<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 December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
------------ ------------
Commission File Number 0-21885
--------------------------------
Advance Financial Bancorp
--------------------------------------
(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
------------------------------------------
(Address of principal executive offices)
(304) 737 - 3531
------------------------------------------
(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 February 2, 1998: 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
December 31, 1997 and June 30, 1997 3
Consolidated Statement of Income (Unaudited)
for the Six Months ended December 31, 1997 and 1996 4
Consolidated Statement of Income (Unaudited)
for the Three Months ended December 31, 1997 and 1996 5
Consolidated Statement of Cash Flows (Unaudited)
for the Six Months ended December 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Recent Developments 8-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and amounts due from banks $ 1,155,364 $ 903,981
Interest-bearing deposits with other institutions 3,824,637 5,888,439
------------- -------------
Total cash and cash equivalents 4,980,001 6,792,420
Investment Securities:
Securities held to maturity (fair value
of $4,508,469 and $7,831,187) 4,494,886 7,844,305
Securities available for sale 49,845 55,051
------------- -------------
Total investment securities 4,544,731 7,899,356
Mortgage-backed securities held to maturity
(fair value of $390,875 and $394,743) 362,264 367,553
Loans receivable, (net of allowance for loan losses
of $328,607 and $367,779) 94,349,721 86,067,848
Office properties and equipment, net 2,352,987 2,055,651
Federal Home Loan Bank Stock, at cost 576,700 576,700
Accrued interest receivable 693,831 655,667
Other assets 171,737 148,184
------------- -------------
TOTAL ASSETS $108,031,972 $104,563,379
============= =============
LIABILITIES
Deposits $81,227,291 $80,069,078
Advances from Federal Home Loan Bank 9,729,699 7,747,449
Advances from borrowers for taxes and insurance 182,117 186,738
Accrued interest payable and other liabilities 449,711 435,069
------------- -------------
TOTAL LIABILITIES 91,588,818 88,438,334
------------- -------------
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 108,445 108,445
Additional paid - in capital 10,249,065 10,221,528
Retained Earnings - substantially restricted 6,843,630 6,597,836
Net unrealized loss on securities (5,921) (6,569)
Unearned Employee Stock Ownership Plan shares (ESOP) (752,065) (796,195)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 16,443,154 16,125,045
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,031,972 $ 104,563,379
============= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 3,752,359 $ 3,293,431
Investment securities 220,955 149,974
Interest-bearing deposits with other institutions 116,887 107,223
Mortgage-backed securities 16,883 21,066
Dividends on Federal Home Loan Bank Stock 18,540 17,504
------------ ------------
Total interest and dividend income 4,125,624 3,589,198
------------ ------------
INTEREST EXPENSE
Deposits 1,881,300 1,838,064
Advances from Federal Home Loan Bank 235,036 183,167
------------ ------------
Total interest expense 2,116,336 2,021,231
------------ ------------
NET INTEREST INCOME 2,009,288 1,567,967
Provision for loan losses 46,365 17,384
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,962,923 1,550,583
------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 125,199 113,542
Gain on sale of loans 45,933 15,576
Other income 42,347 42,867
------------ ------------
Total noninterest income 213,479 171,985
------------ ------------
NONINTEREST EXPENSE
Compensation and employee benefits 642,840 469,784
Occupancy and equipment 181,355 126,392
Deposit insurance premiums 26,291 551,602
Professional fees 115,056 46,667
Advertising 59,208 47,860
Data processing charges 145,485 129,192
Other expenses 339,166 252,321
------------ ------------
Total noninterest expense 1,509,401 1,623,818
------------ ------------
Income before income taxes 667,001 98,750
Income taxes 246,781 43,881
------------ ------------
NET INCOME $ 420,220 $ 54,869
============ ============
EARNINGS PER SHARE $.42 -
WEIGHTED AVERAGE SHARES OUTSTANDING 1,006,665 -
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $ 1,938,596 $ 1,669,547
Investment securities 89,524 69,797
Interest-bearing deposits with other institutions 55,278 77,920
Mortgage-backed securities 8,420 9,574
Dividends on Federal Home Loan Bank Stock 9,273 8,538
------------ ------------
Total interest and dividend income 2,101,091 1,835,306
------------ ------------
INTEREST EXPENSE
Deposits 946,476 932,268
Advances from Federal Home Loan Bank 124,409 109,651
------------ ------------
Total interest expense 1,070,885 1,041,919
------------ ------------
NET INTEREST INCOME 1,030,206 793,387
Provision for loan losses 30,694 14,384
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 999,512 779,003
------------ ------------
NONINTEREST INCOME
Service charges on deposit accounts 67,456 56,334
Gain on sale of loans 25,676 8,533
Other income 25,017 24,234
------------ ------------
Total noninterest income 118,149 89,101
------------ ------------
NONINTEREST EXPENSE
Compensation and employee benefits 336,696 240,697
Occupancy and equipment 96,016 74,165
Deposit insurance premiums 13,141 36,009
Professional fees 52,416 23,309
Advertising 24,324 18,810
Data processing charges 71,481 62,058
Other expenses 203,387 109,278
------------ ------------
Total noninterest expense 797,461 564,326
------------ ------------
Income before income taxes 320,200 303,778
Income taxes 104,542 99,477
------------ ------------
NET INCOME $ 215,658 $ 204,301
============ ============
EARNINGS PER SHARE $ .21 $ -
WEIGHTED AVERAGE SHARES OUTSTANDING 1,008,112 -
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 420,220 $ 54,869
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 83,422 70,473
Provision for loan losses 46,365 17,384
Amortization of unearned ESOP 71,667 -
Origination of loans held for sale (2,305,678) -
Proceeds from sale of loans 2,351,611 1,129,143
Decrease (increase) in other assets and liabilities (60,819) 47,450
------------ ------------
Net cash provided by operating activities 2,606,788 1,319,319
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities of held to maturity
securities 4,350,000 1,750,000
Purchases of held to maturity securities (1,000,000) -
Principal collected on available for sale securities 6,188 6,684
Principal collected on mortgage - backed securities 5,294 121,826
Net increase in loans (8,374,171) (5,880,872)
Purchases of office properties and equipment (381,344) (90,860)
------------ ------------
Net cash used for investing activities (5,394,033) (4,093,222)
------------ ------------
FINANCING ACTIVITIES
Net increase (decrease)in deposits 1,158,213 (4,654,311)
Proceeds from sale of common stock - 9,485,274
Proceeds (repayments)from advances 1,982,250 3,388,179
from Federal Home Loan Bank
Dividends paid (161,016) -
Net change in advances for taxes and insurance (4,621) (11,395)
------------ ------------
Net cash provided by financing activities 2,974,826 8,207,747
------------ ------------
Decrease in cash and cash equivalents (1,812,419) 5,433,844
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 6,792,420 4,016,583
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 4,980,001 $ 9,450,427
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposits and borrowings $ 2,108,190 $ 1,985,409
Income taxes 192,000 87,500
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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,
1998.
These statements should be read in conjunction with the consolidated
statements as of and for the year ended June 30, 1997 and related notes which
are included on the Form 10-KSB (file no. 0-21885).
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." This statement
redefines the standards for computing earnings per share (EPS) previously
found in Accounting Principles Board opinion No. 15, Earnings Per Share.
Statement 128 establishes new standards for computing and presenting EPS and
requires dual presentation of "basic" and "diluted" EPS on the face of income
statement for all entities with complex capital structures. Under Statement
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 exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. Statement 128 also requires the
restatement of all prior-period EPS data presented. The Company currently
maintains a simple capital structure, thus there are no dilutive effects on
earnings per share.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE 30, 1997
- -------------------------------------------------------------------------
Total assets increased by approximately $3,469,000 to $108,032,000 at December
31, 1997 from $104,563,000 at June 30, 1997. Interest-bearing deposits with
other institutions decreased $2,064,000 to $3,825,000 at December 31, 1997
from $5,888,000 at June 30, 1997. This decrease was used primarily to
supplement the growing loan demand within the bank's market area.
Investment securities decreased $3,355,000 or 42.5% from $7,899,000 at June
30, 1997 to $4,545,000 at December 31, 1997. This decrease in the U.S.
Government securities held to maturity classification was the result of
approximately $3.6 million in securities being called during the six month
period. Management replaced only $1 million of these type investment
securities with similar instruments with maturities ranging from three to six
years and used the remaining proceeds to satisfy loan demand.
Net loan receivables increased $8,282,000 or 9.6% from $86,068,000 at June 30,
1997 to $94,350,000 at December 31, 1997. There were increases in residential
mortgages of $4,428,000, non-residential mortgages of $2,140,000 and $986,000
in participation loans. 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 the means
discussed above, specifically the usage of interest-bearing deposits with
other institutions and the maturity of investment securities. To a lesser
extent, increased borrowings with the Federal Home Loan Bank of $1,982,000
also contributed to this funding.
Net office properties and equipment increased 14.5% or $297,000 from
$$2,056,000 at June 30, 1997 to $2,353,000 at December 31, 1997. This is
directly related to preparation for the new branch opening in Wintersville,
Ohio.
Deposits increased slightly by $1,158,000 to $81,227,000 at December 31, 1997
from $80,069,000 at June 30, 1997. This increase primarily represents deposits
accumulated via a new money market product for balances greater than $10,000
offered at a preferential rate which has grown to $6,459,000. Customer
preference to this new product is exhibited by a decline in savings accounts
which has offset the growth of this new product.
Equity capital increased by $318,000 for the six months ended December 31,
1997, as a result of net income of $420,000 and recognition of shares in the
Employee Stock Ownership Plan amounting to $72,000. Cash dividends paid of
approximately $161,000 reduced the impact of these other events. Future
dividend policies will be determined by the Board of Directors in light of the
earnings and financial condition of the Company, including applicable
governmental regulations and policies.
8
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
- ------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996
- ---------------------------
Net interest income increased $441,000 or 28.1%, to $2,009,000 for the six
months ended December 31, 1997 compared to $1,568,000 for the six months ended
December 30, 1996. The increase in interest income resulted primarily from an
increase in earnings on loans of $459,000 or 13.9% and investment securities
of $71,000 or 47.3%. These increases, which were due to an increase in the
average principal balances of $9,472,000 for loans and $1,890,000 for
investment securities were funded by proceeds from the sale of common stock in
December 1996 and advances from FHLB. The yield on investments increased from
6.7% for the six months ended December 31, 1996 to 7.1% for the same period
ended December 31, 1997. This increase was the result of a combination of a
slight increase in rates coupled with the maturing of $3.6 million of lower
yielding U.S. Government obligations.
Interest expense increased $95,000 or 4.7% from $2,021,000 for the six months
ended December 31, 1996 to $2,116,000 for the same period ended 1997. The
increase was primarily due to the average volume of interest-bearing
liabilities of $6,252,000 due to the marketing of a new money market deposit
product amounting to $6,460,000 coupled of with an increase in the average
balance of advances from the FHLB of $1,501,000. This was offset by a decline
in the average balance of savings deposits of $1,968,000, as customers
preferred the advantages of the new deposit product, as well as a decline the
cost of funds from 4.7% for the six months ended December 31, 1996 to 4.6% for
the same period ended December 31, 1997.
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 increased by $29,000 for the six months ended December 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 $41,000 or 24.1% to $213,000 as of December 31,
1997 from $172,000 as of December 31, 1996. Service charges on deposit
accounts increased from $114,000 as of December 31, 1996 to $125,000 as of
December 31, 1997 driven by an increase in volume. In addition, during the
second half of 1996, the Bank began a new program to sell fixed rate mortgage
loans which resulted in an increase on gains on the sale of loans of $30,000.
Noninterest expense decreased $114,000 or 7.0% to $1,509,000 as of
December 31, 1997 from $1,624,000 as of December 31, 1996. This decrease is
largely attributed to a one time charge of $470,000 in federal insurance
premiums in the first quarter of 1996. 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 $173,000 or 36.8%, due to the hiring of
new employees to further diversify the Bank's operations to meet continually
changing customer demands, as well as an increase of $75,000 attributable to
Employee Stock Ownership Plan. Professional fees increased by $68,000 to
$115,000 as of December 31, 1997 compared to $47,000 for December 31, 1996 due
to an increase in services for compliance with regulatory requirements and
employee benefit plans. Occupancy and equipment increased $55,000 from
$126,000 as of December 31, 1996 to $181,000 as of December 31, 1997 due
primarily to an increase in depreciation expense for equipment. Other
noninterest expense increased by $87,000 due to the addition of franchise
taxes for the six months ended December 31, 1997 coupled with general overall
increases in all expenses.
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered ( common programming
practice in earlier years) are expected to read entries for the year 2000 as
the year 1900 and compute payment, interest, or delinquency based on the wrong
date or are expected to unable the compute payment, interest, or delinquency.
Rapid and accurate data processing is essential to our operations. Data
processing is also essential to most other financial institutions and many
other companies.
All of our material data processing that could be affected by this problem is
provided by a third party service bureau. Our service bureaus has advised us
that it expects to resolve this potential problem before the year 2000.
However, if this potential problem is not resolved before the year 2000, we
would likely experience significant data processing delays, mistakes, or
failures. The delays, mistakes, or failures could have a significant adverse
impact on our financial condition and our results of operations.
Income tax expense increased $203,000 to $247,000 for the six months ended
December 31, 1997 compared to $44,000 for the same period ended
December 31, 1996 due to the higher level of pre-tax income.
9
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- ------------------------------------------------------------------
DECEMBER 31, 1997 AND 1996
- ---------------------------
Net interest income increased $237,000 or 29.5%, over 1996. This increase is
due to an increase in average interest earning assets over interest bearing
liabilities of $6,249,000 due to an increase in loan demand within the Bank's
market area. Furthermore, the interest rate spread increased from 3.2% as of
December 31, 1996 to 3.6% as of December 31, 1997 which resulted primarily
from an increase in rates on loans coupled with a decline in rates on interest
bearing demand deposits.
Interest expense increased slightly as a result of average interest bearing
demand deposits increasing while being offset by a $1,695,000 decline in average
savings deposits and a 17 basis point in the cost of funds. These fluctuations
were primarily due to the marketing of a new deposit product and the competitive
interest rate environment within the Bank's market area.
Provision for loan losses increased $16,000 to $30,694 for the three months
ended December 31, 1997 compared to $14,000 for the same period ended December
31, 1996. This increase is derived from management's continual monitoring of
the quality of its loan portfolio and its determination of the adequacy of the
allowance for loan losses.
Noninterest income increased $29,000 to $118,000 for the six months ended
December 31, 1997 from $89,000 for the same period ended December 31, 1997.
This increase is primarily due to gains on sale of fixed rate mortgage loans
of $17,000 and an increase in volume of service charges on deposit accounts of
$11,000.
Noninterest expense increased $233,000 or 41.3% to $797,000 for the six months
ended December 31, 1997 compared to $564,000 for the same period ended
December 31, 1996. There were increases of $96,000 to compensation and
employee benefits $29,000 to professional fees and $94,000 to other
noninterest expense for those same reasons as discussed previously.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The 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 Bank has other sources of liquidity if a need for additional funds arises.
Additional sources of funds include a flex line of credit and a RepoPlus line
of credit with the Federal Home Loan Bank ("FHLB") of Pittsburgh amounting to
$4.8 million and $10 million, respectively. In addition, as of December 31,
1997, the Bank had outstanding advances from the FHLB of $9,730,000.
As of December 31, 1997, the Company has commitments to fund loans of
approximately $2,152,000 as a direct result of the economic health of the
Bank's market area and the competitive pricing of the Bank's loan products.
Management monitors both the Company's and the Bank's total risk-based, Tier I
risk-based and Tier I leverage capital ratios in order to assess compliance
with regulatory guidelines. At December 31, 1997, both the Company and the
Bank exceeded the minimum risk-based and leverage capital ratios
requirements. The Company's and Bank's total risk-based, Tier I risk-based
and Tier I leverage ratios are 23.6%, 23.2%, 15.5%, and 17.9%, 17.5%, and
11.7% respectively at December 31, 1997.
11
<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.
December 31, June 30,
1997 1997
--------- ---------
(dollars in thousands)
Loans on nonaccrual basis $ 850 $ 155
Loans past due 90 days or more and still accruing 338 453
--------- ---------
Total nonperforming loans 1,188 608
--------- ---------
Nonperforming loans as a percent of total loans 1.26% 0.70%
====== ======
Nonperforming assets as a percent of total assets 1.10% 0.58%
====== ======
Allowance for loan losses to nonperforming loans 27.69% 60.53%
====== ======
At December 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 December 31,
1997, impaired loans had no material effect on the company's financial
position or results of operations.
During the six month period ended December 31, 1997, loans increased
$8,282,000 and nonperforming loans increased $580,000 while the allowance for
loan losses decreased $39,000 for the same period. The percentage of
allowance for loan losses to loans outstanding declined slightly to .3% as of
December 31, 1997 compared to .4% as of December 31, 1996. 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 December 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.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal proceedings
From time to time, the Company and its subsidiary may be a party to
various legal in the ordinary course of business. At December 31, 1997 there
were no legal proceedings of a material nature.
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
N/A
Item 4 - Submission of matters to a vote of security holders
On October 28, 1997, at its Annual Meeting of Stockholders, the Compar
announced that the following proposals were ratified:
Election of Directors
Directors elected to the Board: Stephen M. Gagliardi for a term of
three years, expiring in 2000. There were 906,560 affirmative votes
and 1,400 votes withheld. James R. Murphy for a term of three years,
expiring in 2000. There were 904,560 affirmative votes and 3,400
votes withheld. William B. Chesson for a term of three years,
expiring in 2000. There were 901,460 affirmative votes and 6,500
votes withheld. Other directors of the Company consist of Gary
Young (term expiring in 1998), George H. Hohnson (term expiring in
1998), William E. Watson (term expiring in 1998), and John R.
Sperlazza (term expiring in 1999).
Ratification of Selection of Independent Public Accountants
The ratification of the appointment of S.R. Snodgrass, A.C. as the
Company's independent public accountants for the year ending June 30,
1998. There were 846,560 affirmative votes and 61,400 negative votes.
The number of votes abstaining were 1,000.
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) List of exhibits:
3(i) Certificate of Incorporation of Advance Financial Bancorp*
3(ii) Bylaws of Advance Financial Bancorp*
4(i) Specimen Stock Certificate*
4(ii) Shareholders Right Plan**
10 Employment Agreement between the Bank and Stephen M.
Gagliardi***
27 Financial Data Schedule (electronic filing only)
- -----------------------
* Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-13021) declared effective by the SEC on November 12, 1996
** Incorporated by reference to the Form 8-K (File No. 0-21885) filed
July 17, 1997.
*** Incorporated by reference to the June 30, 1997 Form 10-KSB
(File No. 0-21885) filed September 23, 1997.
13
<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: February 12, 1998 By:\s\ Stephen M. Gagliardi
--------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,155
<INT-BEARING-DEPOSITS> 3,825
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50
<INVESTMENTS-CARRYING> 4,495
<INVESTMENTS-MARKET> 4,508
<LOANS> 94,350
<ALLOWANCE> 329
<TOTAL-ASSETS> 108,032
<DEPOSITS> 91,589
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 632
<LONG-TERM> 8,730
0
0
<COMMON> 108
<OTHER-SE> 16,355
<TOTAL-LIABILITIES-AND-EQUITY> 108,032
<INTEREST-LOAN> 3,752
<INTEREST-INVEST> 256
<INTEREST-OTHER> 117
<INTEREST-TOTAL> 4,126
<INTEREST-DEPOSIT> 1,881
<INTEREST-EXPENSE> 2,116
<INTEREST-INCOME-NET> 2,009
<LOAN-LOSSES> 46
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,509
<INCOME-PRETAX> 667
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 420
<EPS-BASIC> .42
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.96
<LOANS-NON> 850
<LOANS-PAST> 338
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 368
<CHARGE-OFFS> 100
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 329
<ALLOWANCE-DOMESTIC> 329
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
