<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
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Commission File Number 0-21885
--------------------------------
Advance Financial Bancorp
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(Exact name of registrant as specified in its charter)
West Virginia 55-0753533
- ------------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1015 Commerce Street, Wellsburg, WV 26070
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(Address of principal executive offices)
(304) 737 - 3631
------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class: Common Stock, par value $.10 per share
Outstanding at May 12, 1997: 1,084,450 shares
<PAGE>
ADVANCE FINANCIAL BANCORP
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of
March 31, 1997 and June 30, 1996 3
Consolidated Statement of Income (Unaudited)
for the Nine Months ended March 31, 1997 and 1996 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended March 31, 1997 and 1996 5
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended March 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Recent Developments 8-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
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<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and amounts due from banks $ 934,838 $ 948,671
Interest-bearing deposits with other institutions 7,963,558 3,067,912
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Total cash and cash equivalents 8,898,396 4,016,583
Investment Securities:
Securities held to maturity (fair value of $5,784,967
and $4,761,709) 5,863,761 4,799,596
Securities available for sale 58,656 68,549
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Total investment securities 5,922,417 4,868,145
Mortgage-backed securities held to maturity
(fair value of $398,988 and $561,203) 373,014 536,808
Loans held for sale - 1,375,143
Loans receivable, (net of allowance for loan losses
of $345,155 and $324,983) 84,976,670 77,565,831
Office properties and equipment, net 2,064,100 2,099,470
Federal Home Loan Bank Stock, at cost 576,700 559,500
Accrued interest receivable 550,800 521,187
Other assets 215,597 309,726
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TOTAL ASSETS $ 103,577,774 $ 91,852,393
============= =============
LIABILITIES
Deposits $ 79,307,857 $ 80,770,646
Advances from Federal Home Loan Bank 7,756,110 4,376,452
Advances from borrowers for taxes and insurance 130,446 182,977
Accrued interest payable and other liabilities 385,847 322,439
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TOTAL LIABILITIES 87,580,260 85,652,514
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STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value; 500,000 shares
authorized, none issued - -
Common Stock, $.10 par value; 2,000,000 shares authorized
1,084,450 shares issued and outstanding 108,445 -
Additional paid - in capital 10,214,199 -
Retained Earnings - substantially restricted 6,493,342 6,209,329
Net unrealized loss on securities (9,348) (9,450)
Unearned Employee Stock Ownership Plan shares (ESOP) (809,124) -
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TOTAL STOCKHOLDERS' EQUITY 15,997,514 6,199,879
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 103,577,774 $ 91,852,393
============= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1997 1996
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<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 4,999,114 $ 4,578,385
Investment securities 224,886 160,373
Interest-bearing deposits with other institutions 232,131 93,974
Mortgage-backed securities 30,048 51,495
Dividends on Federal Home Loan Bank Stock 26,566 25,015
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Total interest and dividend income 5,512,745 4,909,242
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INTEREST EXPENSE
Deposits 2,707,227 2,715,455
Advances from Federal Home Loan Bank 288,900 125,406
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Total interest expense 2,996,127 2,840,861
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NET INTEREST INCOME 2,516,618 2,068,381
Provision for loan losses 28,569 125,259
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,488,049 1,943,122
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NONINTEREST INCOME
Service charges on deposit accounts 168,231 139,475
Gain on sale of loans 23,296 -
Other income 48,164 47,047
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Total noninterest income 239,691 186,522
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NONINTEREST EXPENSE
Compensation and employee benefits 722,995 655,951
Occupancy and equipment 239,455 178,078
Deposit insurance premiums 564,330 127,029
Professional fees 89,664 72,864
Advertising 77,502 57,363
Data processing charges 120,320 109,249
Other expenses 444,300 378,149
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Total noninterest expense 2,258,566 1,578,683
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Income before income taxes 469,173 550,961
Income taxes 185,160 207,106
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NET INCOME $ 284,014 $ 343,855
============ ============
EARNINGS PER SHARE (since inception) .23 -
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
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<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 1,705,683 $ 1,549,948
Investment securities 74,911 51,829
Interest-bearing deposits with other institutions 124,908 38,681
Mortgage-backed securities 8,983 16,245
Dividends on Federal Home Loan Bank Stock 9,062 7,847
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Total interest and dividend income 1,923,547 1,664,550
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INTEREST EXPENSE
Deposits 869,163 906,751
Advances from Federal Home Loan Bank 105,733 46,792
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Total interest expense 974,896 953,543
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NET INTEREST INCOME 948,651 711,007
Provision for loan losses 11,185 -
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 937,466 711,007
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NONINTEREST INCOME
Service charges on deposit accounts 54,689 47,745
Gain on sale of loans 7,720 -
Other income 14,922 18,478
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Total noninterest income 77,331 66,223
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NONINTEREST EXPENSE
Compensation and employee benefits 253,210 207,913
Occupancy and equipment 84,999 68,251
Deposit insurance premiums 12,728 43,366
Professional fees 42,997 25,797
Advertising 29,642 25,286
Data processing charges 41,911 38,321
Other expenses 178,887 119,290
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Total noninterest expense 644,374 528,224
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Income before income taxes 370,423 249,006
Income taxes 141,279 87,943
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NET INCOME $ 229,144 $ 161,063
============ ============
EARNINGS PER SHARE (since inception) .23 -
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 284,013 $ 343,855
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 99,742 52,721
Amortization of unearned ESOP shares 28,246 -
Provision for loan losses 28,569 125,259
Proceeds from sale of loans 1,375,143 -
Decrease (increase) in accrued interest receivable
and other assets 64,436 (75,112)
Increase in accrued interest payable
and other liabilities (70,001) (3,973)
Decrease (increase) in federal income tax receivable 120,309 40,490
Increase in deferred federal income taxes 13,100 15,160
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Net cash provided by operating activities 1,943,557 498,400
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INVESTING ACTIVITIES
Proceeds from maturities of held to maturity 2,000,000 -
securities
Purchases of held to maturity securities (3,050,000) -
Principal collected on available for sale securities 9,995 10,800
Principal collected on mortgage - backed securities 163,794 159,667
Net increase in loans (7,439,408) (4,308,933)
Proceeds from the sale of other real estate - 334,121
Purchases of Federal Home Loan Bank stock (17,200) (57,700)
Purchases of office properties and equipment (78,537) (977,398)
------------ ------------
Net cash used for investing activities (8,411,356) (4,839,443)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease)in deposits (1,462,789) 5,594,402
Proceeds from sale of common stock 9,485,274 -
Proceeds from advances
from Federal Home Loan Bank 3,379,658 541,681
Net change in advances for taxes and insurance (52,531) (33,425)
------------ ------------
Net cash provided by financing activities 11,349,612 6,102,658
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Increase (decrease) in cash and cash equivalents 4,881,813 1,761,615
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,016,583 3,139,383
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CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 8,898,396 $ 4,900,998
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 2,984,901 $ 2,841,979
Income taxes 87,500 174,800
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
6
<PAGE>
ADVANCE FINANCIAL BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Advance Financial Bancorp (the
"Company"), includes its wholly-owned subsidiary, Advance Financial Savings
Bank (the"Bank"), and its wholly-owned subsidiary, Advance Financial Service
Corporation of West Virginia. All significant intercompany balances and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore,
do not necessarily include all information that would be included in audited
financial statements. The information furnished reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results of operations. All such adjustments are of a normal recurring nature.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the fiscal year ended June 30,
1997.
These statements should be read in conjunction with the consolidated
statements as of and for the year ended June 30, 1996 and related notes which
are included on Form S-1 (file no. 333-13021).
NOTE 2 - CONVERSION TO A STOCK FORM OF OWNERSHIP AND FORMATION OF HOLDING
COMPANY
On September 3, 1996, the Board of Directors of the Bank approved a plan of
conversion whereby the Bank was to convert from a federally chartered mutual
Bank to a federally chartered stock savings bank and simultaneously
reorganized into a holding company form of organization (collectively, the
"Conversion"). After approval by the regulatory authorities and the Bank's
members, the Conversion was completed on December 31, 1996. As a result of
this transaction, the Company was formed and the Bank became a wholly-owned
subsidiary of the Company.
In connection with the Conversion on December 31, 1996, the Company completed
the sale of 1,084,450 shares of stock at $10.00 per share. From the
proceeds, $108,445 was allocated to common stock based on a par value of
$.10 per share and $10,207,689, which is net of conversion costs of
$528,366, was allocated to additional paid in capital.
Additionally, as a condition of the Conversion, the Bank may not pay a
dividend to the Company in excess of the Bank accumulated net earnings after
any required transfer to surplus and only if the Bank's surplus would not be
reduced by payment of such dividend.
NOTE 3 - PENDING ACCOUNTING STANDARDS
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share." Statement No.
128 will become effective for the Corporation beginning in 1998. This
statement re-defines the standards for computing earnings per share (EPS)
previously found in Accounting Principals Board Opinion No. 15, Earnings Per
Share. Statement No. 128 establishes new standards for computing and
presenting EPS and requires dual presentation of "basic" and "diluted" EPS on
the face of the income statement for all entities with complex capital
structures. Under Statement No. 128, basic EPS is to be computed based upon
income available to common shareholders and the weighted average number of
common shares outstanding for the period. Diluted EPS is to reflect 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 Corporation.
Statement No. 128 also requires the restatement of all prior-period EPS data
presented. The Corporation will adopt Statement No. 128 for all periods ending
after December 15, 1997 and based on current estimates, does not believe the
effect on adoption will have a significant impact on the Corporation's
financial position or results of operations.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND JUNE 30, 1996
On September 3, 1996, the Board of Directors of the Bank approved a plan of
conversion whereby the Bank was to convert from a federally chartered mutual
Bank to a federally chartered stock savings bank and simultaneously
reorganized into a holding company form of organization (collectively, the
"Conversion"). After approval by the regulatory authorities and the Bank's
members, the Conversion was completed on December 31, 1996 and as a result,
the holding company was formed (the "Company") and the Bank became a
wholly-owned subsidiary of the Company. In connection with the Conversion on
December 31, 1996, the Company completed the sale of 1,084,450 shares (the
"Offering") at $10 per share and receive net proceeds of approximately
$9,449,000. The Company transferred approximately $5,158,000 of the net
proceeds to Bank for the purchase of all of the capital stock of the Bank. In
addition, $868,000 was loaned to ESOP for the purchase of shares in the
Offering.
Total assets increased by approximately $11,726,000 to $103,578,000 at March
31, 1997 from $91,852,000 at June 30, 1996. The increase in assets was
directly attributable to the Offering. Total cash and cash equivalents
increased by $4,882,000 to $8,898,000 at March 31, 1997 from $4,016,000 at
June 30, 1996. This increase represented the inflow of cash associated with
the subscription of orders received for the purchase of Common Stock in the
Offering.
Investment securities increased $1,054,000, from $4,868,000 at June 30, 1996
to $5,922,000 at March 31, 1997. This increase was in the held to maturity
classification, as all investment purchases made during this nine month
period were classified as held to maturity. These securities have maturities
which range from one to five years.
Net loan receivables increased from $78,941,000 at June 30, 1996 to
$84,797,000 at March 31, 1997, or approximately $6,036,000. The net increase
was primarily attributable to the increase in non-residential mortgages of
$1.6 million and $2.1 million in consumer loans and consumer lines of credit,
and offset by the sale of one to four family mortgages of $1.4 million.
Such increases primarily reflected the economic health of the Bank's market
area and the competitive pricing of the Bank's loan product. The funding of
the loan growth was mainly provided by increases in FHLB borrowings of
$3.4 million and the receipt of proceeds from the sales of loans of
$1.4 million.
Deposits decreased approximately $1,463,000 to $79,308,000 at March 31, 1997
from $80,771,000 at June 30, 1996. This decrease primarily represents funds
withdrawn by depositors which were used to purchase stock in the Offering.
The decrease in deposits was offset by the Bank offering a new money market
product for balances greater than $10,000 at a preferential rate which
generated $2.9 million in deposits.
8
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31,
1997 AND 1996
Net income declined 17.4%, or $60,000, to $284,000 for the nine months ended
March 31, 1997 from $344,000 for the same nine months ended March 31, 1996.
Net interest income increased $448,000 or 21.7%, to $2,516,000 for the nine
months ended March 31, 1997 compared to $2,068,000 for the nine months ended
March 31, 1996. The increase in interest income resulted primarily from an
increase in earnings on loans of $421,000 or 9.2%, interest-bearing deposits
in other institutions of $138,000 or 147.0%, and investment securities of
$65,000 or 40.2%. These increases, which were due to an increase in the
average principal balances of $6.9 million, $3.2 million and $.7 million
respectively, were funded by proceeds from the Offering and advances from
FHLB. In addition, the yield on investments increased from 5.6% for the nine
months ended March 31, 1996 to 6.5% for the same nine month period ended
March 31, 1997. This increase was the result of a combination of changing
the mix of securities by increasing the investments in U.S. Government
securities and a slight upturn in rates.
For the nine months ended March 31, 1997, interest expense increased $155,000
or 5.5% from $2,841,000 for the same period in 1996 to 2,996,000 in 1997. The
increase was primarily due to the average volume of interest-bearing
liabilities increasing $6.8 million from $79.9 million as of March 31, 1996
to $86.8 million as of March 31, 1997.
The average volume of deposits increased $3.1 million or 4.0% during the
nine months ended March 31, 1997 from $76.9 million as of March 31, 1996 to
$80.0 million as of March 31, 1997. The Bank has been aggressive in
marketing new deposit products with the opening of the Follansbee branch
office in December 1995. The Bank also believes it has benefited by the
funds deposited by the customers of the local institutions who become
frustrated due to higher fees and less personalized service following larger
bank mergers.
There was an increase in interest expense on advances from FHLB of $163,000 or
130.4% which is the result of an increase in the average principal balance
coupled with an increase in the cost of borrowed funds. The average principal
balance increased $3.7 million, or 122.6%, from $3.1 million as of March 31,
1996 to $6.8 million as of March 31, 1997. The increase in the cost to borrow
funds rose from 5.47% as of March 31, 1996 compared to 5.65% as of March 31,
1997, or 3.3%. The Bank has utilized these borrowings to fund their recent
loan growth.
Based upon management's continuing evaluation of the adequacy of the allowance
for loan losses which encompasses the overall risk characteristics of the
various portfolio segments, past experience with losses, the impact of
economic conditions on borrowers, and other relevant factors, the provision
for loan losses decreased by $97,000 for the nine months ended March 31, 1997
compared to the same period ended 1996. See "Risk Elements".
Noninterest income which is comprised principally of service charges on
deposit accounts increased $53,000 or 28.5% to $240,000 as of March 31, 1997
from $187,000 as of March 31, 1996. Service charges on deposit accounts
increased $29,000 or 20.6%, due to the increase in the volume and number of
deposit accounts. In addition, during the second half of 1996, the Bank began
a new program to sell fixed rate mortgage loans which resulted in gains on the
sale of loans of $23,000.
Noninterest expense increased $680,000 or 43.1% to $2,259,000 as of March 31,
1997 from $1,579.000 as of March 31, 1996. This increase is largely
attributed to a one time charge of $470,000 in federal insurance premiums. On
September 30, 1996, the President signed into law legislation which included
the recapitalization of the Savings Association Insurance Fund ("SAIF") of
the Federal Deposit Insurance Corporation by a one time charge to
SAIF-insured institutions of 65.7 basis points per one hundred dollars of
insurable deposits. A reduced level of insurance premiums is anticipated in
future periods as a result of this one-time charge.
Compensation and benefits increased $67,000 or 10.2%, due to the hiring of
new employees to further diversify the Bank's operations to meet continually
changing customer demands. Occupancy and equipment expense increased
$61,000 or 34.5% primarily due to increases in depreciation on furniture and
equipment relating to the opening of the Follansbee, West Virginia branch in
December 1995. Other noninterest expense increased by $66,000 due to general
overall increases in all expenses. The most significant increase related to
the cost of servicing Now accounts due to the increase volume in the number
of accounts.
Income tax expense decreased $22,000 or 10.6% during the nine months ended
March 31, 1997 compared to the same nine month period 1996, due to lower levels
of pre-tax income.
9
<PAGE>
COMPARISON OF THE RESULTS OF THE OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
Net income increased 42.3%, or $68,000, to $229,000 for the three months ended
March 31, 1997 from $161,000 for the same three months ended March 31, 1996.
Net interest income increased $238,000 from $711,000 for the three months
ended March 31, 1996 to $949,000 for the same period ended March 31, 1997.
This 33.4% increase is primarily attributed to a greater increase in the
average balance of interest-earning assets of 16.1%, over interest-bearing
liabilities of 4.6%. The average balances for loans and interest-bearing
deposits with other institutions increased $7.8 million or 10.2%, and $5.4
million or 164.2%, respectively. The yield on interest-bearing deposits in
other institutions increased 50 basis points(100 basis points equals 1%) from
5.6% as of March 31, 1996 to 6.1% as of March 31, 1997, while the yield on
loans remained virtually unchanged at approximately 8.1%. The increase in
interest income was offset somewhat by the $59,000 or 126.0% increase on
interest on advances from FHLB. The average balance for advances from FHLB
rose $4.4 million or 129.0%, to $7.8 million as of March 31, 1997 from $3.4
million as of March 31, 1996. As previously noted, this increase was
necessary to fund loan growth during this period.
Provision for loan losses for the three months ended March 31, 1997 was
$11,000. This increase is attributed to management's continual monitoring of
the quality of the loan portfolio.
Noninterest income increased $11,000, which is primarily due to $7,000 on
gains on sale of loans and $7,000 on increased volume of service charges on
deposit accounts while partially offset by smaller declines in other income
accounts.
There was an increase of $116,000 or 22.0% in noninterest expense from
$528,000 as of March 31, 1996 to $644,000 as of March 31, 1997. As noted
previously, the $45,000 or 21.2% increase in compensation and benefits is due
to the hiring of new employees to further diversify the Bank's operations.
Furthermore, other noninterest expense increased by $60,000 due to general
overall increases in all expenses with the most notable being an increase
related to the servicing cost of Now accounts due to the increased volume in
the number of accounts. The overall increase in noninterest expense was
offset by a decline in deposit insurance premiums of $31,000 or 70.6%. This
decrease is attributed to the overall reduction of insurance premiums within
the industry.
Income taxes increased from $88,000 for the three months ended March 31, 1996
to $141,000 for the three months ended March 31, 1997, as a result of an
increase in pre-tax income of $121,000 or 48.8%.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan repayments are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. In addition,
the Savings Bank invests excess funds in overnight deposits which provide
liquidity to meet lending requirements.
The Savings Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include a flex line of credit with the
Federal Home Loan Bank ("FHLB") of Pittsburgh amounting to $4.8 million. As
of March 31, 1997, the Savings Bank had outstanding advances from the FHLB of
$7,765,000.
As of March 31, 1997, the Savings Bank did not have any outstanding
commitments.
Management monitors both the Company's and the Savings Bank's total
risk-based, Tier I risk-based and Tier I leverage capital ratios in order to
assess compliance with regulatory guidelines. At March 31, 1997, both the
Company and the Savings Bank exceeded the minimum risk-based and leverage
capital ratios requirements. The Company's and Savings Bank's total
risk-based, Tier I risk-based and Tier I leverage ratios are 26.03, 25.46,
15.44% and 19.12%, 18.55%, 11.25%, respectively at March 31, 1997.
10
<PAGE>
RISK ELEMENT
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days or more past due, other
real estate loans, and repossessed assets. A loan is classified as nonaccrual
when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest
is discontinued, future income is recognized only when cash is received.
Renegotiated loans are those loans which terms have been renegotiated to
provide a reduction or deferral of principal or interest as a result of the
deterioration of the borrower.
March 31, June 30,
1997 1996
--------- ---------
(dollars in thousands)
Loans on nonaccrual basis $ 384 $ 139
Loans past due 90 days or more - 303
Renegotiated loans - -
--------- ---------
Total nonperforming loans 384 442
--------- ---------
Nonperforming loans as a percent of total loans 0.45% 0.55%
====== ======
Nonperforming assets as a percent of total assets 0.37% 0.48%
====== ======
Allowance for loan losses to nonperforming loans 89.84% 73.53%
====== ======
At March 31, 1997 and 1996, no real estate or other assets were held as
foreclosed or repossessed property.
Management monitors impaired loans on a continual basis. As of March 31,
1997, impaired loans had no material effect on the company's financial
position or results of operations.
During the nine month period ended March 31, 1997, loans increased $6,036,000
and nonperforming loans decreased $58,000 while the allowance for loan losses
increased $20,000 for the same period. The percentage of allowance for loan
losses to loans outstanding remained .4% during this time period.
Nonperforming loans are primarily made up of one to four family residential
mortgages. The collateral requirements on such loans reduce the risk of
potential losses to an acceptable level in management's opinion.
Management believes the level of the allowance for loan losses at March 31,
1997 is sufficient; however, there can be no assurance that the current
allowance for loan losses will be adequate to absorb all future loan losses.
The relationship between the allowance for loan losses and outstanding loans
is a function of the credit quality and known risk attributed to the loan
portfolio. The on-going loan review program and credit approval process is
used to determine the adequacy of the allowance for loan losses.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NONE
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
NONE
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advance Financial Bancorp
Date: April 16, 1997 By:\s\ Stephen M. Gagliardi
--------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
By:\s\ Noreen Mechling
--------------------------------------
Noreen Mechling
Chief Financial Officer and Treasurer
13
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