenses of
$42,000.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended September 30, 2002
was $617,000. The effective tax rate for the three months ended September 30,
2002 was 25.3%. There was no provision for income taxes for the three months
ended September 30, 2001 due primarily to a combination of lower pre-tax income
and higher non-taxable income.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
REVIEW OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001
NET INCOME
Net income for the nine months ended September 30, 2002 increased $948,000 or
24.4% from the previous period to $4.8 million. Changes in the components of net
income are discussed herein.
INTEREST INCOME
Total interest income decreased $5.0 million ($5.1 million on a taxable
equivalent basis) or 11.5% to $38.4 million for the nine months ended September
30, 2002. This was primarily the result of a decrease of $19.7 million in
average interest-earning assets and a decrease of 65 basis points in the average
yield on interest-earning assets. Taxable equivalent interest on securities
decreased $5.4 million or 28.5%, due to the average balances decreasing $67.7
million or 17.6%, and a decrease in the average yield of 87 basis points. The
dividends on FHLB stock decreased $396,000 or 56.0% to $311,000 in 2002 due to a
decrease of $2.7 million in the average balance resulting from the redemption of
FHLB stock and a decrease in the average yield of 306 basis points. The Bank is
required to own FHLB stock based partly on the levels of its FHLB borrowings.
Interest on loans increased $1.2 million or 5.1% to $25.5 million due to the
increase in average balances of $49.4 million or 11.7%, partially offset by a
decrease in the average yield on loans of 44 basis points.
INTEREST EXPENSE
Total interest expense decreased $4.3 million or 16.5% due to a decrease in
average interest-bearing liabilities of $26.0 million or 3.5% to $723.0 million
and a decrease in the average cost of 62 basis points. The interest expense on
interest-bearing deposits decreased $2.6 million or 16.6% to $13.2 million for
2002 due to a decrease in the average balance of $3.4 million and a decrease in
the average cost of 74 basis points. The interest expense on borrowed funds
decreased $1.7 million or 16.3% due to a decrease in the average balance of
$29.9 million or 11.8% and a decrease in the average cost of 27 basis points.
This reduction was due to the pay-off of maturing FHLB advances.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the nine months ended September 30, 2002
was $690,000 compared to $735,000 for the nine months ended September 30, 2001.
The current year provision was influenced by strong loan production with
strategic growth in commercial real estate, commercial business, and commercial
and residential construction/development loans as well as current economic
conditions. The allowance for loan losses to loans and nonperforming assets was
0.78% and 245%, respectively, at September 30, 2002 as compared to 0.70% and
192%, respectively, at December 31, 2001 and 0.64% and 141%, respectively, at
September 30, 2001. Nonperforming loans, primarily comprised of residential
mortgages and consumer home equity loans were $1.5 million at September 30,
2002, and December 31, 2001, and $1.6 million at September 30, 2001. The Company
monitors all nonperforming loans which could impact the provision for loan
losses. The allowance for loan losses is maintained at an amount management
considers appropriate to cover estimated losses on loans which are deemed
probable based on information currently known to management. While management
believes the Company's allowance for loan losses is sufficient to cover losses
in its loan 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.
NONINTEREST INCOME
Total noninterest income increased $1.4 million or 69.3% to $3.4 million for
the nine months ended September 30, 2002. This was due primarily to a $905,000
gain on sale of the Company's North Huntingdon community branch office, and a
decrease in the writedown of securities of $589,000. This increase was partially
offset by decreases of $116,000 in other noninterest income, $81,000 in trading
securities, and $42,000 in gains on the sales of education loans.
NONINTEREST EXPENSE
Total noninterest expense decreased $745,000 or 5.3% to $13.2 million for the
nine months ended September 30, 2002. This was due primarily to a decrease in
compensation and employee benefit costs of $448,000, other noninterest expenses
of $349,000, occupancy expenses of $94,000, and marketing expenses of $94,000.
This decrease was partially offset by increases in furniture and equipment
expenses of $134,000 and a loss of $110,000, related to the closure of the
Company's North Versailles Wal-Mart based satellite branch office.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $517,000 or 57.8% to
$1.4 million for the nine months ended September 30, 2002. The effective tax
rate for the nine months ended September 30, 2002 was 22.6% as compared to 18.7%
for the nine months ended September 30, 2001. This increase in the effective tax
rate was the result of a combination of higher pre-tax and taxable income.
OTHER MATTERS
LIQUIDITY RESOURCES
The Company's primary sources of funds are deposits, repayments of loans and
securities, sales, calls and maturities of securities, advances from the FHLB,
and other borrowed funds. While scheduled maturities of investments and the
amortization of loans are predictable sources of funds, deposit flows and
prepayments on mortgages, and mortgage-backed and related securities are greatly
influenced by market interest rates, economic conditions, and competition.
Liquidity can be analyzed by utilizing the Consolidated Statements of Cash
Flows. Net cash provided by operating activities was $10.4 million. Net cash
provided by investing activities was $19.8 million. Net cash used in financing
activities was $22.4 million. Overall, cash and cash equivalents increased $7.8
million for the nine months ended September 30, 2002.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
Management believes the Company has sufficient liquidity to meet current
obligations to borrowers, depositors, debt holders, and others.
CAPITAL RESOURCES
The Company is not required to maintain any minimum level of capital;
however, the Bank is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision ("OTS").
At September 30, 2002, the Bank had exceeded the OTS requirements for tier I
core (leverage), tier I and total risk-based, and tangible capital. The OTS
requires the Bank to maintain a minimum 4.00% tier I core (leverage) capital
ratio (expressed as a percentage of adjusted total assets), a minimum tier I
risk-based capital ratio of 4.00% and total risk-based capital ratio of 8.00%
(both expressed as a percentage of risk-weighted assets, which includes
off-balance sheet items), and a minimum tangible capital ratio of 1.50% of
tangible assets. The well-capitalized requirement for tier I core (leverage),
tier I risk-based, and total risk-based ratios is 5.00%, 6.00%, and 10.00%,
respectively. The Bank has consistently maintained all regulatory capital ratios
at or above the well capitalized standards with tier I core (leverage) at 9.22%,
tier I risk-based at 17.69%, total risk-based at 18.80%, and tangible at 9.22%
at September 30, 2002.
NEW ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;" however, it
retains many of the fundamental provisions of SFAS No. 121.
SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
However, it retains the requirement in APB No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. The provisions of SFAS No. 144
generally are to be applied prospectively. The adoption of SFAS No. 144 had no
impact on the financial position, results of operations, or liquidity of the
Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
No. 146 are effective for exit and disposal activities that are initiated after
December 31, 2002, with early application encouraged. The adoption of SFAS No.
146 is not expected to have a material effect on the financial position, results
of operations, or liquidity of the Company.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse effect on the
operations of the Company include, but are not limited to: changes in interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Company's market area, and accounting
principles and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
Except as required by applicable law and regulation, the Company does not
undertake--and specifically disclaims any obligation--to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GA FINANCIAL, INC.
Management is responsible for monitoring and limiting the Company's exposure
to interest rate risk within established guidelines while maximizing net
interest income. The Company will continue to monitor its interest rate
sensitivity with the primary objective to prudently structure the balance sheet
so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates. Further discussion on market risk is in the Company's
2001 Annual Report to Shareholders and Form 10-K.
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 all of its interest rate risk. 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
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.
In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) purchasing adjustable interest rate mortgage-backed and
related securities; (2) investing in shorter term fixed-rate corporate debt and
government agency bonds or in such types of bonds with adjustable interest
rates; (3) originating shorter term commercial and consumer loan products; and
(4) emphasizing longer term deposits. 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 types of loans and
deposits which may be offered by the Company.
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 results of
operations.
ITEM 4. CONTROLS AND PROCEDURES
GA FINANCIAL, INC.
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the chief financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
The Company made no significant changes in its internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation of those controls by the chief executive officer and chief
financial officer.
15
PART II. OTHER INFORMATION
GA FINANCIAL, INC.
ITEM 1. LEGAL PROCEEDINGS
The Company 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, results of operations, and cash
flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of GA Financial, Inc.(1)
3.2 Amended Bylaws of GA Financial, Inc.(2)
4.0 Stock Certificates of GA Financial, Inc.(1)
11.0 Computation of Earnings per Share. This is incorporated by reference to
note number 6 of the Notes to the Consolidated Financial Statements.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
None
(1) 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.
(2) Incorporated by reference into this document from the Company's Form 10-Q
filed on November 15, 1999.
16
SIGNATURES
GA FINANCIAL, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date November 14, 2002
------------------------------------------------------------
GA Financial, Inc.
------------------------------------------------------------
(Registrant)
By /s/ John M. Kish
------------------------------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
By /s/ James V. Dionise
------------------------------------------------------------
James V. Dionise
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
17
CERTIFICATION
GA FINANCIAL, INC.
I, John M. Kish, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GA Financial, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ John M. Kish
- ------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
18
CERTIFICATION
GA FINANCIAL, INC.
I, James V. Dionise, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GA Financial, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 14, 2002
/s/ James V. Dionise
- --------------------
James V. Dionise
Chief Financial Officer and Secretary
19