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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, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 1-14154
GA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1780835
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4750 Clairton Boulevard 15236
Pittsburgh, Pennsylvania (Zip Code)
(Address of principal executive offices)
(412) 882-9946
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
5,293,343 shares of common stock, par value $.01 per share, were
outstanding as of August 5, 2002.
GA FINANCIAL, INC.
FORM 10-Q
JUNE 30, 2002
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION............................................. 1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME................................. 2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY............................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................... 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS............................................. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 15
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) 2002 2001
- ------------------------------------------------------------------------------------------------------------
ASSETS
Cash (including interest-bearing deposits of $40,329 and $24,950) $ 45,804 $ 29,859
Held for trading securities, at fair value 148 159
Available for sale securities, at fair value 288,121 335,383
Held to maturity securities, at cost 2,932 2,914
-------- --------
Total securities 291,201 338,456
Education loans held for sale 14,842 14,732
Loans (net of deferred fees of $261 and $330) 473,723 442,276
-------- --------
Total loans 488,565 457,008
Allowance for loan losses (3,698) (3,210)
-------- --------
Net loans 484,867 453,798
Accrued interest receivable on securities 2,377 2,192
Accrued interest receivable on loans 3,358 3,429
Federal Home Loan Bank stock 11,079 12,429
Premises and equipment, net 6,551 7,069
Foreclosed assets 197 154
Securities sold, not settled -- 3,472
Prepaid expenses and other assets 12,935 12,978
-------- --------
Total assets $858,369 $863,836
======== ========
LIABILITIES
Noninterest-bearing deposits $ 33,628 $ 31,671
Interest-bearing deposits 490,207 498,020
-------- --------
Total deposits 523,835 529,691
Borrowed funds 221,575 229,575
Advances from customers for taxes, insurance, and other 2,941 1,886
Accrued interest payable 5,112 2,129
Other liabilities 6,398 3,615
-------- --------
Total liabilities 759,861 766,896
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock ($.01 par value); 1,000,000 shares authorized; 0 shares
issued -- --
Common stock ($.01 par value); 23,000,000 shares authorized; 8,900,000
shares issued 89 89
Additional paid-in capital 86,875 87,056
Retained earnings, substantially restricted 68,409 67,215
Accumulated other comprehensive income, net of taxes 4,726 2,044
Unearned employee stock ownership plan (ESOP) shares (3,081) (3,081)
Unearned stock-based compensation plan (SCP) shares (340) (406)
Treasury stock, at cost (3,611,757 shares and 3,489,677 shares) (58,170) (55,977)
-------- --------
Total shareholders' equity 98,508 96,940
-------- --------
Total liabilities and shareholders' equity $858,369 $863,836
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
1
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
GA Financial, Inc.
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans $ 8,529 $ 8,112 $ 16,841 $15,853
Securities:
Taxable interest 3,140 4,601 6,383 9,819
Nontaxable interest 677 715 1,362 1,423
Dividends 369 781 828 1,595
Interest-bearing deposits 114 281 238 646
------- ------- -------- -------
Total interest income 12,829 14,490 25,652 29,336
------- ------- -------- -------
INTEREST EXPENSE
Interest-bearing deposits 4,413 5,281 8,940 10,631
Borrowed funds 2,833 3,290 5,755 6,950
Escrow 8 8 15 15
------- ------- -------- -------
Total interest expense 7,254 8,579 14,710 17,596
------- ------- -------- -------
Net interest income 5,575 5,911 10,942 11,740
Provision for loan losses 255 330 555 420
------- ------- -------- -------
Net interest income after provision for loan losses 5,320 5,581 10,387 11,320
------- ------- -------- -------
NONINTEREST INCOME
Service fees 669 682 1,266 1,318
Net (loss) gain on sales of available for sale securities (144) 175 (9) 139
Writedown of securities (141) -- (141) --
Net (loss) gain on held for trading securities (12) 18 (11) 87
Gain on sales of education loans held for sale -- -- 37 43
Gain on sale of branch 905 -- 905 --
Earnings on bank owned life insurance 159 105 282 188
Other 12 108 18 135
------- ------- -------- -------
Total noninterest income 1,448 1,088 2,347 1,910
------- ------- -------- -------
NONINTEREST EXPENSE
Compensation and employee benefits 2,398 2,483 4,618 5,014
Occupancy 421 427 885 922
Furniture and equipment 430 321 728 616
Marketing 150 188 219 271
Deposit insurance premiums 23 24 47 49
Loss on closure of branch 291 33 291 98
Other 1,128 1,241 2,145 2,355
------- ------- -------- -------
Total noninterest expense 4,841 4,717 8,933 9,325
------- ------- -------- -------
Income before provision for income taxes 1,927 1,952 3,801 3,905
Provision for income taxes 395 445 795 895
------- ------- -------- -------
Net income $ 1,532 $ 1,507 $ 3,006 $ 3,010
======= ======= ======== =======
OTHER COMPREHENSIVE INCOME
Unrealized holding gains (losses) on available for sale
securities, net of taxes $ 3,263 $(805) $ 2,698 $ 1,857
Reclassification adjustment for net losses (gains)
included in net income 184 (144) (16) 635
------- ------- -------- -------
Other comprehensive income (loss) 3,447 (949) 2,682 2,492
------- ------- -------- -------
Comprehensive income $ 4,979 $ 558 $ 5,688 $ 5,502
======= ======= ======== =======
EARNINGS PER SHARE
Basic $ 0.31 $0.30 $ 0.60 $ 0.59
Diluted $ 0.30 $0.29 $ 0.59 $ 0.59
AVERAGE SHARES OUTSTANDING
Basic 5,009,626 5,055,192 5,041,088 5,067,542
Diluted 5,113,217 5,133,200 5,134,148 5,136,390
========= ========= ========= =========
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- Retained hensive ESOP SCP Treasury holders'
except per share amounts) Stock in Capital Earnings Income Shares Shares Stock Equity
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 89 $ 87,056 $67,215 $2,044 $(3,081) $(406) $(55,977) $96,940
Net income -- -- 3,006 -- -- -- -- 3,006
Other comprehensive
income, net of tax/1/ -- -- -- 2,682 -- -- -- 2,682
Cash dividends paid
($.36 per share) -- -- (1,812) -- -- -- -- (1,812)
Treasury stock
purchased -- -- -- -- -- -- (2,176) (2,176)
SCP, net of tax:
Stock options exercised -- (182) -- -- -- -- -- (182)
Stock awards granted -- 1 -- -- -- (39) 40 2
Stock awards forfeited -- -- -- -- -- 57 (57) --
Stock awards expensed -- -- -- -- -- 48 -- 48
---- -------- ------- ------ -------- ------ --------- -------
Balance at June 30, 2002 $ 89 $ 86,875 $68,409 $4,726 $(3,081) $(340) $(58,170) $98,508
==== ======== ======= ====== ======== ====== ========= =======
/1/ Other comprehensive income for the six months ended June 30, 2002 is net of
tax provision of $1,566.
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) 2002 2001
- ----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,006 $ 3,010
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 555 420
Depreciation 500 509
Net loss (gain) on disposal of premises and equipment 189 (35)
Net discount accretion on securities (244) (22)
Amortization of net deferred loan fees 69 110
Amortization of intangibles 93 93
Net loss (gain) on held for trading securities 11 (87)
Proceeds from sales of held for trading securities -- 799
Purchases of held for trading securities -- (434)
Net loss (gain) on sales of available for sale securities 9 (139)
Writedown of securities 141 --
Gain on sales of education loans held for sale (37) (43)
Net (gain) loss on sales of foreclosed assets (50) 11
Expense recognition of ESOP shares 454 388
Expense recognition of SCP shares 48 217
(Increase) decrease in accrued interest receivable (114) 159
Increase in bank owned life insurance (282) (188)
Decrease (increase) in prepaid expenses and other assets 232 (1,274)
Net increase in other liabilities 763 339
Increase in accrued interest payable 2,983 3,895
------- -------
Net cash provided by operating activities 8,326 7,728
------- -------
INVESTING ACTIVITIES
Proceeds from sales of available for sale securities 49,942 49,835
Repayments and maturities of available for sale securities 155,931 25,471
Purchases of available for sale securities (150,815) (25,019)
Maturities of held to maturity securities -- 26,250
Purchases of held to maturity securities -- (16,170)
Proceeds from sales of education loans held for sale 2,800 3,402
Funding of education loans held for sale (2,873) (3,410)
Purchases of loans (27,746) (29,711)
Net increase in loans (4,109) (12,043)
Proceeds from sale of premises and equipment 8 130
Purchases of premises and equipment (179) (398)
Proceeds from sales of foreclosed assets 279 86
Redemption of FHLB stock 1,350 3,029
------- -------
Net cash provided by investing activities 24,588 21,452
------- -------
FINANCING ACTIVITIES
Net increase (decrease) in noninterest and interest-bearing deposits 15,969 (6,903)
Net (decrease) increase in certificates of deposit (21,825) 12,591
Payments from borrowed funds (98,000) (148,598)
Proceeds on borrowed funds 90,000 128,575
Cash dividends paid (1,812) (1,808)
Net increase in advances from customers for taxes, insurance, and
other 1,055 1,316
Purchases of treasury stock (2,176) (2,246)
(Decrease) increase in other stock transactions (180) 847
------- -------
Net cash used in financing activities (16,969) (16,226)
------- -------
Net increase in cash and cash equivalents 15,945 12,954
------- -------
Cash and cash equivalents at beginning of period 29,859 22,730
------- -------
Cash and cash equivalents at end of period $45,804 $35,684
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA Financial, Inc.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of GA
Financial, Inc. (the "Company") and its subsidiaries, Great American Federal
(the "Bank") and New Eagle Capital, Inc., and the Bank's wholly owned
subsidiaries, GA Financial Strategies, LLC and Great American Financial
Services, Inc. Intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
In the opinion of the management of the Company, the accompanying
consolidated financial statements include all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented. Certain information and note disclosures
normally included in financial statements presented in accordance with
accounting principles generally accepted in the United States of America have
been condensed or omitted. For comparative purposes, reclassifications have been
made to certain amounts previously reported to conform with the current period
presentation in the consolidated financial statements. It is suggested that the
accompanying consolidated financial statements be read in conjunction with the
Company's 2001 Annual Report to Shareholders and Form 10-K.
NOTE 2. SUBSIDIARY/SEGMENT REPORTING
The consolidated operating results of GA Financial, Inc. are presented as a
single financial services segment. GA Financial, Inc. is the parent company of
Great American Federal, a community commercial bank and the Company's principal
subsidiary, New Eagle Capital, Inc., an investment company, and the Bank's
wholly owned subsidiaries, GA Financial Strategies, LLC, established in 2001 to
provide wealth management services, and Great American Financial Services, Inc.,
currently inactive. GA Financial, Inc. and New Eagle Capital, Inc. are
incorporated in the state of Delaware while Great American Federal, 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
June 30, 2002 Federal Capital, Inc. (Parent 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
======== ======== ========= =========== =========
December 31, 2001
- -----------------
Assets $851,250 $ 33,601 $ 118,823 $ (139,838) $ 863,836
Liabilities 766,801 1,097 21,883 (22,885) 766,896
Shareholders' equity 84,449 32,504 96,940 (116,953) 96,940
======== ======== ========= =========== =========
Three Months Ended 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 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 for income taxes 770 250 (225) -- 795
Net income (loss) 2,963 488 (445) -- 3,006
======== ======== ========= =========== =========
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA Financial, Inc.
(Dollars in thousands)
Great
American New Eagle GA Financial Inc. Net
June 30, 2001 Federal Capital, Inc. (Parent Company) Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------
Assets $ 868,602 $ 31,410 $113,486 $(130,184) $883,314
Liabilities 788,117 742 18,326 (19,031) 788,154
Shareholders' equity 80,485 30,668 95,160 (111,153) 95,160
========= ======== ======== ========== ========
Three Months Ended June 30, 2001
- --------------------------------
Interest income $ 14,257 $ 575 $ 98 $ (440) $ 14,490
Interest expense 8,673 -- 346 (440) 8,579
Provision for loan losses 330 -- -- -- 330
Noninterest income 1,093 (14) 9 -- 1,088
Noninterest expense 4,496 10 211 -- 4,717
Provision for income taxes 360 190 (105) -- 445
Net income (loss) 1,491 361 (345) -- 1,507
========= ======== ======== ========== ========
Six Months Ended June 30, 2001
- ------------------------------
Interest income $ 28,892 $ 1,125 $ 201 $ (882) $ 29,336
Interest expense 17,784 -- 694 (882) 17,596
Provision for loan losses 420 -- -- -- 420
Noninterest income 1,881 15 14 -- 1,910
Noninterest expense 8,937 16 372 -- 9,325
Provision for income taxes 755 380 (240) -- 895
Net income (loss) 2,877 744 (611) -- 3,010
========= ======== ======== ========== ========
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) 2002
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
- ---------------------------------------------------------------------------------------------------
Available for Sale Securities:
U.S. government and agency debt $ 70,318 $ 878 $ (5) $ 71,191
Mortgage-backed securities 114,989 2,782 -- 117,771
Collateralized mortgage obligations 17,398 523 -- 17,921
Municipal obligations 56,053 565 (67) 56,551
Corporate debt obligations 12,263 331 (66) 12,528
Marketable equity securities 9,599 2,992 (432) 12,159
-------- ------ ------- --------
Total available for sale securities $280,620 $8,071 $ (570) $288,121
======== ====== ======= ========
Held to Maturity Securities:
Corporate debt obligations $ 2,932 $ 211 $ -- $ 3,143
======== ====== ======= ========
6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA Financial, Inc.
December 31,
(Dollars in thousands) 2001
- ------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
- ------------------------------------------------------------------------------------------------------------
Available for Sale Securities:
U.S. government and agency debt $ 5,017 $ 61 $ (15) $ 5,063
Mortgage-backed securities 139,637 1,090 (86) 140,641
Collateralized mortgage obligations 48,803 962 (41) 49,724
Municipal obligations 58,807 196 (1,288) 57,715
Corporate debt obligations 51,058 314 (46) 51,326
Marketable equity securities 28,809 2,775 (670) 30,914
-------- ------- --------- ---------
Total available for sale securities $332,131 $ 5,398 $ (2,146) $ 335,383
======== ======= ========= =========
Held to Maturity Securities:
Corporate debt obligations $ 2,914 $ 224 $ -- $ 3,138
======== ======= ========= =========
NOTE 4. LOANS
Loans consist of the following:
June 30, December 31,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------
Mortgage Loans:
Residential $ 254,386 $ 259,154
Multi-family 10,942 9,782
Commercial real estate 87,199 63,769
Commercial and residential construction
and development, net/1/ 27,985 25,500
--------- ---------
Total mortgage loans 380,512 358,205
Consumer Loans:
Home equity 67,756 62,249
Unsecured personal 2,744 2,775
Loans on deposit accounts 1,290 1,322
Automobile 201 174
--------- ---------
Total consumer loans 71,991 66,520
Commercial Business Loans:
Secured business 17,206 14,852
Unsecured business 4,275 3,029
--------- ---------
Total commercial business loans 21,481 17,881
Education loans held for sale 14,842 14,732
Deferred fees (261) (330)
--------- ---------
Total loans 488,565 457,008
Less:
Allowance for loan losses (3,698) (3,210)
--------- ---------
Net loans $ 484,867 $ 453,798
========= =========
/1/ Amounts for June 30, 2002 and December 31, 2001 are net of loans in process
of $23.5 million and $19.0 million, respectively.
The Company purchased approximately $27.7 million and $29.7 million, for the
six months ended June 30, 2002 and 2001, respectively, of residential loans
collateralized by single-family properties located inside and outside its
primary market area.
At June 30, 2002 and December 31, 2001, the Company had approximately $1.6
million and $1.5 million, respectively, in loans which were 90 days or more past
due that were not accruing interest. These nonperforming loans were comprised of
residential mortgages and consumer home equity loans. In addition, the Company
had $197,000 and $154,000 of foreclosed assets as of June 30, 2002 and December
31, 2001, respectively.
The following table sets forth the changes in the allowance for loan losses
for the six months ended June 30, 2002:
(Dollars in thousands)
- --------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance as of December 31, 2001 $3,210
Charge-offs (92)
Recoveries 25
------
Net charge-offs (67)
Provision for loan losses 555
------
Balance as of June 30, 2002 $3,698
======
The following table presents information regarding the Company's
nonperforming assets as of the dates indicated:
June 30, December 31,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------
Nonperforming Assets:
Nonperforming loans $1,588 $1,518
Foreclosed assets 197 154
------ ------
Total nonperforming assets $1,785 $1,672
====== ======
Nonperforming loans to loans 0.33% 0.33%
Nonperforming assets to assets 0.21% 0.19%
Allowance for loan losses to loans 0.76% 0.70%
Allowance for loan losses to
nonperforming assets 207.17% 191.99%
====== ======
NOTE 5. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for the six months ended June 30, for interest and income taxes,
was approximately $11.7 million and $1.1 million, respectively in 2002, and
$13.7 million and $1.2 million, respectively in 2001.
Noncash investing activity consisted of $272,000 and $47,000 of loans
transferred to foreclosed assets during the six months ended June 30, 2002 and
2001, respectively.
7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GA Financial, Inc.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company.
The calculation of basic and diluted earnings per share follows:
Three Months Ended Six Months Ended
(Dollars in thousands, except per share amounts) June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Net income $ 1,532 $ 1,507 $ 3,006 $ 3,010
Basic average shares outstanding 5,009,626 5,055,192 5,041,088 5,067,542
---------- ---------- ---------- ----------
Basic earnings per share $ 0.31 $ 0.30 $ 0.60 $ 0.59
========== ========== ========== ==========
Diluted Earnings Per Share:
Net income $ 1,532 $ 1,507 $ 3,006 $ 3,010
Basic average shares outstanding 5,009,626 5,055,192 5,041,088 5,067,542
Effect of dilutive securities:
Shares issuable upon exercise of outstanding stock
options and stock awards 103,591 78,008 93,060 68,848
---------- ---------- ---------- ----------
Diluted average shares outstanding 5,113,217 5,133,200 5,134,148 5,136,390
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.30 $ 0.29 $ 0.59 $ 0.59
========== ========== ========== ==========
NOTE 7. SUBSEQUENT EVENTS
On July 25, 2002, the Board of Directors declared a cash dividend of $.18 per
share to shareholders of record on August 9, 2002, payable on August 20, 2002.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
GA Financial, Inc.
This discussion should be read in conjunction with the consolidated financial
statements, notes, and tables included in this report.
OVERVIEW
GA Financial, Inc. (the "Company") was incorporated on December 14, 1995, and
is the holding company for Great American Federal (the "Bank"), a community
commercial bank and the Company's principal subsidiary, New Eagle Capital, Inc.,
an investment company, and the Bank's wholly owned subsidiaries, GA Financial
Strategies, LLC, established in 2001 to provide wealth management services, and
Great American Financial Services, Inc., currently inactive.
On March 25, 1996, the Bank completed its conversion from a federally
chartered mutual savings and loan association to a stock form of ownership and,
simultaneously, the Company issued 8,900,000 shares of common stock, utilizing a
portion of the net proceeds to acquire all of the outstanding stock of the Bank.
The Company currently transacts banking activities through Great American
Federal. The Bank, serving customers for over 85 years, operates its
administrative office in Whitehall, Pennsylvania and thirteen community branch
offices in Allegheny County located in southwestern Pennsylvania. Through these
office locations, the Bank offers a broad array of consumer and commercial loan,
deposit, and wealth management products and services. In addition to conducting
community commercial banking activities, the Bank invests in various marketable
securities. New Eagle Capital, Inc., the Company's other subsidiary, operating
as an investment company in Wilmington, Delaware, also invests in various
marketable securities as well as marketable equity securities.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowed funds.
The Company also generates noninterest income, such as service fees, gains on
the sale of education loans and securities, trading account profits, wealth
management fees, and other noninterest income. The Company's operating expenses
consist primarily of compensation and employee benefits, occupancy, furniture
and equipment, marketing, deposit insurance premiums, and other noninterest
expenses. The Company's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies, and actions of regulatory agencies.
Certain critical accounting policies affect the more significant judgments
and estimates used in the preparation of the consolidated financial
statements. The Company's single most critical accounting policy relates to the
Company's allowance for loan losses, which reflects the estimated losses
resulting from the inability of the Company's borrowers to make required loan
payments. If the financial condition of the Company's borrowers were to
deteriorate, resulting in an impairment of their ability to make payments, the
Company's estimates would be updated, and additional provisions for loan losses
may be required.
Further discussion of the estimates used in determining the allowance for
loan losses is contained in the discussion on "Allowance for Loan Losses" on
page 10 of the Company's Form 10-K and page 26 of the Company's 2001 Annual
Report to Shareholders.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION AT JUNE 30, 2002 AND DECEMBER 31,
2001
Assets
The Company's total assets were $858.4 million as of June 30, 2002, a
decrease of $5.5 million or 0.6% compared to total assets of $863.8 million as
of December 31, 2001.
Cash increased $15.9 million or 53.4% to $45.8 million as of June 30, 2002
due to repayments of loans and securities, and sales, calls, and maturities of
securities.
Available for sale securities decreased $47.3 million or 14.1% to $288.1
million at June 30, 2002 due to repayments, sales, calls, and maturities. The
Company had no securities sold, not settled as of June 30, 2002. The Company had
$3.5 million of securities sold, not settled as of December 31, 2001, which
settled in January 2002.
Total loans increased $31.6 million or 6.9% to $488.6 million as of June 30,
2002 primarily due to increases in commercial real estate, home equity, and
commercial business loans. This increase was partially offset by a decline of
$7.8 million of loans related to the Company's sale of its North Huntingdon
community branch office and repayments in residential mortgage loans.
Liabilities
Total liabilities were $759.9 million as of June 30, 2002, a decrease of $7.0
million or 0.9% compared to total liabilities of $766.9 as of December 31, 2001.
Total deposits decreased $5.9 million or 1.1% to $523.8 million due primarily
to a decline of $11.5 million of deposits related to the Company's sale of its
North Huntingdon community branch office.
Borrowed funds decreased $8.0 million or 3.5% to $221.6 million due to the
pay-off of maturing Federal Home Loan Bank ("FHLB") advances. Alternative
sources of funding were provided by repayments of loans and securities, and
sales, calls, and maturities of securities.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA Financial, Inc.
Accrued interest payable increased $3.0 million, more than doubling, to $5.1
million as of June 30, 2002. This was due to the timing of accrued interest
payable on deposit accounts and borrowed funds.
Other liabilities increased $2.8 million or 77.0% to $6.4 million as of June
30, 2002 due primarily to an increase in deferred taxes on available for sale
securities.
Shareholders' Equity
Shareholders' equity increased $1.6 million or 1.6% to $98.5 million as of
June 30, 2002. This was due to net income and an increase in accumulated
comprehensive income partially offset by purchases of treasury stock and cash
dividends paid.
Average Balance Sheet and Net Interest Analysis
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the weighted average yield on assets and
weighted average cost of liabilities for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods presented.
Three Months Ended Three Months Ended
(Dollars in thousands) June 30, 2002 June 30, 2001
- -----------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets:
Deposits $ 30,153 $ 114 1.51% $ 27,520 $ 281 4.08%
Securities/1/,/2/ 317,107 4,494 5.67 383,278 6,279 6.55
Loans, net/3/ 476,836 8,529 7.15 426,395 8,112 7.61
FHLB stock 11,158 90 3.24 14,193 238 6.71
--------- ------- ----- --------- ------- ----
Total interest-earning assets 835,254 13,227 6.33 851,386 14,910 7.01
Noninterest-earning assets 29,479 28,032
--------- ---------
Total assets $ 864,733 $ 879,418
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts $ 40,934 $ 54 0.53% $ 39,378 $ 107 1.09%
Money market deposit accounts 66,448 382 2.30 68,513 666 3.89
Savings accounts 141,775 837 2.36 124,440 740 2.38
Certificates of deposit 252,178 3,140 4.98 262,653 3,768 5.74
--------- ------- ----- --------- ------- ----
Total interest-bearing deposits 501,335 4,413 3.52 494,984 5,281 4.27
Borrowed funds 221,575 2,833 5.11 250,993 3,290 5.24
Escrow 2,479 8 1.27 1,781 8 1.73
--------- ------- ----- --------- ------- ----
Total interest-bearing liabilities 725,389 7,254 4.00 747,758 8,579 4.59
Noninterest-bearing liabilities 41,276 36,051
Shareholders' equity 98,068 95,609
--------- ---------
Total liabilities and
shareholders' equity $ 864,733 $ 879,418
========= =========
Net interest income $ 5,973 $ 6,331
Interest rate spread/4/ 2.33% 2.42%
Net interest margin/5/ 2.86% 2.97%
===== ====
/1/ Includes unamortized discounts and premiums.
/2/ Includes municipal obligations; yield and interest are stated on a taxable
equivalent basis.
/3/ Amount is net of deferred fees, undisbursed funds, discounts and premiums,
estimated allowances for loan losses, and includes education loans held for
sale and nonperforming loans.
/4/ Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities on a
taxable equivalent basis.
/5/ Net interest margin represents net interest income on a taxable equivalent
basis divided by average interest-earning assets.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA Financial, Inc.
Six Months Ended Six Months Ended
(Dollars in thousands) June 30, 2002 June 30, 2001
- ----------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- ----------------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets:
Deposits $ 30,548 $ 238 1.56% $ 29,018 $ 646 4.45%
Securities/1/,/2/ 325,025 9,153 5.63 397,992 13,177 6.62
Loans, net/3/ 467,832 16,841 7.20 414,676 15,853 7.65
FHLB stock 11,428 220 3.85 14,822 496 6.69
--------- -------- ---- --------- -------- ----
Total interest-earning assets 834,833 26,452 6.34 856,508 30,172 7.05
Noninterest-earning assets 29,109 27,699
--------- ---------
Total assets $ 863,942 $ 884,207
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Checking accounts $ 40,850 $ 125 0.61% $ 39,283 $ 233 1.19%
Money market deposit accounts 66,582 766 2.30 69,235 1,473 4.26
Savings accounts 137,121 1,614 2.35 124,561 1,472 2.36
Certificates of deposit 256,149 6,435 5.02 260,648 7,453 5.72
--------- -------- ---- --------- -------- ----
Total interest-bearing deposits 500,702 8,940 3.57 493,727 10,631 4.31
Borrowed funds 223,741 5,755 5.14 259,939 6,950 5.35
Escrow 2,253 15 1.36 1,736 15 1.73
--------- -------- ---- --------- -------- ----
Total interest-bearing liabilities 726,696 14,710 4.05 755,402 17,596 4.66
Noninterest-bearing liabilities 39,362 34,663
Shareholders' equity 97,884 94,142
--------- ---------
Total liabilities and
shareholders' equity $ 863,942 $ 884,207
========= =========
Net interest income $ 11,742 $ 12,576
Interest rate spread/4/ 2.29% 2.39%
Net interest margin/5/ 2.81% 2.94%
/1/ Includes unamortized discounts and premiums.
/2/ Includes municipal obligations; yield and interest are stated on a taxable
equivalent basis.
/3/ Amount is net of deferred fees, undisbursed funds, discounts and premiums,
estimated allowances for loan losses, and includes education loans held for
sale and nonperforming loans.
/4/ Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities on a
taxable equivalent basis.
/5/ Net interest margin represents net interest income on a taxable equivalent
basis divided by average interest-earning assets.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA Financial, Inc.
REVIEW OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE
30, 2002 AND 2001
Net Income
Net income for the three months ended June 30, 2002 increased $25,000 or 1.7%
from the previous period to $1.5 million. Changes in the components of net
income are discussed herein.
Interest Income
Total interest income decreased $1.7 million ($1.7 million on a taxable
equivalent basis) or 11.5% to $12.8 million for the three months ended June 30,
2002. This was primarily the result of a decrease of $16.1 million in average
interest-earning assets and a decrease of 68 basis points in the average yield
on interest-earning assets. Taxable equivalent interest on securities decreased
$1.8 million or 28.4%, due to the average balances decreasing $66.2 million or
17.3%, and a decrease in the average yield of 88 basis points. The dividends on
FHLB stock decreased $148,000 or 62.2% to $90,000 in 2002 due to a decrease of
$3.0 million in the average balance resulting from the redemption of FHLB stock
and a decrease in the average yield of 347 basis points. The Bank is required to
own FHLB stock based partly on the levels of its FHLB borrowings. Interest on
loans increased $417,000 or 5.1% to $8.5 million due to the increase in average
balances of $50.4 million or 11.8%, partially offset by a decrease in the
average yield on loans of 46 basis points.
Interest Expense
Total interest expense decreased $1.3 million or 15.4% due to a decrease in
average interest-bearing liabilities of $22.4 million or 3.0% to $725.4 million
and a decrease in the average cost of 59 basis points. The interest expense on
interest-bearing deposits decreased $868,000 or 16.4% to $4.4 million for 2002
due to the average cost decreasing 75 basis points partially offset by an
increase in the average balance of $6.4 million. The interest expense on
borrowed funds decreased $457,000 or 13.9% due to a decrease in the average
balance of $29.4 million or 11.7% and a decrease in the average cost of 13 basis
points. This reduction was due to the pay-off of maturing FHLB advances.
Provision for Loan Losses
The provision for loan losses for the three months ended June 30, 2002 was
$255,000 compared to $330,000 for the three months ended June 30, 2001. The
current quarter provision was influenced by strong loan production with
strategic growth in commercial real estate, business and
construction/development loans and current economic conditions. The allowance
for loan losses to loans and nonperforming assets was 0.76% and 207%,
respectively, as of June 30, 2002 as compared to 0.70% and 192%, respectively,
as of December 31, 2001 and 0.59% and 138%, respectively, as of June 30, 2001.
Nonperforming loans, primarily comprised of residential mortgages and consumer
home equity loans, were $1.6 million as of June 30, 2002, $1.5 million as of
December 31, 2001, and $1.8 million as of June 30, 2001. The Company monitors
all nonperforming loans which could impact the provision for loan losses. The
allowance for loan losses is maintained at an amount management considers
appropriate to cover estimated losses on loans which are deemed probable based
on information currently known to management. While management believes the
Company's allowance for loan losses is sufficient to cover losses in its loan
portfolio at this time, no assurance can be given that the Company's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Company, or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions analyzed by management to
determine the current level of the allowance for loan losses.
Noninterest Income
Total noninterest income increased $360,000 or 33.1% to $1.4 million for
the three months ended June 30, 2002 due substantially to a $905,000 gain on
sale of the Company's North Huntingdon community branch office. This increase
was partially offset by a decrease in net gains and losses on sales of available
for sale securities of $319,000 (change from a net gain of $175,000 to a net
loss of $144,000), a $141,000 writedown of WorldCom, Inc. securities, and a
decrease in other income of $96,000.
Noninterest Expense
Total noninterest expense increased $124,000 or 2.6% to $4.8 million for the
three months ended June 30, 2002. This was due primarily to a loss on closure of
the Company's North Versailles Wal-Mart based satellite branch office of
$291,000 and an increase in furniture and equipment expenses of $109,000. This
increase was partially offset by decreases in other noninterest expenses of
$113,000, compensation and employee benefit costs of $85,000 and marketing
expenses of $38,000.
Provision for Income Taxes
The provision for income taxes decreased $50,000 or 11.2% to $395,000 for the
three months ended June 30, 2002. The effective tax rate for the three months
ended June 30, 2002 was 20.5% as compared to 22.8% for the three months ended
June 30, 2001.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA Financial, Inc.
REVIEW OF THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 2002 AND 2001
Net Income
Net income for the six months ended June 30, 2002 decreased $4,000 or 0.1%
from the previous period to $3.0 million. Changes in the components of net
income are discussed herein.
Interest Income
Total interest income decreased $3.7 million ($3.7 million on a taxable
equivalent basis) or 12.6% to $25.7 million for the six months ended June 30,
2002. This was primarily the result of a decrease of $21.7 million in average
interest-earning assets and a decrease of 71 basis points in the average yield
on interest-earning assets. Taxable equivalent interest on securities decreased
$4.0 million or 30.5%, due to the average balances decreasing $73.0 million or
18.3%, and a decrease in the average yield of 99 basis points. The dividends on
FHLB stock decreased $276,000 or 55.6% to $220,000 in 2002 due to a decrease of
$3.4 million in the average balance resulting from the redemption of FHLB stock
and a decrease in the average yield of 284 basis points. The Bank is required to
own FHLB stock based partly on the levels of its FHLB borrowings. Interest on
loans increased $988,000 or 6.2% to $16.8 million due to the increase in average
balances of $53.2 million or 12.8%, partially offset by a decrease in the
average yield on loans of 45 basis points.
Interest Expense
Total interest expense decreased $2.9 million or 16.4% due to a decrease in
average interest-bearing liabilities of $28.7 million or 3.8% to $726.7 million
and a decrease in the average cost of 61 basis points.The interest expense on
interest-bearing deposits decreased $1.7 million or 15.9% to $8.9 million for
2002 due to the average cost decreasing 74 basis points partially offset by an
increase in the average balance of $7.0 million. The interest expense on
borrowed funds decreased $1.2 million or 17.2% due to a decrease in the average
balance of $36.2 million or 13.9% and a decrease in the average cost of 21 basis
points. This reduction was due to the pay-off of maturing FHLB advances.
Provision for Loan Losses
The provision for loan losses for the six months ended June 30, 2002 was
$555,000 compared to $420,000 for the six months ended June 30, 2001. The
current year provision was influenced by strong loan production with strategic
growth in commercial real estate, business and construction/development loans
and current economic conditions. The allowance for loan losses to loans and
nonperforming assets was 0.76% and 207%, respectively, as of June 30, 2002 as
compared to 0.70% and 192%, respectively, as of December 31, 2001 and 0.59% and
138%, respectively, as of June 30, 2001. Nonperforming loans, primarily
comprised of residential mortgages and consumer home equity loans, were $1.6
million as of June 30, 2002, $1.5 million as of December 31, 2001 and $1.8
million as of June 30, 2001. The Company monitors all nonperforming loans which
could impact the provision for loan losses. The allowance for loan losses is
maintained at an amount management considers appropriate to cover estimated
losses on loans which are deemed probable based on information currently known
to management. While management believes the Company's allowance for loan losses
is sufficient to cover losses in its loan portfolio at this time, no assurance
can be given that the Company's level of allowance for loan losses will be
sufficient to cover future loan losses incurred by the Company, or that future
adjustments to the allowance for loan losses will not be necessary if economic
and other conditions differ substantially from the economic and other conditions
analyzed by management to determine the current level of the allowance for loan
losses.
Noninterest Income
Total noninterest income increased $437,000 or 22.9% to $2.3 million for
the six months ended June 30, 2002 due primarily to a $905,000 gain on sale of
the Company's North Huntingdon community branch office. This increase was
partially offset by a decrease in net gains and losses on sales of available for
sale securities of $148,000 (change from a net gain of $139,000 to a net loss of
$9,000), a $141,000 writedown of WorldCom, Inc. securities, a decrease of
$99,000 in trading securities, and a decrease of $52,000 in service fees.
Noninterest Expense
Total noninterest expense decreased $392,000 or 4.2% to $8.9 million for the
six months ended June 30, 2002. This was due primarily to a decrease in
compensation and employee benefit costs of $396,000, other noninterest expenses
of $210,000, marketing expenses of $52,000 and occupancy expenses of $37,000.
This decrease was partially offset by a loss on closure of the Company's North
Versailles Wal-Mart based satellite branch office of $291,000 and an increase in
furniture and equipment expenses of $112,000.
Provision for Income Taxes
The provision for income taxes decreased $100,000 or 11.2% to $795,000 for
the six months ended June 30, 2002. The effective tax rate for the six months
ended June 30, 2002 was 20.9% as compared to 22.9% for the six months ended June
30, 2001.
OTHER MATTERS
Liquidity Resources
The Company's primary sources of funds are deposits, repayments of loans and
securities, sales, calls and maturities of securities, advances from the FHLB,
and other borrowed funds. While scheduled maturities of investments and the
amortization of loans are predictable sources of funds, deposit flows and
prepayments on mortgages, and mortgage-backed and related securities are greatly
influenced by market interest rates, economic conditions, and competition.
Legislation has repealed the Office of Thrift Supervision ("OTS") minimum
liquidity ratio requirements. OTS regulations now require the Company to
maintain sufficient liquidity to ensure its safe and sound operation.
Liquidity can be analyzed by utilizing the Consolidated Statements of Cash
Flows. Net cash provided by operating activities was $8.3 million. Net cash
provided by investing activities was $24.6 million. Net cash used in financing
activities was $17.0 million. Overall, cash and cash equivalents increased $15.9
million for the six months ended June 30, 2002.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
GA Financial, Inc.
Management believes the Company has sufficient liquidity to meet current
obligations to borrowers, depositors, debt holders, and others.
Capital Resources
The Company is not required to maintain any minimum level of capital;
however, the Bank is subject to various regulatory capital requirements
administered by the OTS.
At June 30, 2002, the Bank had exceeded the OTS requirements for tier I core
(leverage), tier I and total risk-based, and tangible capital. The OTS requires
the Bank to maintain a minimum 4.00% tier I core (leverage) capital ratio
(expressed as a percentage of adjusted total assets), a minimum tier I
risk-based capital ratio of 4.00% and total risk-based capital ratio of 8.00%
(both expressed as a percentage of risk-weighted assets, which includes
off-balance sheet items), and a minimum tangible capital ratio of 1.50% of
tangible assets. The well-capitalized requirement for tier I core (leverage),
tier I risk-based, and total risk-based ratios is 5.00%, 6.00%, and 10.00%,
respectively. The Bank has consistently maintained all regulatory capital ratios
at or above the well capitalized standards with tier I core (leverage) at 8.97%,
tier I risk-based at 17.36%, total risk-based at 18.49%, and tangible at 8.97%
as of June 30, 2002.
New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, an
entity would recognize a gain or loss on settlement.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 is not expected to have a material effect on the
financial position, results of operations, or liquidity of the Company.
In October 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment
or Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of;" however, it retains many of the
fundamental provisions of SFAS No. 121.
SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30,"Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," for the disposal of a segment of a business.
However, it retains the requirement in APB No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. The provisions of SFAS No. 144
generally are to be applied prospectively. The adoption of SFAS No. 144 had no
impact on the financial position, results of operations, or liquidity of the
Company.
In June 2002, the FASB issued SFAS No. 146,"Accounting for Costs Associated
with Exit or Disposal Activities. "This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of SFAS
No. 146 are effective for exit and disposal activities that are initiated after
December 31, 2002, with early application encouraged.The adoption of SFAS No.
146 is not expected to have a material effect on the financial position, results
of operations, or liquidity of the Company.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identified by use of the words
"believe,""expect,""intend,""anticipate,""estimate,""project," or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on the operations of the Company include, but are not
limited to: changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area, and accounting principles and guidelines. These risks
and uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements.
Except as required by applicable law and regulation, the Company does not
undertake--and specifically disclaims any obligation--to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GA Financial, Inc.
Management is responsible for monitoring and limiting the Company's exposure
to interest rate risk within established guidelines while maximizing net
interest income. The Company will continue to monitor its interest rate
sensitivity with the primary objective to prudently structure the balance sheet
so that movements of interest rates on assets and liabilities are highly
correlated and produce a reasonable net interest margin even in periods of
volatile interest rates. Further discussion on market risk is in the Company's
2001 Annual Report to Shareholders and Form 10-K.
The principal objective of the Company's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Board of
Directors approved guidelines. Through such management, the Company seeks to
reduce the vulnerability of its operations to changes in interest rates. The
Company monitors all of its interest rate risk. The Company's Board of Directors
has established an Asset/Liability Management Committee, which is responsible
for reviewing its asset/liability policies and interest rate risk position, and
meets at least on a quarterly basis. The Asset/Liability Management Committee
reviews trends in interest rates, the financial position of the Company, the
Company's actual performance to budgeted performance, the Company's interest
rate position as measured by changes in its net income and net portfolio value
under certain interest rate scenarios, and the projected impact of such interest
rate scenarios on its earnings and capital. The extent of the movement of
interest rates is an uncertainty that could have a negative impact on the
earnings of the Company.
In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) purchasing adjustable interest rate mortgage-backed and
related securities; (2) investing in shorter term fixed-rate corporate debt and
government agency bonds or in such types of bonds with adjustable interest
rates; (3) originating shorter term commercial and consumer loan products; and
(4) emphasizing longer term deposits. To manage the interest rate risk of the
Company, the Board of Directors has also established parameters relating to the
types of securities in which the Company may invest and 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 lending, investing, deposit and borrowing functions.
Interest rate risk arises when interest rates on assets change in a different
time period or in a different proportion from that of liabilities. Management
actively monitors its interest rate sensitivity position with the primary
objective to prudently structure the balance sheet so that movements of interest
rates on assets and liabilities are highly correlated and produce a reasonable
net interest margin even in periods of volatile interest rates. Interest rate
risk is considered by management to be the Company's most significant market
risk that could materially impact the Company's financial position or results of
operations.
15
PART II. OTHER INFORMATION
GA Financial, Inc.
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition, results of operations, and cash
flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of GA Financial Inc. was held on April 24,
2002. Of 5,472,990 shares eligible to vote, 5,072,281 were voted by proxy.
The shareholders elected the two nominees for directors, as described in the
proxy statement for the annual meeting. The results for re-election of Thomas E.
Bugel as director were 4,821,591 shares or 95.1% in favor and 250,690 shares or
4.9% withheld. The results for re-election of David R.Wasik as director were
4,783,430 shares or 94.3% in favor and 288,851 shares or 5.7% withheld. The
other continuing directors of GA Financial, Inc. are John M. Kish, Darrell J.
Hess, Thomas M. Stanton, and Robert J. Ventura. Joseph E. Bugel is currently
director emeritus.
Also, shareholders ratified KPMG LLP as the independent auditors for the
Company for the fiscal year ending December 31, 2002. The results were 4,873,801
shares or 96.1% in favor, 186,666 shares or 3.7% against, and 11,814 shares or
0.2% shares withheld.
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.
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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, 2002
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GA Financial, Inc.
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(Registrant)
By /s/ John M. Kish
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John M. Kish
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
By /s/ James V. Dionise
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James V. Dionise
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
17