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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 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 X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
5,025,092 shares of common stock, par value $0.01 per share, were outstanding at
July 31, 2003.
GA FINANCIAL, INC.
FORM 10-Q
JUNE 30, 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 ..... 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
GA FINANCIAL, INC.
(UNAUDITED)
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002
- ------------------------------------------------ ---- ----
ASSETS
Cash (including interest-bearing deposits of $15,869 and $16,415) . $ 20,002 $ 21,343
Held for trading securities, at fair value ........................ 135 129
Available for sale securities, at fair value ...................... 368,311 314,196
Held to maturity securities, at cost .............................. 2,971 2,951
--------- ---------
Total securities ................................................ 371,417 317,276
Education loans held for sale ..................................... 740 14,795
Loans (net of deferred costs (fees) of $16 and $(107))............. 468,019 469,273
--------- ---------
Total loans ..................................................... 468,759 484,068
Allowance for loan losses ......................................... (3,956) (3,896)
--------- ---------
Net loans ....................................................... 464,803 480,172
Accrued interest receivable on securities ......................... 2,146 2,323
Accrued interest receivable on loans .............................. 2,313 3,125
Federal Home Loan Bank stock ...................................... 12,759 12,019
Premises and equipment, net ....................................... 6,075 6,289
Foreclosed assets ................................................. 23 34
Securities sold, not settled ...................................... 8,455 992
Prepaid expenses and other assets ................................. 15,663 14,462
--------- ---------
Total assets .................................................... $ 903,656 $ 858,035
========= =========
LIABILITIES
Noninterest-bearing deposits ...................................... $ 34,648 $ 30,701
Interest-bearing deposits ......................................... 521,299 493,366
--------- ---------
Total deposits .................................................. 555,947 524,067
Borrowed funds .................................................... 230,525 221,575
Advances from customers for taxes, insurance, and other ........... 3,078 2,372
Accrued interest payable .......................................... 3,904 1,620
Securities purchased, not settled ................................. 7,024 --
Other liabilities ................................................. 6,708 7,860
--------- ---------
Total liabilities ............................................... 807,186 757,494
--------- ---------
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 ........................................ 87,121 87,209
Retained earnings, substantially restricted ....................... 71,896 70,370
Accumulated other comprehensive income, net of taxes .............. 6,759 6,973
Unearned employee stock ownership plan (ESOP) shares .............. (2,551) (2,551)
Unearned stock-based compensation plan (SCP) shares ............... (285) (296)
Treasury stock, at cost (3,954,873 shares and 3,753,433 shares) ... (66,559) (61,253)
--------- ---------
Total shareholders' equity ...................................... 96,470 100,541
--------- ---------
Total liabilities and shareholders' equity ...................... $ 903,656 $ 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) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
- ------------------------------------------------ ---- ---- ---- ----
INTEREST INCOME
Loans ....................................................... $ 7,640 $ 8,529 $ 15,566 $ 16,841
Securities:
Taxable interest .......................................... 3,292 3,140 6,348 6,383
Nontaxable interest ....................................... 571 677 1,204 1,362
Dividends ................................................. 210 369 450 828
Interest-bearing deposits ................................... 56 114 134 238
----------- ----------- ----------- -----------
Total interest income ..................................... 11,769 12,829 23,702 25,652
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest-bearing deposits ................................... 3,452 4,413 7,117 8,940
Borrowed funds .............................................. 2,614 2,833 5,206 5,755
Other ....................................................... 12 8 21 15
----------- ----------- ----------- -----------
Total interest expense .................................... 6,078 7,254 12,344 14,710
----------- ----------- ----------- -----------
Net interest income ....................................... 5,691 5,575 11,358 10,942
Provision for loan losses ................................... 45 255 423 555
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ....... 5,646 5,320 10,935 10,387
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service fees ................................................ 521 669 1,072 1,266
Net gain (loss) on sales of available for sale securities ... 719 (144) 1,121 (9)
Writedown of securities ..................................... -- (141) -- (141)
Net gain (loss) on held for trading securities .............. 4 (12) 6 (11)
Gain on sales of education loans held for sale .............. -- -- 123 37
Gain on sale of branch ...................................... -- 905 -- 905
Earnings on bank owned life insurance ....................... 138 159 286 282
Other ....................................................... 17 12 91 18
----------- ----------- ----------- -----------
Total noninterest income .................................. 1,399 1,448 2,699 2,347
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Compensation and employee benefits .......................... 2,360 2,366 4,674 4,562
Occupancy ................................................... 400 421 838 885
Furniture and equipment ..................................... 466 430 874 728
Marketing ................................................... 272 150 381 219
Deposit insurance premiums .................................. 21 23 43 47
Loss on closure of branch ................................... -- 291 -- 291
Other ....................................................... 1,234 1,160 2,246 2,201
----------- ----------- ----------- -----------
Total noninterest expense ................................. 4,753 4,841 9,056 8,933
----------- ----------- ----------- -----------
Income before provision for income taxes .................. 2,292 1,927 4,578 3,801
Provision for income taxes .................................. 586 395 1,135 795
----------- ----------- ----------- -----------
Net income ................................................ $ 1,706 $ 1,532 $ 3,443 $ 3,006
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME
Unrealized holding gains on available for sale securities,
net of taxes .............................................. $ 734 $ 3,263 $ 633 $ 2,698
Reclassification adjustment for net (gains) losses included
in net income ............................................. (504) 184 (847) (16)
----------- ----------- ----------- -----------
Other comprehensive gain (loss) ........................... 230 3,447 (214) 2,682
----------- ----------- ----------- -----------
Comprehensive income ........................................ $ 1,936 $ 4,979 $ 3,229 $ 5,688
=========== =========== =========== ===========
EARNINGS PER SHARE
Basic ......................................................... $ 0.36 $ 0.31 $ 0.72 $ 0.60
Diluted ....................................................... $ 0.35 $ 0.30 $ 0.69 $ 0.59
AVERAGE SHARES OUTSTANDING
Basic ......................................................... 4,717,755 5,009,626 4,773,907 5,041,088
Diluted ....................................................... 4,903,192 5,113,217 4,957,612 5,134,148
=========== =========== =========== ===========
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-
(DOLLARS IN THOUSANDS, COMMON PAID-IN RETAINED HENSIVE ESOP SCP TREASURY HOLDERS'
EXCEPT PER SHARE AMOUNTS) STOCK CAPITAL EARNINGS INCOME SHARES SHARES STOCK EQUITY
- ------------------------- ----- ------- -------- ------ ------ ------ ----- ------
Balance at December 31, 2002 ........ $ 89 $ 87,209 $ 70,370 $ 6,973 $ (2,551) $ (296) $ (61,253) $ 100,541
Net income ........................ -- -- 3,443 -- -- -- -- 3,443
Other comprehensive loss, net
of tax(1) ....................... -- -- -- (214) -- -- -- (214)
Cash dividends paid ($0.40 per
share) .......................... -- -- (1,917) -- -- -- -- (1,917)
Stock repurchased ................. -- -- -- -- -- -- (5,518) (5,518)
SCP, net of tax:
Stock options exercised ......... -- (121) -- -- -- -- 198 77
Stock awards granted ............ -- 33 -- -- -- (92) 61 2
Stock awards forfeited .......... -- -- -- -- -- 47 (47) --
Stock awards expensed ........... -- -- -- -- -- 56 -- 56
------ -------- -------- --------- -------- -------- --------- ---------
Balance at June 30, 2003 ............ $ 89 $ 87,121 $ 71,896 $ 6,759 $ (2,551) $ (285) $ (66,559) $ 96,470
====== ======== ======== ========= ======== ======== ========= =========
(1) Other comprehensive loss for the six months ended June 30, 2003 is net of a
tax benefit of $125.
The accompanying notes are an integral part of the
consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
GA FINANCIAL, INC.
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------
(DOLLARS IN THOUSANDS) 2003 2002
- ---------------------- ---- ----
OPERATING ACTIVITIES
Net income ................................................................. $ 3,443 $ 3,006
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses ................................................ 423 555
Depreciation ............................................................. 452 500
Net (gain) loss on disposal of premises and equipment .................... (9) 189
Net premium amortization (discount accretion) on securities .............. 1,825 (244)
Amortization of net deferred loan costs .................................. 123 69
Amortization of intangibles .............................................. 85 93
Net (gain) loss on held for trading securities ........................... (6) 11
Net (gain) loss on sales of available for sale securities ................ (1,121) 9
Writedown of securities .................................................. -- 141
Gain on sales of education loans held for sale ........................... (123) (37)
Net gain on sales of foreclosed assets ................................... (15) (50)
Expense recognition of ESOP shares ....................................... 643 454
Expense recognition of SCP shares ........................................ 56 48
Decrease (increase) in accrued interest receivable ....................... 989 (114)
Increase in bank owned life insurance .................................... (286) (282)
(Increase) decrease in prepaid expenses and other assets ................. (1,000) 232
Net (decrease) increase in other liabilities ............................. (1,669) 856
Increase in accrued interest payable ..................................... 2,284 2,983
--------- ---------
Net cash provided by operating activities .............................. 6,094 8,419
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of available for sale securities ..................... 46,643 49,942
Repayments and maturities of available for sale securities ............... 74,757 155,931
Purchases of available for sale securities ............................... (177,017) (150,815)
Proceeds from sales of education loans held for sale ..................... 16,356 2,800
Funding of education loans held for sale ................................. (2,178) (2,873)
Purchases of loans ....................................................... (45,196) (27,746)
Net decrease (increase) in loans ......................................... 45,904 (4,109)
Proceeds from sale of premises and equipment ............................. 9 8
Purchases of premises and equipment ...................................... (238) (179)
Proceeds from sales of foreclosed assets ................................. 86 279
(Purchase) redemption of FHLB stock ...................................... (740) 1,350
--------- ---------
Net cash (used in) provided by investing activities .................... (41,614) 24,588
--------- ---------
FINANCING ACTIVITIES
Net increase in noninterest and interest-bearing deposits ................ 45,934 15,969
Net decrease in certificates of deposit .................................. (14,054) (21,825)
Payments on borrowed funds ............................................... (317,000) (98,000)
Proceeds from borrowed funds ............................................. 325,950 90,000
Cash dividends paid ...................................................... (1,917) (1,812)
Net increase in advances from customers for taxes, insurance, and other .. 706 1,055
Purchases of treasury stock .............................................. (5,518) (2,176)
Increase (decrease) in other stock transactions .......................... 78 (273)
--------- ---------
Net cash provided by (used in) financing activities .................... 34,179 (17,062)
--------- ---------
Net (decrease) increase in cash and cash equivalents ....................... (1,341) 15,945
--------- ---------
Cash and cash equivalents at beginning of period ........................... 21,343 29,859
--------- ---------
Cash and cash equivalents at end of period ................................. $ 20,002 $ 45,804
========= =========
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, Inc. 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)
- ---------------------- GA
Financial,
Great New Eagle Inc.
American Capital, (Parent Net
JUNE 30, 2003 Federal Inc. Company) Eliminations Consolidated
- ------------- -------- --------- -------- ------------ ------------
Assets ................................ $894,640 $45,127 $ 96,574 $(132,685) $903,656
Liabilities ........................... 806,623 2,347 104 (1,888) 807,186
Shareholders' equity .................. 88,017 42,780 96,470 (130,797) 96,470
======== ======= ========= ========= ========
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 JUNE 30, 2003
- -------------------------------- -------- ------- --------- --------- --------
Interest income ....................... $ 11,654 $ 474 $ 67 $ (426) $ 11,769
Interest expense ...................... 6,145 -- 359 (426) 6,078
Provision for loan losses ............. 45 -- -- -- 45
Noninterest income .................... 1,121 270 8 -- 1,399
Noninterest expense ................... 4,500 13 240 -- 4,753
Provision (benefit) for income taxes .. 517 248 (179) -- 586
Net income (loss) ..................... 1,568 483 (345) -- 1,706
======== ======= ========= ========= ========
SIX MONTHS ENDED JUNE 30, 2003
- ------------------------------ -------- ------- --------- --------- --------
Interest income ....................... $ 23,439 $ 936 $ 134 $ (807) $ 23,702
Interest expense ...................... 12,478 -- 673 (807) 12,344
Provision for loan losses ............. 423 -- -- -- 423
Noninterest income .................... 2,279 404 16 -- 2,699
Noninterest expense ................... 8,698 26 332 -- 9,056
Provision (benefit) for income taxes .. 981 446 (292) -- 1,135
Net income (loss) ..................... 3,138 868 (563) -- 3,443
======== ======= ========= ========= ========
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
(DOLLARS IN THOUSANDS) GA
- ---------------------- Financial,
Great New Eagle Inc.
American Capital, (Parent Net
JUNE 30, 2002 Federal Inc. Company) Eliminations Consolidated
- ------------- ------- ---- -------- ------------ ------------
Assets ................................ $840,402 $ 42,276 $ 123,513 $(147,822) $858,369
Liabilities ........................... 760,730 1,361 25,005 (27,235) 759,861
Shareholders' equity .................. 79,672 40,915 98,508 (120,587) 98,508
======== ======== ========= ========= ========
THREE MONTHS ENDED JUNE 30, 2002
- -------------------------------- -------- -------- --------- --------- --------
Interest income ....................... $ 12,694 $ 417 $ 83 $ (365) $ 12,829
Interest expense ...................... 7,337 -- 282 (365) 7,254
Provision for loan losses ............. 255 -- -- -- 255
Noninterest income .................... 1,583 (142) 7 -- 1,448
Noninterest expense ................... 4,620 21 200 -- 4,841
Provision (benefit) for income taxes .. 440 85 (130) -- 395
Net income (loss) ..................... 1,625 169 (262) -- 1,532
======== ======== ========= ========= ========
SIX MONTHS ENDED JUNE 30, 2002
- ------------------------------ -------- -------- --------- --------- --------
Interest income ....................... $ 25,350 $ 840 $ 167 $ (705) $ 25,652
Interest expense ...................... 14,875 -- 540 (705) 14,710
Provision for loan losses ............. 555 -- -- -- 555
Noninterest income .................... 2,400 (68) 15 -- 2,347
Noninterest expense ................... 8,587 34 312 -- 8,933
Provision (benefit) for income taxes .. 770 250 (225) -- 795
Net income (loss) ..................... 2,963 488 (445) -- 3,006
======== ======== ========= ========= ========
NOTE 3. SECURITIES
The amortized cost and estimated fair value of available for sale and held
to maturity securities are as follows:
JUNE 30,
(DOLLARS IN THOUSANDS) 2003
- ---------------------- ----
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
---- ---- ---- ----------
Available for Sale Securities:
U.S. government and agency debt ........ $ 45,143 $ 588 $ (7) $ 45,724
Mortgage-backed securities ............. 224,927 4,992 (124) 229,795
Collateralized mortgage obligations .... 21,522 505 (11) 22,016
Municipal obligations .................. 51,473 1,527 (18) 52,982
Corporate debt obligations ............. 4,986 359 -- 5,345
Marketable equity securities ........... 9,531 2,964 (46) 12,449
-------- -------- -------- --------
Total available for sale securities .. $357,582 $ 10,935 $ (206) $368,311
======== ======== ======== ========
Held to Maturity Securities:
Corporate debt obligations ............. $ 2,971 $ 141 $ -- $ 3,112
======== ======== ======== ========
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
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
======== ======== ======== ========
NOTE 4. LOANS
Loans consist of the following:
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2003 2002
- ---------------------- ---- ----
Loan Balances:
Mortgage Loans:
Residential ......................... $ 198,571 $ 218,905
Multi-family ........................ 12,275 10,629
Commercial real estate .............. 98,386 100,376
Commercial and residential
construction and development(1) ... 44,095 29,506
--------- ---------
Total mortgage loans .............. 353,327 359,416
Consumer Loans:
Home equity ......................... 78,860 74,959
Unsecured personal .................. 3,254 2,993
Loans on deposit accounts ........... 625 940
Automobile .......................... 177 212
--------- ---------
Total consumer loans .............. 82,916 79,104
Commercial Business Loans:
Secured business .................... 25,763 23,240
Unsecured business .................. 5,997 7,620
--------- ---------
Total commercial business loans ... 31,760 30,860
Education loans held for sale ......... 740 14,795
Net deferred costs (fees) ............. 16 (107)
--------- ---------
Total loans ....................... 468,759 484,068
Less:
Allowance for loan losses ........... (3,956) (3,896)
--------- ---------
Net loans ......................... $ 464,803 $ 480,172
========= =========
1 Amounts for June 30, 2003 and December 31, 2002 are net of available funds
for disbursement of $22.8 million and $21.6 million, respectively.
The Company purchased approximately $45.2 million and $27.7 million, for
the six months ended June 30, 2003 and 2002, respectively, of residential loans
collateralized by single-family properties located within its primary market
area.
At June 30, 2003 and December 31, 2002, the Company had $2.6 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 nonaccrual status at March 31, 2003. The remaining
nonperforming loans at June 30, 2003, consistent with December 31, 2002 were
comprised of residential mortgages and consumer home equity loans. In addition,
the Company had $23,000 and $34,000 of foreclosed assets at June 30, 2003 and
December 31, 2002, respectively.
The following table sets forth the changes in the allowance for loan
losses for the six months ended June 30, 2003:
(DOLLARS IN THOUSANDS)
- ----------------------
Allowance for Loan Losses:
Balance at December 31, 2002 .. $ 3,896
Charge-offs ................. (401)
Recoveries .................. 38
-------
Net charge-offs ........... (363)
Provision for loan losses ... 423
-------
Balance at June 30, 2003 ...... $ 3,956
=======
The following table presents information regarding the Company's
nonperforming assets for the dates indicated:
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2003 2002
- ---------------------- ---- ----
Nonperforming Assets:
Nonperforming loans ............... $ 2,600 $ 1,470
Foreclosed assets ................. 23 34
--------- ---------
Total nonperforming assets ...... $ 2,623 $ 1,504
========= =========
Nonperforming loans to loans ........ 0.55% 0.30%
Nonperforming assets to assets ...... 0.29 0.18
Allowance for loan losses to loans .. 0.84 0.80
Allowance for loan losses to
nonperforming assets .............. 150.82 259.04
========= =========
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA FINANCIAL, INC.
NOTE 5. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for the six months ended June 30, for interest and income taxes,
was approximately $10.1 million and $1.3 million, respectively in 2003, and
$11.7 million and $1.1 million, respectively in 2002.
Noncash investing activities consisted of $8.5 million of securities sold,
not settled and $7.0 million of securities purchased, not settled for the six
months ended June 30, 2003, in addition to $60,000 and $272,000 of loans
transferred to foreclosed assets during the six months ended June 30, 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:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
- ------------------------------------------------ ---- ---- ---- ----
Basic Earnings Per Share:
Net income .............................................................. $1,706 $1,532 $3,443 $3,006
Basic average shares outstanding ........................................ 4,717,755 5,009,626 4,773,907 5,041,088
---------- ---------- ---------- ----------
Basic earnings per share .............................................. $ 0.36 $ 0.31 $ 0.72 $ 0.60
========== ========== ========== ==========
Diluted Earnings Per Share:
Net income .............................................................. $1,706 $1,532 $3,443 $3,006
Basic average shares outstanding ........................................ 4,717,755 5,009,626 4,773,907 5,041,088
Effect of dilutive securities:
Shares issuable upon exercise of outstanding stock options and
stock awards......................................................... 185,437 103,591 183,705 93,060
Diluted average shares outstanding ...................................... 4,903,192 5,113,217 4,957,612 5,134,148
---------- ---------- ---------- ----------
Diluted earnings per share ............................................ $ 0.35 $ 0.30 $ 0.69 $ 0.59
========== ========== ========== ==========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 2003 2002
- ------------------------------------------------ ---- ---- ---- ----
Net income As reported ....... $1,706 $1,532 $3,443 $3,006
Expense related to options granted, net of tax Pro forma ......... (41) (44) (92) (66)
Net income Pro forma ......... 1,665 1,488 3,351 2,940
------ ------ ------ ------
Basic earnings per share As reported ....... $ 0.36 $ 0.31 $ 0.72 $ 0.60
Pro forma ......... 0.35 0.30 0.70 0.58
------ ------ ------ ------
Diluted earnings per share As reported ....... $ 0.35 $ 0.30 $ 0.69 $ 0.59
Pro forma ......... 0.34 0.29 0.68 0.57
------ ------ ------ ------
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 June 30, 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
On July 30, 2003, the Board of Directors declared a cash dividend of $0.20
per share to shareholders of record on August 12, 2003, payable on August 22,
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.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION AT JUNE 30, 2003 AND DECEMBER 31,
2002
ASSETS
The Company's total assets were $903.7 million at June 30, 2003, an
increase of $45.6 million or 5.3% compared to total assets of $858.0 million at
December 31, 2002.
Available for sale securities increased $54.1 million or 17.2% to $368.3
million at June 30, 2003 due to the reinvestment of funds from loan repayments,
the sale of education loans and growth in money market deposit accounts.
Additionally, the Company had $8.5 million of securities sold, not settled, as
compared to $992,000 of securities sold, not settled at December 31, 2002.
Total loans decreased $15.3 million or 3.2% to $468.8 million at June 30,
2003 primarily due to decreases in residential and commercial real estate loans
from refinance activity and the sale of a substantial portion of the education
loan portfolio. This decrease was partially offset by increases in commercial
and residential construction and development, consumer, multi-family and
commercial business loans.
LIABILITIES
Total liabilities were $807.2 million at June 30, 2003 an increase of
$49.7 million or 6.6% compared to total liabilities of $757.5 million at
December 31, 2002.
Total deposits increased $31.9 million or 6.1% to $555.9 million at June
30, 2003. The increase was primarily from strong growth in money market deposit
accounts and modest growth in noninterest-bearing checking accounts. This
increase was partially offset by a decline in certificates of deposit and
savings accounts. This activity is consistent with the Company's strategic focus
on restructuring the deposit mix from time deposits to lower cost transaction
deposits.
Borrowed funds increased $9.0 million or 4.0% to $230.5 million at June
30, 2003. These funds were borrowed with short-term maturities and
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
were utilized to purchase securities and fund loans. In addition, during the
period, maturing FHLB advances were paid-off and other short-term FHLB
borrowings were established based on the needs of the Company.
Accrued interest payable increased $2.3 million or 141.0% to $3.9 million
at June 30, 2003 primarily due to the timing of accrued interest payable on
deposit accounts and borrowed funds.
The Company also had $7.0 million of securities purchased, not settled at
June 30, 2003.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased $4.1 million or 4.0% to $96.5 million at
June 30, 2003. This was due primarily to the repurchase of 214,900 shares of
common stock totaling $5.5 million (under the Company's 5% repurchase program,
42,163 shares remain to be purchased at June 30, 2003), payment of dividends of
$1.9 million, and a decrease in accumulated other comprehensive income of
$214,000. This decrease was partially offset by net income of $3.4 million.
THREE MONTHS ENDED
JUNE 30,
(DOLLARS IN THOUSANDS) 2003 2002
- ---------------------- ---- ----
Weighted Weighted
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- -------- ------- -------- --------
ASSETS
Interest-Earning Assets:
Deposits ............................................ $ 22,882 $ 56 0.98% $ 30,153 $ 114 1.51%
Securities(1),(2) ................................... 349,538 4,339 4.97 317,107 4,494 5.67
Loans, net(3) ....................................... 457,156 7,640 6.68 476,836 8,529 7.15
FHLB stock .......................................... 12,437 70 2.25 11,158 90 3.23
-------- ------- ---- -------- ------ ----
Total interest-earning assets ..................... 842,013 12,105 5.75 835,254 13,227 6.33
Noninterest-earning assets ............................ 36,217 29,479
-------- ------- ---- -------- ------ ----
Total assets ...................................... $878,230 $864,733
======== ======= ==== ======== ====== ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts ................................... $ 39,543 $ 43 0.43% $ 40,934 $ 54 0.53%
Money market deposit accounts ....................... 97,474 553 2.27 66,448 382 2.30
Savings accounts .................................... 149,854 611 1.63 141,775 837 2.36
Certificates of deposit ............................. 223,943 2,245 4.01 252,178 3,140 4.98
-------- ------- ---- -------- ------ ----
Total interest-bearing deposits ................... 510,814 3,452 2.70 501,335 4,413 3.52
Borrowed funds ...................................... 222,773 2,614 4.69 221,575 2,833 5.11
Other ............................................... 2,521 12 1.90 2,479 8 1.29
--------- ------- ---- -------- ------ ----
Total interest-bearing liabilities ................ 736,108 6,078 3.30 725,389 7,254 4.00
Noninterest-bearing deposits ........................ 34,247 34,705
All other noninterest-bearing liabilities ........... 10,696 6,571
Total noninterest-bearing liabilities ............... 44,943 41,276
Shareholders' equity ................................ 97,179 98,068
---------- ------- ---- -------- ----- ----
Total liabilities and
shareholders' equity ............................ $878,230 $864,733
======== ======= ==== ======== ===== ====
Net interest income ..................................... $ 6,027 $5,973
Interest rate spread(4) ................................. 2.45% 2.33%
Net interest margin(5) .................................. 2.86% 2.86%
======== ======= ==== ======== ====== ====
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.
SIX MONTHS ENDED
JUNE 30,
(DOLLARS IN THOUSANDS) 2003 2002
- ---------------------- ---- ----
Weighted Weighted
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ----- ------- -------- -----
ASSETS
Interest-Earning Assets:
Deposits ......................................... $ 25,158 $ 134 1.07% $ 30,548 $ 238 1.56%
Securities (1),(2) ............................... 336,907 8,540 5.07 325,025 9,153 5.63
Loans, net (3) ................................... 462,260 15,566 6.73 467,832 16,841 7.20
FHLB stock ....................................... 12,385 169 2.73 11,428 220 3.85
-------- ------- ---- -------- ------- ----
Total interest-earning assets .................. 836,710 24,409 5.83 834,833 26,452 6.34
Noninterest-earning assets ....................... 34,092 29,109
-------- ------- ---- -------- ------- ----
Total assets $870,802 $863,942
======== ======= ==== ======== ======= ====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts ................................ $ 39,652 $ 90 0.45% $ 40,850 $ 125 0.61%
Money market deposit accounts .................... 87,507 996 2.28 66,582 766 2.30
Savings accounts ................................. 150,611 1,380 1.83 137,121 1,614 2.35
Certificates of deposit .......................... 226,935 4,651 4.10 256,149 6,435 5.02
-------- ------- ---- -------- ------- ----
Total interest-bearing deposits ................ 504,705 7,117 2.82 500,702 8,940 3.57
Borrowed funds ................................... 222,177 5,206 4.69 223,741 5,755 5.14
Other ............................................ 2,353 21 1.78 2,253 15 1.33
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities ............. 729,235 12,344 3.39 726,696 14,710 4.05
Noninterest-bearing deposits ..................... 32,955 33,239
All other noninterest-bearing liabilities ........ 9,944 6,123
Total noninterest-bearing liabilities ............ 42,899 39,362
Shareholders' equity ............................. 98,668 97,884
-------- ------- ---- -------- ------- ----
Total liabilities and
shareholders' equity ......................... $870,802 $863,942
======== ======= ==== ======== ======= ====
Net interest income .................................. $12,065 $11,742
Interest rate spread (4) ............................. 2.44% 2.29%
Net interest margin (5) .............................. 2.88% 2.81%
======== ======= ==== ======== ======= ====
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.
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
JUNE 30, 2003 AND 2002
NET INCOME
Net income for the three months ended June 30, 2003 increased $174,000 or
11.4% as compared to the three months ended June 30, 2002. Changes in the
components of net income are discussed herein.
INTEREST INCOME
Total interest income decreased $1.1 million ($1.1 million on a taxable
equivalent basis) or 8.3% to $11.8 million for the three months ended June 30,
2003.This was primarily the result of a decrease of 58 basis points in the
average yield on average interest-earning assets, which was partially offset by
an increase of $6.8 million in average interest-earning assets. Interest income
on loans decreased $889,000 or 10.4% due to a decrease in the average yield of
47 basis points and a decrease in the average balance of $19.7 million. Taxable
equivalent interest on securities decreased $155,000 or 3.4% due to a decrease
in the average yield of 70 basis points, which was partially offset by an
increase in the average balance of $32.4 million.
INTEREST EXPENSE
Total interest expense decreased $1.2 million or 16.2% to $6.1 million for
the three months ended June 30, 2003.This was primarily the result of a decrease
of 70 basis points in the average cost on average interest-bearing liabilities,
which was partially offset by an increase of $10.7 million in the average
balance. The interest expense on interest-bearing deposits decreased $961,000 or
21.8%.This was the result of a decrease in the average cost of 82 basis points,
which was partially offset by an increase in the average balance of $9.5
million. This activity 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 $219,000 or 7.7% due primarily to a decrease
in the average cost of 42 basis points, which was partially offset by an
increase in the average balance of $1.2 million.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended June 30, 2003 was
$45,000 as compared to $255,000 for the three months ended June 30, 2002.The
allowance for loan losses to loans and nonperforming assets was 0.84% and 151%,
respectively at June 30, 2003, as compared to 0.80% and 259%, respectively at
December 31, 2002 and 0.76% and 207%, respectively at June 30, 2002.The current
quarter provision was primarily influenced by the evolving composition of the
loan portfolio whereby there were decreases due to refinances and pay-offs of
loans, including loans with higher risk ratings such as commercial real estate
loans. Although there were increases that partially offset these declines
particularly in commercial and residential construction and development and
commercial business loans, these increases and current risk ratings did not
require significant provisions to maintain an appropriate level of coverage.
Nonperforming loans at June 30, 2003 were $2.6 million as compared to $1.5
million and $1.6 million, respectively, for December 31, 2002 and June 30,
2002.The increase in nonperforming loans was primarily due to the addition of a
commercial real estate loan with a current balance of $1.0 million, which was
downgraded from "special mention" to "substandard" at March 31, 2003.The
remaining balance of nonperforming loans were comprised of residential mortgages
and consumer home equity loans. The nonperforming loans for December 31, 2002
and June 30, 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 decreased $49,000 or 3.4% for the three months
ended June 30, 2003.This was primarily the result of the recognition of several
significant items in the three months ended June 30, 2002. In that period, the
Company recorded a $905,000 gain on the sale of its North Huntingdon community
branch office, which was offset by a $141,000 charge to record an
other-than-temporary decline in the valuation of certain investment securities
and $144,000 of net losses on the sale of available for sale securities.
Secondarily, the decrease was related to a decline of $148,000 in service fees
for the three months ended June 30, 2003 as compared to the three months ended
June 30, 2002.The overall decrease was partially offset by the recognition of
$719,000 in net gains on the sale of available for sale securities for the three
months ended June 30, 2003.
NONINTEREST EXPENSE
Total noninterest expense decreased $88,000 or 1.8% for the three months
ended June 30, 2003.This was primarily the result of the recognition of several
significant expenses in the three months ended June 30, 2002. In that period the
Company recorded a $291,000 loss on the closure of the Company's North
Versailles Wal-Mart based satellite branch office and $141,000 of costs related
to community branch office staffing reductions. These items were partially
offset by increases for the three months ended June 30, 2003 of $163,000 for
charges included in marketing and other noninterest expense recorded in
connection with the contested election of Directors at its 2003 Annual Meeting
of Shareholders and the related subsequent litigation and $85,000 of additional
compensation and employee benefits, compared to expense recorded for the three
months ended June 30, 2002, 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.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $191,000 or 48.4% to $586,000 for
the three months ended June 30, 2003.The effective tax rate for the three months
ended June 30, 2003 was 25.6% as compared to 20.5% for the three months ended
June 30, 2002.The increase in the effective tax rate was the result of a
combination of higher pre-tax and taxable income.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 2003 AND 2002
NET INCOME
Net income for the six months ended June 30, 2003 increased $437,000 or
14.5% as compared to the six months ended June 30, 2002. Changes in the
components of net income are discussed herein.
INTEREST INCOME
Total interest income decreased $2.0 million ($2.0 million on a taxable
equivalent basis) or 7.6% to $23.7 million for the six months ended June 30,
2003. This was primarily the result of a decrease of 51 basis points in the
average yield on average interest-earning assets, which was partially offset by
an increase of $1.9 million in average interest-earning assets. Interest income
on loans decreased $1.3 million or 7.6% due to a decrease in the average yield
of 47 basis points and a decrease in the average balance of $5.6 million.
Taxable equivalent interest on securities decreased $613,000 or 6.7% due to a
decrease in the average yield of 56 basis points, which was partially offset by
an increase in the average balance of $11.9 million.
INTEREST EXPENSE
Total interest expense decreased $2.4 million or 16.1% to $12.3 million
for the six months ended June 30, 2003. This was primarily the result of a
decrease of 66 basis points in the average cost on average interest-bearing
liabilities, which was partially offset by an increase of $2.5 million in the
average balance. The interest expense on interest-bearing deposits decreased
$1.8 million or 20.4%.This was the result of a decrease in the average cost of
75 basis points, which was partially offset by an increase in the average
balance of $4.0 million. This activity 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 $549,000 or 9.5% due
primarily to a decrease in the average cost of 45 basis points and a decrease in
the average balance of $1.6 million.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the six months ended June 30, 2003 was
$423,000 as compared to $555,000 for the six months ended June 30, 2002. The
allowance for loan losses to loans and nonperforming assets was 0.84% and 151%,
respectively at June 30, 2003, as compared to 0.80% and 259%, respectively at
December 31, 2002 and 0.76% and 207%, respectively at June 30, 2002. The current
year provision was primarily influenced by a charge-off of $221,000 against the
allowance for loan losses for the three months ended March 31, 2003. 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 primarily
influenced by the evolving composition of the loan portfolio whereby there were
decreases due to refinances and pay-offs of loans including loans with higher
risk ratings such as commercial real estate loans. Although, there were
increases that partially offset these declines particularly in commercial and
residential construction and development and commercial business loans, these
increases and current risk ratings did not require significant provisions to
maintain an appropriate level of coverage. Nonperforming loans at June 30, 2003
were $2.6 million as compared to $1.5 million and $1.6 million, respectively,
for December 31, 2002 and June 30, 2002. The increase in nonperforming loans was
primarily due to the addition of the commercial real estate loan previously
noted. The remaining balance of nonperforming loans were comprised of
residential mortgages and consumer home equity loans. The nonperforming loans
for December 31, 2002 and June 30, 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 $352,000 or 15.0% for the six months
ended June 30, 2003. This was primarily the result of the recognition of $1.1
million of net gains on the sale of available securities, which was partially
offset by a decrease of $194,000 in service fees. The increase for the six
months ended June 30, 2003 was partially offset by several significant items
that occurred in the six months ended June 30, 2002. In that period, the Company
recorded a $905,000 gain on the sale of its North Huntingdon community branch
office, which was offset by a $141,000 charge to record an other-than-temporary
decline in the valuation of certain investment securities.
NONINTEREST EXPENSE
Total noninterest expense increased $123,000 or 1.4% for the six months
ended June 30, 2003. This was primarily the result of the recognition of an
additional $189,000 in compensation and employee benefits expense, 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, compared to the six months ended
June 30, 2002. Also, the Company incurred $185,000 of charges included in
marketing and other noninterest expense recorded in connection with the
contested election of Directors at its 2003 Annual Meeting of Shareholders and
the related subsequent litigation. Additionally, there was an increase of
$146,000 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. The overall increase
in the current six months ended is net of several significant items that were
recorded in the six month period ended June 30, 2002. In that period the Company
recorded a $291,000 loss on the closure of the Company's North Versailles
Wal-Mart based satellite branch office and $141,000 related to community branch
office staffing reductions.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $340,000 or 42.8% to $1.1 million
for the six months ended June 30, 2003. The effective tax rate for the six
months, ended June 30, 2003 was 24.8% as compared to 20.9% for the six months,
ended June 30, 2002. The increase in the effective tax rate was the result of a
combination of higher pre-tax and taxable income.
13
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 provided by operating activities was $6.1 million. Net cash used
in investing activities was $41.6 million. Net cash provided by financing
activities was $34.2 million. Overall, cash and cash equivalents decreased $1.3
million for the six months ended June 30, 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 June 30, 2003, the Bank had exceeded the OTS requirements for tier I
core (leverage), tier I risk-based, 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%, 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 9.24%, tier I risk-based at 17.28%, total risk-based at 18.32%,
and tangible at 9.24% at June 30, 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.
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. 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. 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.
In May 2003, the FASB issued SFAS No. 150,"Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. Some of the provisions
of this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6,"Elements of Financial Statements." The remaining
provisions of this Statement are consistent with the Board's proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. This Statement is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
material effect on the financial position, results of operations, or liquidity
of the Company.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA FINANCIAL, INC.
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.
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 as of the end of the period, the chief
executive officer and 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.
15
PART II. OTHER INFORMATION
GA FINANCIAL, INC.
ITEM 1. LEGAL PROCEEDINGS
The Company and John M. Kish, the Chairman of the Board and Chief
Executive Officer, were named as Defendants in a lawsuit filed in the Court of
Chancery of the State of Delaware in and for New Castle County on June 12,
2003. The lawsuit was filed by Seidman & Associates, LLC and Lawerence B.
Seidman, the Plaintiffs. The basis of the lawsuit is to overturn the certified
results of the Company's April 23, 2003 Annual Meeting of Shareholders. The
independent inspector of election for the meeting certified that John M. Kish
and Darrell J. Hess were elected as Directors to serve three-year terms expiring
in 2006. Mr. Seidman, the nominee of the Plaintiffs was not elected. The lawsuit
asks the court to declare Mr. Seidman elected a director in place of Mr. Kish.
The Company believes the lawsuit is without merit and is vigorously contesting
it.
The Company is not involved in any other pending legal proceedings other
than routine legal proceedings 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
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."
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 6 of the Notes to the Consolidated Financial Statements.
31.1 Rule 13a-14(a)/15d-14(a) Chief Executive Officer Certification.
31.2 Rule 13a-14(a)/15d-14(a) Chief Financial Officer Certification.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 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:
During the second quarter of 2003, the Company filed or furnished the
following Current Reports on Form 8-K.
(1) A report filed May 1, 2003, which included, under Items 7 and 9, the
Company's press release announcing financial results for the quarter
ended March 31, 2003.
(2) A report filed May 2, 2003, which included under Item 9, the
Company's disclosure of a discrepancy in the number of outstanding
shares stated in the Proxy Statement compared to the shares reported
as voteable on the Company's Certified Shareholder List.
(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 August 14, 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)
17