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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 MARCH 31, 2003
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 (IRS Employer Identification No.)
of 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 |X| No | |
APPLICABLE ONLY TO CORPORATE ISSUERS:
5,044,642 shares of common stock, par value $0.01 per share, were outstanding at
April 30, 2003.
GA FINANCIAL, INC.
FORM 10-Q
MARCH 31, 2003
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 .......................... 13
ITEM 4. CONTROLS AND PROCEDURES ............................................................. 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................................................... 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ........................................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..................................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................................. 14
ITEM 5. OTHER INFORMATION ................................................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................................... 14
SIGNATURES ...................................................................................... 15
CERTIFICATIONS .................................................................................. 16
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
GA FINANCIAL, INC.
(UNAUDITED)
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002
--------- ---------
ASSETS
Cash (including interest-bearing deposits of $27,701 and $16,415) ................... $ 31,633 $ 21,343
Held for trading securities, at fair value .......................................... 131 129
Available for sale securities, at fair value ........................................ 332,267 314,196
Held to maturity securities, at cost ................................................ 2,961 2,951
--------- ---------
Total securities ................................................................. 335,359 317,276
Education loans held for sale ....................................................... 643 14,795
Loans (net of deferred costs (fees) of $16 and $(107) ) ............................. 461,173 469,273
--------- ---------
Total loans ...................................................................... 461,816 484,068
Allowance for loan losses ........................................................... (3,931) (3,896)
--------- ---------
Net loans ........................................................................ 457,885 480,172
Accrued interest receivable on securities ........................................... 2,292 2,323
Accrued interest receivable on loans ................................................ 2,430 3,125
Federal Home Loan Bank stock ........................................................ 12,396 12,019
Premises and equipment, net ......................................................... 6,140 6,289
Foreclosed assets ................................................................... 83 34
Securities sold, not settled ........................................................ -- 992
Prepaid expenses and other assets ................................................... 19,645 14,462
--------- ---------
Total assets ..................................................................... $ 867,863 $ 858,035
========= =========
LIABILITIES
Noninterest-bearing deposits ........................................................ $ 33,370 $ 30,701
Interest-bearing deposits ........................................................... 504,867 493,366
--------- ---------
Total deposits ................................................................... 538,237 524,067
Borrowed funds ...................................................................... 221,575 221,575
Advances from customers for taxes, insurance, and other ............................. 2,414 2,372
Accrued interest payable ............................................................ 2,795 1,620
Other liabilities ................................................................... 6,337 7,860
--------- ---------
Total liabilities ................................................................ 771,358 757,494
--------- ---------
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 .......................................................... 87,170 87,209
Retained earnings, substantially restricted ......................................... 71,128 70,370
Accumulated other comprehensive income, net of taxes ................................ 6,529 6,973
Unearned employee stock ownership plan (ESOP) shares ................................ (2,551) (2,551)
Unearned stock-based compensation plan (SCP) shares ................................. (328) (296)
Treasury stock, at cost (3,915,623 shares and 3,753,433 shares) ..................... (65,532) (61,253)
--------- ---------
Total shareholders' equity ....................................................... 96,505 100,541
--------- ---------
Total liabilities and shareholders' equity ....................................... $ 867,863 $ 858,035
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
GA FINANCIAL, INC.
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002
----------- -----------
INTEREST INCOME
Loans .................................................................. $ 7,927 $ 8,312
Securities:
Taxable interest ................................................... 3,055 3,243
Nontaxable interest ................................................ 633 685
Dividends .......................................................... 239 459
Interest-bearing deposits .............................................. 78 124
----------- -----------
Total interest income .............................................. 11,932 12,823
----------- -----------
INTEREST EXPENSE
Interest-bearing deposits .............................................. 3,665 4,526
Borrowed funds ......................................................... 2,592 2,923
Other .................................................................. 9 7
----------- -----------
Total interest expense ............................................. 6,266 7,456
----------- -----------
Net interest income ................................................ 5,666 5,367
Provision for loan losses .............................................. 378 300
----------- -----------
Net interest income after provision for loan losses ................ 5,288 5,067
----------- -----------
NONINTEREST INCOME
Service fees ........................................................... 551 597
Net gain on sales of available for sale securities ..................... 403 134
Net gain on held for trading securities ................................ 2 1
Gain on sales of education loans held for sale ......................... 123 37
Earnings on bank owned life insurance .................................. 148 122
Other .................................................................. 74 9
----------- -----------
Total noninterest income ........................................... 1,301 900
----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits ..................................... 2,314 2,196
Occupancy .............................................................. 438 464
Furniture and equipment ................................................ 408 298
Marketing .............................................................. 109 69
Deposit insurance premiums ............................................. 22 24
Other .................................................................. 1,012 1,041
----------- -----------
Total noninterest expense ........................................... 4,303 4,092
----------- -----------
Income before provision for income taxes ............................ 2,286 1,875
Provision for income taxes ............................................. 549 400
----------- -----------
Net income ......................................................... $ 1,737 $ 1,475
=========== ===========
OTHER COMPREHENSIVE INCOME
Unrealized holding losses on available for sale securities, net of taxes $ (209) $ (573)
Reclassification adjustment for net gains included in net income ....... (235) (192)
----------- -----------
Other comprehensive loss ............................................ (444) (765)
----------- -----------
Comprehensive income ................................................ $ 1,293 $ 710
=========== ===========
EARNINGS PER SHARE
Basic ....................................................................... $ 0.36 $ 0.29
Diluted ..................................................................... $ 0.35 $ 0.29
AVERAGE SHARES OUTSTANDING
Basic ....................................................................... 4,830,752 5,072,973
Diluted ..................................................................... 5,017,157 5,165,115
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
GA FINANCIAL, INC.
ACCUMULATED
OTHER
ADDITIONAL COMPRE-
COMMON PAID- RETAINED HENSIVE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STOCK IN CAPITAL EARNINGS INCOME
----- ---------- -------- ------
Balance at December 31, 2002 ................. $89 $ 87,209 $ 70,370 $ 6,973
Net income .............................. -- -- 1,737 --
Other comprehensive loss, net of tax(1).. -- -- -- (444)
Cash dividends paid ($0.20 per share) ... -- -- (979) --
Stock repurchased ....................... -- -- -- --
SCP, net of tax:
Stock options exercised ............. -- (72) -- --
Stock awards granted ................ -- 33 -- --
Stock awards forfeited .............. -- -- -- --
Stock awards expensed ............... -- -- -- --
--- -------- -------- -------
Balance at March 31, 2003 .................... $89 $ 87,170 $ 71,128 $ 6,529
=== ======== ======== =======
TOTAL
UNEARNED UNEARNED SHARE-
ESOP SCP TREASURY HOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SHARES SHARES STOCK EQUITY
------ ------ ----- ------
Balance at December 31, 2002 ................. $(2,551) $(296) $(61,253) $ 100,541
Net income .............................. -- -- -- 1,737
Other comprehensive loss, net of tax(1).. -- -- -- (444)
Cash dividends paid ($0.20 per share) ... -- -- -- (979)
Stock repurchased ....................... -- -- (4,502) (4,502)
SCP, net of tax:
Stock options exercised ............. -- -- 165 93
Stock awards granted ................ -- (92) 61 2
Stock awards forfeited .............. -- 3 (3) --
Stock awards expensed ............... -- 57 -- 57
------- ----- -------- ---------
Balance at March 31, 2003 .................... $(2,551) $(328) $(65,532) $ 96,505
======= ===== ======== =========
(1) Other comprehensive loss for the three months ended March 31, 2003 is net
of a tax benefit of $258.
The accompanying notes are an integral part of the consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
GA FINANCIAL, INC.
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS) 2003 2002
--------- --------
OPERATING ACTIVITIES
Net income ...................................................................... $ 1,737 $ 1,475
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses .................................................... 378 300
Depreciation ................................................................. 222 247
Net gain on disposal of premises and equipment ............................... (9) --
Net premium amortization (discount accretion) on securities .................. 1,183 (249)
Amortization (accretion) of net deferred loan costs (fees) ................... 123 (85)
Amortization of intangibles .................................................. 42 46
Net gain on held for trading securities ...................................... (2) (1)
Net gain on sales of available for sale securities ........................... (403) (134)
Gain on sales of education loans held for sale ............................... (123) (37)
Net gain on sales of foreclosed assets ....................................... (14) (14)
Expense recognition of ESOP shares ........................................... 317 213
Expense recognition of SCP shares ............................................ 57 47
Decrease in accrued interest receivable ...................................... 726 144
Increase in bank owned life insurance ........................................ (148) (122)
Increase in prepaid expenses and other assets ................................ (5,077) (350)
Net (decrease) increase in other liabilities ................................. (1,580) 312
Increase in accrued interest payable ......................................... 1,175 1,614
--------- --------
Net cash (used in) provided by operating activities ........................ (1,396) 3,406
--------- --------
INVESTING ACTIVITIES
Proceeds from sales of available for sale securities ......................... 24,911 29,054
Repayments and maturities of available for sale securities ................... 49,521 81,660
Purchases of available for sale securities ................................... (93,003) (93,832)
Proceeds from sales of education loans held for sale ......................... 16,356 2,800
Funding of education loans held for sale ..................................... (2,081) (2,431)
Purchases of loans ........................................................... (18,415) (5,504)
Net decrease (increase) in loans ............................................. 25,989 (5,969)
Proceeds from sale of premises and equipment ................................. 9 --
Purchases of premises and equipment .......................................... (73) (30)
Proceeds from sales of foreclosed assets ..................................... 25 183
(Purchase) redemption of FHLB stock .......................................... (377) 950
--------- --------
Net cash provided by investing activities .................................. 2,862 6,881
--------- --------
FINANCING ACTIVITIES
Net increase in noninterest and interest-bearing deposits .................... 21,821 19,448
Net decrease in certificates of deposit ...................................... (7,651) (10,859)
Payments on borrowed funds ................................................... (160,000) (8,000)
Proceeds from borrowed funds ................................................. 160,000) --
Cash dividends paid .......................................................... (979) (919)
Net increase in advances from customers for taxes, insurance, and other ...... 42 403
Purchases of treasury stock .................................................. (4,502) (674)
Increase (decrease) in other stock transactions .............................. 93 (116)
--------- --------
Net cash provided by (used in) financing activities ........................ 8,824 (717)
--------- --------
Net increase in cash and cash equivalents ......................................... 10,290 9,570
--------- --------
Cash and cash equivalents at beginning of period .................................. 21,343 29,859
--------- --------
Cash and cash equivalents at end of period ........................................ $ 31,633 $ 39,429
========= ========
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, Steel City Investments, Inc., 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 2002 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, which provides wealth management
services, Steel City Investments, Inc., established in December 2002 to hold
and manage investment securities, and Great American Financial Services, Inc.,
currently inactive. GA Financial, Inc. and New Eagle Capital, Inc., and the
Bank's wholly owned subsidiary Steel City Investments, 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
MARCH 31, 2003 Federal Capital, Inc. (Parent Company) Eliminations Consolidated
------- ------------- ---------------- ------------ ------------
Assets $857,528 $44,031 $ 128,310 $(162,186) $867,683
Liabilities 771,078 1,964 31,805 (33,489) 771,358
Shareholders' equity 86,450 42,067 96,505 (128,517) 96,505
-------- ------- --------- --------- --------
DECEMBER 31, 2002
Assets $842,594 $43,436 $ 129,297 $(157,292) $858,035
Liabilities 757,256 1,769 28,756 (30,287) 757,494
Shareholders' equity 85,338 41,667 100,541 (127,005) 100,541
-------- ------- --------- --------- --------
THREE MONTHS ENDED MARCH 31, 2003
Interest income $ 11,784 $ 462 $ 67 $ (381) $ 11,932
Interest expense 6,333 -- 314 (381) 6,266
Provision for loan losses 378 -- -- -- 378
Noninterest income 1,159 134 8 -- 1,301
Noninterest expense 4,197 13 93 -- 4,303
Provision (benefit) for income taxes 464 198 (113) -- 549
Net income (loss) 1,571 385 (219) -- 1,737
-------- ------- --------- --------- --------
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
(DOLLARS IN THOUSANDS)
Great
American New Eagle GA Financial, Inc. Net
MARCH 31, 2002 Federal Capital, Inc. (Parent Company) Eliminations Consolidated
------- ------------- ---------------- ------------ ------------
Assets $859,271 $34,163 $ 119,960 $(142,833) $870,561
Liabilities 774,303 1,285 23,930 (24,987) 774,531
Shareholders' equity 84,968 32,878 96,030 (117,846) 96,030
-------- ------- --------- --------- --------
THREE MONTHS ENDED MARCH 31, 2002
Interest income $ 12,557 $ 423 $ 83 $ (340) $ 12,823
Interest expense 7,539 -- 257 (340) 7,456
Provision for loan losses 300 -- -- -- 300
Noninterest income 818 74 8 -- 900
Noninterest expense 3,968 12 112 -- 4,092
Provision (benefit) for income taxes 330 165 (95) -- 400
Net income (loss) 1,338 320 (183) -- 1,475
-------- ------- --------- --------- --------
NOTE 3. SECURITIES
The amortized cost and estimated fair value of available for sale and held
to maturity securities are as follows:
MARCH 31,
(DOLLARS IN THOUSANDS) 2003
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
--------- ---------- ---------- ----------
Available for Sale Securities:
U.S. government and agency debt $ 28,197 $ 899 $ -- $ 29,096
Mortgage-backed securities 206,400 5,155 (187) 211,368
Collateralized mortgage obligations 17,432 493 -- 17,925
Municipal obligations 54,498 1,184 -- 55,682
Corporate debt obligations 5,624 390 -- 6,014
Marketable equity securities 9,751 2,634 (203) 12,182
-------- -------- ----- --------
Total available for sale securities $321,902 $ 10,755 $(390) $332,267
======== ======== ===== ========
Held to Maturity Securities:
Corporate debt obligations $ 2,961 $ 182 $ -- $ 3,143
======== ======== ===== ========
DECEMBER 31,
(DOLLARS IN THOUSANDS) 2002
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
--------- ---------- ---------- ----------
Available for Sale Securities:
U.S. government and agency debt $ 47,088 $ 1,395 $ -- $ 48,483
Mortgage-backed securities 161,657 5,084 -- 166,741
Collateralized mortgage obligations 8,638 495 -- 9,133
Municipal obligations 55,167 1,086 -- 56,253
Corporate debt obligations 20,587 390 -- 20,977
Marketable equity securities 9,991 2,793 (175) 12,609
-------- -------- ----- --------
Total available for sale securities $303,128 $ 11,243 $(175) $314,196
======== ======== ===== ========
Held to Maturity Securities:
Corporate debt obligations $ 2,951 $ 206 $ -- $ 3,157
======== ======== ===== ========
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
NOTE 4. LOANS
Loans consist of the following:
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2003 2002
--------- ---------
Loan Balances:
Mortgage Loans:
Residential ........................... $ 199,895 $ 218,905
Multi-family .......................... 10,824 10,629
Commercial real estate ................ 107,690 100,376
Commercial and residential
construction and development(1) ..... 34,243 29,506
--------- ---------
Total mortgage loans ................ 352,652 359,416
Consumer Loans:
Home equity ........................... 74,793 74,959
Unsecured personal .................... 3,250 2,993
Loans on deposit accounts ............. 700 940
Automobile ............................ 195 212
--------- ---------
Total consumer loans ................ 78,938 79,104
Commercial Business Loans:
Secured business ...................... 22,672 23,240
Unsecured business .................... 6,895 7,620
--------- ---------
Total commercial business loans ..... 29,567 30,860
Education loans held for sale ............ 643 14,795
Net deferred costs (fees) ................ 16 (107)
--------- ---------
Total loans ......................... 461,816 484,068
Less:
Allowance for loan losses ............. (3,931) (3,896)
--------- ---------
Net loans ........................... $ 457,885 $ 480,172
========= =========
(1) Amounts for March 31, 2003 and December 31, 2002 are net of available
funds for disbursement of $18.8 million and $21.6 million, respectively.
The Company purchased approximately $18.4 million and $5.5 million, for
the three months ended March 31, 2003 and 2002, respectively, of residential
loans collateralized by single-family properties located within its primary
market area.
At March 31, 2003 and December 31, 2002, the Company had $2.2 million and
$1.5 million in loans which were not accruing interest. The increase in
nonperforming loans was due to the addition of an impaired commercial real
estate loan that was performing and classified as "special mention" at December
31, 2002. Based on subsequent information the loan was downgraded to
"substandard" and placed on nonaccural status at March 31, 2003. The remaining
nonperforming loans at March 31, 2003 as consistent with December 31, 2002 were
comprised of residential mortgages and consumer home equity loans. In addition,
the Company had $83,000 and $34,000 of foreclosed assets at March 31, 2003 and
December 31, 2002, respectively.
The following table sets forth the changes in the allowance for loan
losses for the three months ended March 31, 2003:
(DOLLARS IN THOUSANDS)
Allowance for Loan Losses:
Balance at December 31, 2002 ...................................... $ 3,896
Charge-offs .................................................... (345)
Recoveries ..................................................... 2
-------
Net charge-offs .............................................. (343)
Provision for loan losses ...................................... 378
-------
Balance at March 31, 2003 ......................................... $ 3,931
=======
The following table presents information regarding the Company's
nonperforming assets for the dates indicated:
MARCH 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2003 2002
------- -------
Nonperforming Assets:
Nonperforming loans .............................. $ 2,194 $ 1,470
Foreclosed assets ................................ 83 34
------- -------
Total nonperforming assets .................... $ 2,277 $ 1,504
======= =======
Nonperforming loans to loans ....................... 0.48% 0.30%
Nonperforming assets to assets ..................... 0.26 0.18
Allowance for loan losses to loans ................. 0.85 0.80
Allowance for loan losses to
nonperforming assets ............................. 172.64 259.04
======= =======
NOTE 5. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for the three months ended March 31, for interest and income
taxes, was approximately $5.1 million and $120,000, respectively in 2003, and
$5.8 million and $140,000, respectively in 2002.
Noncash investing activity consisted of $60,000 of loans transferred to
foreclosed assets during the three months ended March 31, 2003 and 2002,
respectively.
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:
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002
---------- ----------
Basic Earnings Per Share:
Net income ................................................................... $ 1,737 $ 1,475
Basic average shares outstanding ............................................. 4,830,752 5,072,973
---------- ----------
Basic earnings per share .................................................. $ 0.36 $ 0.29
========== ==========
Diluted Earnings Per Share:
Net income ................................................................... $ 1,737 $ 1,475
Basic average shares outstanding ............................................. 4,830,752 5,072,973
Effect of dilutive securities:
Shares issuable upon exercise of outstanding stock options and stock awards 186,405 92,142
Diluted average shares outstanding ........................................... 5,017,157 5,165,115
---------- ----------
Diluted earnings per share ................................................ $ 0.35 $ 0.29
========== ==========
NOTE 7. STOCK-BASED COMPENSATION
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 options. Because the Company
accounts for stock options using APB 25, no compensation expense has been
recorded in the financial statements. Had compensation cost for these stock
options 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:
THREE MONTHS ENDED
MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002
--------- ---------
Net income As reported ...... $ 1,737 $ 1,475
Expense related to options granted, net of tax Pro forma ........ (51) (22)
Net income Pro forma ........ 1,686 1,453
--------- ---------
Basic earnings per share As reported ...... $ 0.36 $ 0.29
Pro forma ........ 0.35 0.29
--------- ---------
Diluted earnings per share As reported ...... $ 0.35 $ 0.29
Pro forma ........ 0.34 0.28
--------- ---------
NOTE 8. GUARANTEES
The Company issues standby letters of credit in the normal course of
business. Standby letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. Standby letters of
credit generally are contingent upon the failure of the customer to perform
according to the terms of the underlying contract with the third party. The
Company is required to perform under a standby letter of credit when drawn upon
by the guaranteed third party in the case of nonperformance by the Company's
customer. The credit risk associated with standby letters of credit is
essentially the same as that involved in extending loans to customers and is
subject to normal credit policies. Collateral may be obtained based on
management's credit assessment of the customer. The maximum potential amount of
future payments the Company could be required to make under these standby
letters of credit at March 31, 2003 is $5.3 million. Currently no liability has
been recognized by the Company for these obligations. There are no recourse
provisions that would enable the Company to recover any amounts from third
parties.
NOTE 9. SUBSEQUENT EVENTS
The Annual Meeting of Shareholders of GA Financial, Inc. was held on April
23, 2003. Of the 5,149,242 shares eligible to vote, 4,099,578 were voted by
proxy and ballot.
The shareholders elected the Company's two nominees for directors, as
described in the Company's annual meeting proxy statement. The results for
re-election of John M. Kish as director were 2,117,179 shares or 51.7% "for" and
46,118 shares or 1.1% "withheld." The results for re-election of Darrell J.
Hess as director were 4,007,188 shares or 97.7% "for" and 92,390 shares or 2.3%
"withheld." The results for Lawerence B. Seidman, the nominee of Seidman &
Associates LLC who was not elected, were 1,926,903 shares or 47.0% "for" and
9,378 shares or 0.2% "withheld." The other continuing directors of the Company
are Thomas E. Bugel, Thomas M. Stanton, Robert J. Ventura, and David R. Wasik.
Also, shareholders ratified KPMG LLP as the independent auditors for the
Company for the fiscal year ending December 31, 2003. The results were 3,914,365
shares or 95.5% "for," 124,636 shares or 3.0% "against," and 60,577 shares or
1.5% "abstain."
On April 28, 2003, the Board of Directors declared a cash dividend of
$0.20 per share to shareholders of record on May 13, 2003, payable on May 23,
2003.
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 in December 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,
which provides wealth management services, Steel City Investments, Inc.
established in December 2002 to hold and manage investments securities, and
Great American Financial Services, Inc., currently inactive.
In 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 12 community 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 securities and education loans, earnings on bank owned life
insurance, wealth management fees, and other miscellaneous noninterest income.
The Company's operating expenses consist primarily of compensation and employee
benefits, occupancy, furniture and equipment, marketing, 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.
Certain critical accounting policies affect the more significant judgments
and estimates used in the preparation of the consolidated financial statements.
The Company's 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 appears under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Allowance for Loan Losses" on page 17 and
"Notes to the Consolidated Financial Statements - Note 1. Accounting Policies -
Allowance For Loan Losses" on pages 30 and 31 of the Company's 2002 Annual
Report to Shareholders.
AVAILABLE INFORMATION
The Company makes available free of charge copies of its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to,
the Securities and Exchange Commission. This information is available without
charge via the Company's Internet website at www.greatamericanfederal.com. This
reference to the Company's website is here for the convenience of shareholders
as required by the Securities and Exchange Commission.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION AT
MARCH 31, 2003 AND DECEMBER 31, 2002
ASSETS
The Company's total assets were $867.9 million at March 31, 2003, an
increase of $9.8 million or 1.1% compared to total assets of $858.0 million
at December 31, 2002.
Cash increased $10.3 million or 48.2% to $31.6 million at March 31, 2003
due to repayment of loans and securities, and sales, calls, and maturities of
securities.
Available for sale securities increased $18.1 million or 5.8% to $332.3
million at March 31, 2003 due to the reinvestment of funds from loan repayments
and the sale of education loans.
Total loans decreased $22.3 million or 4.6% to $461.8 million at March 31,
2003 primarily due to decreases in residential loans from refinance activity and
the sale of a substantial portion of the education loan portfolio. This decrease
was offset partially by increases in commercial real estate and commercial and
residential construction and development loans.
Prepaid expenses and other assets increased $5.2 million or 35.8% to $19.6
million at March 31, 2003 primarily due to timing differences from the funding
and recording of loans.
LIABILITIES
Total liabilities were $771.4 million at March 31, 2003 an increase of
$13.9 million or 1.8% compared to total liabilities of $757.5 million at
December 31, 2002.
Total deposits increased $14.2 million or 2.7% to $538.2 million. The
increase was primarily from strong growth in money market deposit accounts and
modest growth in savings and noninterest-bearing checking accounts. This
increase was partially offset by a decline in certificate of deposit accounts.
This activity is consistent with the Company's strategic focus on restructuring
its deposit mix from time deposits to lower cost transaction deposits.
Borrowed funds remained unchanged at $221.6 million at March 31,
2003.Although the Company did pay-off maturing FHLB advances during
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
the quarter, these borrowings were renewed with short-term maturities and
continue to be evaluated based on the needs of the Company.
Accrued interest payable increased $1.2 million or 72.5% to $2.8 million
at March 31, 2003 primarily due to the timing of interest accrued on deposit
accounts and borrowed funds.
Other liabilities decreased $1.5 million or 19.4% to $6.3 million at March
31, 2003 due to timing differences from the receipt and application of payments
for purchased loans serviced by others.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased $4.0 million or 4.0% to $96.5 million at
March 31, 2003.This was due primarily to the repurchase of 175,650 shares of
common stock totaling $4.5 million (under the Company's 5% repurchase program,
81,413 shares remain to be purchased at March 31, 2003), payment of dividends of
$979,000, and a decrease in accumulated comprehensive income of $444,000.This
decrease was partially offset by net income of $1.7 million.
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
MARCH 31,
(DOLLARS IN THOUSANDS) 2003 2002
------------------------------------ -------------------------------------
Weighted Weighted
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
ASSETS
Interest-Earning Assets:
Deposits ................................ $ 27,459 $ 78 1.14% $ 30,947 $ 124 1.60%
Securities(1), (2) ...................... 324,134 4,200 5.18 333,032 4,660 5.60
Loans, net(3) ........................... 467,422 7,927 6.78 458,728 8,312 7.25
FHLB stock .............................. 12,333 99 3.21 11,700 129 4.41
--------- --------- ---- --------- --------- ----
Total interest-earning assets ......... 831,348 12,304 5.92 834,407 13,225 6.34
Noninterest-earning assets .............. 31,943 28,735
--------- --------- ---- --------- --------- ----
Total assets .......................... $ 863,291 $ 863,142
========= ========= ==== ========= ========= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts ....................... $ 42,021 $ 47 0.45% $ 40,766 $ 71 0.70%
Money market deposit accounts ........... 75,169 443 2.36 66,718 384 2.30
Savings accounts ........................ 151,377 769 2.03 132,412 777 2.35
Certificates of deposit ................. 229,960 2,406 4.19 260,167 3,294 5.06
--------- --------- ---- --------- --------- ----
Total interest-bearing deposits ....... 498,527 3,665 2.94 500,063 4,526 3.62
Borrowed funds .......................... 221,575 2,592 4.68 225,931 2,923 5.18
Other ................................... 2,183 9 1.65 2,024 7 1.38
--------- --------- ---- --------- --------- ----
Total interest-bearing liabilities .... 722,285 6,266 3.47 728,018 7,456 4.10
Noninterest-bearing deposits ............ 31,648 31,757
All other noninterest-bearing liabilities 9,185 5,669
Total noninterest-bearing liabilities ... 40,833 37,426
Shareholders' equity .................... 100,173 97,698
--------- --------- ---- --------- --------- ----
Total liabilities and
shareholders' equity ................ $ 863,291 $ 863,142
========= ========= ==== ========= ========= ====
Net interest income ......................... $ 6,038 $ 5,769
Interest rate spread(4) ..................... 2.45% 2.24%
Net interest margin(5) ...................... 2.91% 2.77%
==== ====
(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 costs (fees), undisbursed funds, discounts and
premiums, estimated allowance 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.
REVIEW OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND 2002
NET INCOME
Net income for the three months ended March 31, 2003 increased $262,000 or
17.8% as compared to March 31, 2002. Changes in the components of net income are
discussed herein.
INTEREST INCOME
Total interest income decreased $891,000 ($921,000 on a taxable equivalent
basis) or 6.9% to $11.9 million for the three months ended March 31, 2003. This
was primarily the result of a decrease of 42 basis points in the average yield
on average interest-earning assets, and a decrease of $3.1 million in average
interest-earning assets. Taxable equivalent interest on securities decreased
$460,000 or 9.9% due to a decrease in the average balance of $8.9 million or
2.7%, and a decrease in the average yield of 42 basis points. Interest income on
loans decreased $385,000 or 4.6% due to a decrease in the average yield of 47
basis points which was partially offset by an increase in the average balance of
$8.7 million.
INTEREST EXPENSE
Total interest expense decreased $1.2 million or 16.0% to $6.3 million for
the three months ended March 31, 2003. This was primarily the result of a
decrease of 63 basis points in the average cost of average interest-bearing
liabilities coupled with a decrease of $5.7 million in the average balance. The
interest expense on interest-bearing deposits decreased $861,000 or 19.0%.This
was the result of a decrease of 68 basis points in the average cost and a
decline in the average balance of $1.5 million. This decrease is consistent with
the Company's focus on restructuring deposit accounts from time deposits to
lower cost transaction deposits. Interest expense on borrowed funds decreased
$331,000 or 11.3% due primarily to a decrease in the average cost of 50 basis
points and a decrease in the average balance of $4.4 million. This reduction was
due to the pay-off of FHLB advances at maturity.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 2003
was $378,000 as compared to $300,000 for the three months ended March 31,
2002. The allowance for loan losses to loans and nonperforming assets was 0.85%
and 173%, respectively at March 31, 2003, as compared to 0.80% and 259%,
respectively at December 31, 2002 and 0.74% and 218%, respectively at March 31,
2002. The current quarter provision was primarily influenced by a charge-off of
$221,000 against the allowance for loan losses. This charge-off was the result
of certain information obtained by the Company relating to a $1.3 million
commercial real estate loan, which was performing and classified as "special
mention" at December 31, 2002. Based on subsequent information, the loan was
downgraded to "substandard" and placed on nonaccrual status at March 31,
2003. The remaining provision for loan losses was the result of loan production,
strategic growth in commercial real estate and construction/development loans,
and current economic conditions. Nonperforming loans at March 31, 2003 were $2.2
million as compared to $1.5 million, respectively, for December 31, 2002 and
March 31, 2002. The increase in nonperforming loans was primarily due to the
deterioration and classification of the commercial real estate loan previously
noted. The remaining balance of nonperforming loans was comprised of residential
mortgages and consumer home equity loans. The nonperforming loans for December
31, 2002 and March 31, 2002, were comprised primarily of residential mortgages
and consumer home equity loans. 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 assurances
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 $401,000 or 44.6% for the three months
ended March 31, 2003. The increase was primarily due to increases in the net
gains on sales of available for sale securities and the sale of education loans
of $269,000 and $86,000, respectively. This increase was partially offset by a
decrease of $46,000 in service fees.
NONINTEREST EXPENSE
Total noninterest expense increased $211,000 or 5.2% for the three months
ended March 31, 2003. This increase was due to an increase of $118,000 in
compensation and employee benefits primarily related to the Company's Employee
Stock Ownership Plan for which compensation expense is recorded based on the
average fair value of the Company's stock and the number of shares earned and
committed to be released. Additionally, there was an increase of $110,000 in
furniture and equipment that was primarily related to the Company's first
quarter 2003 conversion to its new core operating system whereby licensing fees
and depreciation on related equipment were recorded.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $149,000 or 37.3% to $549,000 for
the three months ended March 31, 2003. The effective tax rate for the three
months ended March 31, 2003 was 24.0% as compared to 21.3% for the three months
ended March 31, 2002. The increase in the effective tax rate was the result of a
combination of higher pre-tax and taxable income.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
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 securities 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 used in operating activities was $1.4 million. Net cash provided
by investing activities was $2.9 million. Net cash provided by financing
activities was $8.8 million. Overall, cash and cash equivalents increased $10.3
million for the three months ended March 31, 2003.
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 March 31, 2003, the Bank had exceeded the OTS requirements for tier I
core (leverage), tier I risk-based, 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, as defined by the OTS. 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 9.46%, tier I risk-based at 17.62%, total risk-based at
18.70%, and tangible at 9.46% at March 31, 2003.
OTHER
The Company announced in the first quarter of 2002 that it selected
Kirchman Bankway(TM) as its core operating system solution. The Company made
this investment to support its longer term profitability goals, enhance its
speed to market in developing and introducing new competitive products, and
improve its already high level of customer service. The conversion to the new
system was completed in the first quarter of 2003.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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. The adoption of SFAS No. 146 did not have a
material effect on the financial position, results of operations, or liquidity
of the Company.
In November 2002, the FASB issued Interpretation No. 45, ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This interpretation
elaborates on the existing disclosures to be made by a guarantor in its
financial statements about its obligations under certain guarantees that it has
issued ("disclosure requirements"). This interpretation also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee
("recognition and measurement provisions"). The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The disclosure
requirements in FIN 45 are effective for financial statements of interim and
annual periods ending after December 15, 2002. The adoption of FIN 45 did not
have a material effect on the financial position, results of operations, or
liquidity of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," an amendment of SFAS No.
123. This statement amends SFAS No. 123 to provide alternative methods of
transition for voluntary change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure on both annual and
interim financial statements about the method of accounting for stock-based
compensation and the effect of the method used on reported results. The
transition alternatives of SFAS No. 148 are available for fiscal years ending
after December 15, 2002. The adoption of SFAS No. 148 did not have a material
effect on the financial position, results of operations, or liquidity of the
Company.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement is generally effective for
contracts entered into or modified after June 30, 2003 and hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 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
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
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.
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.
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 appropriate level of risk given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board of Director
approved guidelines. Through such management, the Company monitors its interest
rate risk and seeks to reduce the vulnerability of its operations to changes in
interest rates. The Company's Board of Directors has established an
Asset/Liability Management Committee, which is responsible for reviewing its
asset/liability policies, securities portfolio, interest rate risk position,
liquidity and meets at least on a quarterly basis. The Asset Liability
Management Committee reviews trends in interest rates, changes in the market
value of the Company's investment securities portfolio, all investment security
purchases, sales, maturities, and calls, 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 and shorter
term fixed-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 and
adjustable interest rate commercial, residential mortgage, and consumer loan
products; and (4) emphasizing transaction and longer term time 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 parameters relating to the types of deposits which may be offered
by the Company and rates which may be paid on such deposits.
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 investing, lending, deposit, and borrowing activities.
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 including any corrective actions
with regard to significant deficiencies and material weaknesses by the chief
executive officer and chief financial officer.
13
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.
14
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 May 15, 2003
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)
15
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: May 15, 2003
/s/ John M. Kish
- -------------------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
16
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: May 15, 2003
/s/ James V. Dionise
- -------------------------------------
James V. Dionise
Chief Financial Officer and Secretary
17