United States Securities and Exchange Commission
Washington, D.C. 20552
FORM 10QSB
{x} QUARTERLY REPORT UNDER SECTION 13 OF 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCAHANGE
ACT
For the transition period from to
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Commission file Number 0-21885
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Advance Financial Bancorp
-------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0753533
- ------------- ----------
(State or 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
subjected to such filing requirements for the past 90 days. Yes x No
--- ---
State the number of shares outstanding for 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 November 9, 1999: 952,285
<PAGE>
Advance Financial Bancorp
Index
Page
Number
------
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet ( Unaudited) as of
September 30, 1999 and June 30, 1999 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months ended September 30, 1999 and 1998 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 7-12
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>
SEPTEMBER 30, JUNE 30,
1999 1999
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<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and amounts due from banks $ 1,193,812 $ 1,395,704
Interest bearing deposits with other institutions 1,800,118 2,964,166
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Total cash and cash equivalents 2,993,930 4,359,870
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Investment securities:
Securities held to maturity (fair value of $1,210,260 and $970,914) 1,249,453 999,896
Securities available for sale 8,892,306 4,481,475
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Total investment securities 10,141,759 5,481,371
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Mortgaged-backed securities:
Securities held to maturity (fair value of $2,335,524 and $2,456,645) 2,357,928 2,472,681
Securities available for sale 1,698,875 1,832,845
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Total mortgage-backed securities 4,056,803 4,305,526
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Loans receivable, (net of allowance for loan losses
of $606,084 and $582,280 ) 114,414,775 109,899,551
Office properties and equipment, net 4,119,000 4,084,793
Federal Home Loan Bank Stock, at cost 629,500 629,500
Accrued interest receivable 767,164 664,058
Other assets 445,783 501,967
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TOTAL ASSETS $ 137,568,714 $ 129,926,636
============= =============
Liabilities:
Deposits $ 110,591,136 $ 105,338,770
Advances from Federal Home Loan Bank 11,500,000 9,000,000
Advance payments by borrowers for taxes and insurance 126,143 196,993
Accrued interest payable and other liabilities 397,627 397,421
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TOTAL LIABILITIES 122,614,906 114,933,184
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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 108,445 108,445
Additional paid in capital 10,321,328 10,316,719
Retained earnings - substantially restricted 7,741,200 7,623,733
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (576,077) (597,767)
Unallocated shares held by Restricted Stock Plan (RSP) (626,801) (682,357)
Treasury Stock (119,165 and 103,165 shares at cost) (1,824,590) (1,626,890)
Accumulated other comprehensive loss (189,697) (148,431)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,953,808 14,993,452
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,568,714 $ 129,926,636
============= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-3-
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $2,261,906 $2,044,794
Investment securities 132,187 27,305
Interest-bearing deposits with other institutions 53,701 120,083
Mortgage-backed securities 64,313 7,717
Dividends on Federal Home Loan Bank Stock 10,710 10,194
---------- ----------
Total interest and dividend income 2,522,817 2,210,093
---------- ----------
INTEREST EXPENSE
Deposits 1,169,344 1,078,636
Advances from Federal Home Loan Bank 145,390 124,734
---------- ----------
Total interest expense 1,314,734 1,203,370
---------- ----------
NET INTEREST INCOME 1,208,083 1,006,723
Provision for loan losses 37,500 37,500
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,170,583 969,223
---------- ----------
Service charges on deposit accounts 104,964 86,431
Gain on sale of loans 611 33,225
Other income 59,894 66,024
---------- ----------
Total noninterest income 165,469 185,680
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 456,540 430,705
Occupancy and equipment 161,841 140,726
Professional fees 32,510 37,621
Advertising 34,828 33,730
Data processing charges 90,169 85,518
Other expenses 219,342 196,897
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Total noninterest expenses 995,230 925,197
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Income before income taxes 340,822 229,706
Income taxes 135,725 94,877
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NET INCOME $ 205,097 $ 134,829
========== ==========
EARNINGS PER SHARE
Basic $ .23 $ 0.15
Diluted $ .23 $ 0.15
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
-4-
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net Income $205,097 $134,829
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 145,812 180,806
Provision for loan losses 37,500 37,500
Gain on sale of loans (611) (33,225)
Origination of loans held for sale (170,000) (1,839,749)
Proceeds from the sale of loans 170,611 2,772,324
Decrease in other assets and liabilities (1,973) (136,761)
---------------- -----------------
Net cash provided by operating activities 386,436 1,115,724
---------------- -----------------
INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases (249,453) (500,000)
Maturities and repayments - 1,000,000
Investment securities available for sale:
Purchases (4,467,656) -
Maturities and repayments 2,005 3,610
Mortgage-backed securities held to maturity:
Purchases - -
Maturities and repayments 114,076 3,911
Mortgage-backed securities available for sale:
Purchases - -
Maturities and repayments 126,063 -
Net increase in loans (4,552,724) (3,338,885)
Purchases of premises and equipment (120,873) (97,413)
---------------- -----------------
Net cash used in investing activities (9,148,562) (2,928,777)
---------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 5,252,366 3,721,389
Proceeds (Repayments) from advances from Federal Home Loan Bank 2,500,000 (1,000,000)
Net change in advances for taxes and insurance (70,850) (63,362)
Purchase of treasury stock (197,700) -
Cash dividends paid (87,630) (75,910)
---------------- -----------------
Net cash provided by financing activities 7,396,186 2,582,117
---------------- -----------------
(Decrease) increase in cash and cash equivalents (1,365,940) 769,064
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,359,870 9,084,193
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,993,930 $9,853,257
================ =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $1,309,940 $1,186,998
Income taxes $135,255 $155,000
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-5-
<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 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, 2000 or any other
interim period.
These statements should be read in conjunction with the consolidated statements
of and for the year ended June 30, 1999 and related notes which are included on
the Form 10-KSB (file no. 0-21885)
NOTE 2 - EARNINGS PER SHARE
The following table sets forth a reconciliation of the denominator of the basic
and dilutive earnings per share computation in accordance with SFAS No. 128.
<TABLE>
<CAPTION>
Three Months Ended
September 30
1999 1998
--------- ---------
<S> <C> <C>
Denominator:
Denominator for basic earnings per share
Weighted-average shares 906,441 955,418
Effect of dilutive securities:
Employee stock options -- --
------- -------
Dilutive potential common shares 906,441 955,418
Denominator;
Denominator for dilutive earnings per share adjusted
Weighted-average shares 906,441 955,418
======= =======
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
Other comprehensive income consists solely of unrealized gains and losses on
available for sale securities. For the three months ended September 30, 1999,
comprehensive income totaled $163,831.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes", "anticipates", "contemplates", "expects", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the ability to control costs
and expenses, and general economic conditions. Advance Financial Bancorp (the
"Company") undertakes no obligation to publicly release the results of any
revisions to those forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,1999 AND JUNE 30, 1999
- ------------------------------------------------------------------------
Total assets increased by approximately $7,642,000 to $137,568,714 at September
30,1999, from $129,926,636 at June 30, 1999. Deposits, which increased by
$5,252,000, were used to fund loan demand and purchases of investment
securities.
Interest-bearing deposits with other financial institutions decreased by
$1,164,000 to $1,800,118 at September 30, 1999, from $2,964,166 at June 30,
1999. This decrease was used primarily to purchase Federal Home Loan Bank
("FHLB") bonds classified as available for sale.
Investment securities available for sale increased by $4,411,000 to $8,892,306
at September 30, 1999 from $4,481,475 at June 30, 1999. This increase includes
approximately $1,970,000 in four FHLB bonds with callable options ranging from 3
months to 2 years and an effective weighted average interest rate of 7.45%. The
funding for these bonds came from the strong deposit growth and the use of
interest-bearing deposits with other financial institutions. The increase also
includes the purchase of a $2,500,000 15-year FHLB bond with a callable option
of 1-year and an effective interest yield of 8.10%. The funding for this bond
came from a FHLB advance that matures in one year and has an effective cost of
funds of 5.94%. Management placed these investments into this category for
liquidity purposes while maximizing interest yields in excess of the federal
overnight rates paid on interest-bearing demand deposits.
Net loans receivable increased by $4,515,000 to $114,414,775 at September 30,
1999, from $109,899,551 at June 30, 1999. The loan demand was spread over the
entire portfolio. Loans secured by 1-4 family residences increased by $2,300,000
due to demand for ARMs and the bank's "no fee" Equity Line of Credit program.
Multi-family residential loans increased by $932,000 due to strong loan demand
for the Company's competitively priced ARM products. Automobile loans increased
$600,000 due principally to increased loan activity written by automobile
dealership customers of the Company. Commercial loans increased by $517,000 due
principally to the addition of a new automobile dealership to the Company's
customer base. See "Risk Elements".
Deposits increased by $5,252,000 to $110,591,136 at September 30,1999 from
$105,338,770 at June 30, 1999. This increase is primarily the result of a
certificate of deposit special called "Advantage 2000" that offered above market
rates on certificates of deposit at 5.25% for 12 months and 5.50% for 18 months.
The "advantage" of this product is that the customers have a 10-day option at
the end of 1999 to redeem the certificate with no penalty. This successful
special was offered from June 20, 1999 to September 30, 1999. The Company
believes they will be able to retain these deposits during the option period by
continuing to offer the most competitive rates in their market area. Savings
deposits increased $427,000 while demand deposits decreased $472,000 for the
quarter. The demand deposit decrease was primarily the result of a decrease in
commercial checking of $1,278,000.
-7-
<PAGE>
Equity capital decreased by approximately, $40,000 to $14,953,808 at September
30, 1999 from $14,993,452 at June 30, 1999. Net income of $205,000 and the
recognition of shares in the Employee Stock Ownership Plan and Restricted Stock
Plan of $81,900, were offset by the payment of cash dividends of $87,600, a
increase in net unrealized loss on securities of $41,200 and the purchase of
16,000 shares of treasury stock for $197,700, or an average cost of $12.36 per
share.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
1999 AND 1998
- -------------
Net interest income increased $201,000 or 19.96%, to $1,208,000 for the three
months ended September 30, 1999, from $1,007,000 for the comparable period ended
1998. The increase in net interest income resulted primarily from an increase in
fluctuations of average volume of the underlying principle balances in interest
earning assets and liabilities. The net interest spread for the three months
ended September 30, 1999 increased to 3.29% from 3.15% for the comparable period
ended 1998. The average yield on interest earning assets decreased by 19 basis
points to 7.88% for the three months ended September 30, 1999, from 8.07% for
the comparable period ended 1998. The average cost of funds decreased by 33
basis points to 4.59% for the three months ended September 30, 1999 from 4.92%
for the comparable period ended 1998.
Interest income increased $313,000 or 14.15% primarily from an increase in
earnings on loans of $217,000 or 10.62%, as the average principle balance
increased $12,912,000 or 13.07%, to $111,734,000 for the period ended September
30, 1999, from $98,822,000 for the comparable 1998 period. Interest income on
investments and interest-bearing deposits with other financial institutions
increased approximately $96,000 or 57.84%, as average principal balances
increased $5,642,000 or 52.51% to $16,387,000 for the period ended September 30,
1999, from $10,745,000 for the comparable 1998 period.
Interest expense increased $112,000 or 9.25%, primarily from an increase in
interest on deposits of $91,000 or 8.4%, as the average balance increased
$15,867,000 or 17.9%, to $104,488,000 for the three months ended September 30,
1999, from $88,621,000 for the comparable 1998 period. Interest expense on
advances increased $21,000 or 16.56%, as the average balance increased
$1,083,000 or 11.81%, to $10,250,000 for the three months ended September 30,
1999, from $9,167,000 for the comparable 1998 period.
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 of loan
losses remained stable for the three months ended September 30, 1999,compared to
the same 1998 period. See "Risk Elements".
Noninterest income decreased $20,000 or 10.88%, to $166,000 for the three months
ended September 30, 1999 from $186,000 for the comparable period ended 1998.
This decrease is primarily due to the decrease in gains on sales of fixed rate
mortgage loans and related servicing rights of $33,000 and $26,000,
respectively. Offsetting these decreases, are increases in service charges on
deposit accounts and ATM income of $18,500 and $11,300, respectively, due to
increased activity.
Noninterest expense increased $70,000 or 7.57%, to $995,000 for the three months
ended September 30, 1999, from $925,000 for the comparable 1998 period. For the
three month period ended, compensation and employee benefits increased $26,000
or 6.04%, due to the hiring of additional employees and related benefits for
loan collection, accounting and data processing, as well as, additional costs of
living increases for all full time employees. Occupancy and equipment increased
$21,000 or 14.92% due primarily to the incurrence of real estate taxes for the
Wintersville branch of $7,400 and an increase in depreciation expense for
equipment of $11,000. Other expenses increased $22,400 or 11.38%, due mainly to
benefit costs in connection with the Company's directors of $6,100, as well as,
additional Ohio franchise tax of $8,000 due to the Wintersville branch.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are deposits, amortization and
prepayments of loans, maturities of investment securities, and funds provided
from operations. While scheduled loan prepayments are a relatively predicable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Company invests excess funds in overnight deposits, which provide liquidity to
meet lending requirements.
The Company has other sources of liquidity if the need for additional funds
arises. An additional source of funds includes a RepoPlus line of credit with
the Federal Home Loan Bank of Pittsburgh amounting to $10 million. The Company
currently has no outstanding amount due on the RepoPlus line of credit.
As of September 30, 1999, the Company had commitments to fund loans of
approximately $1,358,600. These loan commitments were funded in October 1999.
The Company has developed a cash and liquidity plan as a result of their year
2000 preparedness and contingency planning. The plan involves the potential need
for additional cash in the event that customers and business react unpredictably
to possible year 2000 related problems. Part of that reaction could include the
demand for increased amount of cash by customers. The process of preparing for
this contingency will require the bank to withdraw money from interest-earning
deposit accounts or increase their borrowings to fund this infusion of cash
resources. In the event that customers do react unpredictably, the Company will
have an adequate cash supply to meet the customer demands, however, this
activity may cause shrinkage in deposits amounts. If such an event occurs, net
income for the quarter ended December 31, 1999 may slightly decrease
Management monitors both the Company's and the Bank's total risk-based, Tier I
risk-based and Tier I leveraged capital ratios in order to assess compliance
with regulatory guidelines. At September 30, 1999, both the Company and the Bank
exceeded the minimum risk-based and leveraged capital ratio requirements. The
Company's and the Bank's total risk-based, Tier I risk-based and Tier I leverage
ratios are 16.53%, 15.88%, 10.87% and 15.34%, 14.70%, and 9.94%, respectively,
at September 30, 1999.
-9-
<PAGE>
RISK ELEMENTS
- -------------
The table below presents information concerning nonperforming assets including
nonaccrual loans, renegotiated loans, loans 90 days 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.
September 30, June 30,
1999 1999
------------- -----------
Loans on a nonaccrual basis $535 $456
Loans past due 90 days or more and still accruing 165 309
---- ----
Total nonperforming loans 700 765
---- ----
Other real estate 50 50
Repossessed assets -- 9
---- ----
Total nonperforming assets $750 $824
---- ----
Nonperforming loans as a percentage of total loans 0.61% 0.69%
==== ====
Nonperforming assets as a percentage of total assets 0.55% 0.63%
==== ====
Allowance for loan losses to nonperforming loans 86.58% 76.12%
===== =====
As of September 30, 1999, the total investment in impaired loans was $385,922,
and such amount was subject to a specific allowance for loan losses of $31,322.
The average investment in impaired loans during the quarter ended September 30,
1999 was $385,922. The interest income potential based upon the original term of
the contracts of these impaired loans was $8,704 for the quarter ended September
30, 1999. No interest income was recognized during the quarter. In October 1999,
the Company concluded a foreclosure action on the properties securing all of the
impaired loans as of September 30, 1999 and reclassified them as "Other Real
Estate Owned". Such properties were recorded at fair market value, which was
approximately $355,000.
During the three month period ended September 30, 1999, net loans increased
approximately $4,515,000 and nonperforming loans decreased $65,000 while the
allowance for loan losses increased $23,800 for the same period. The level of
funding for the provision is a reflection of the overall loan demand and is not
an indication of any decline in the quality of the loan portfolio. Nonaccrual
loans consist of $149,000 in one to four family residential mortgages, $317,000
in commercial real estate and $69,000 in commercial loans. The nonaccrual
commercial real estate loan and commercial loan are classified as impaired and
are included above
Management regularly performs an analysis to identify the inherent risks of loss
in its loan portfolio. This evaluation includes evaluations of concentrations of
credit, past loss experience, current economic conditions, amount and
composition of loan portfolio (including loans being specifically monitored by
management), estimated fair value of underlying collateral, loan commitments
outstanding, delinquencies, and other information available at such times.
-10-
<PAGE>
The Company monitors its allowance for loan losses and makes future adjustments
to the allowance through the provision for loan losses as economic conditions
dictate. Management continues to offer a wide variety of loan products. Although
the Company maintains its allowance for loan losses at a level that it considers
to be adequate to provide for the inherent risk of loss in its portfolio, there
can be no assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods due
to the higher degree of credit risk included in the loan portfolio.
The following is a breakdown of the loan portfolio mix at September 30, 1999 and
June 30, 1999:
September 30, June 30,
1999 1999
-------------- ------------
Mortgage loans:
1-4 family $ 61,997,029 $ 59,673,803
Multi-family 3,621,659 2,689,531
Non-residential 23,235,164 23,216,018
Construction 2,420,688 2,073,165
------------ ------------
91,274,540 87,652,517
------------ ------------
Consumer Loans:
Home Improvement 1,144,195 1,195,518
Automobile 9,253,534 8,647,953
Share loans 1,333,841 1,360,054
Other 2,557,287 2,384,401
------------ ------------
14,288,857 13,587,926
------------ ------------
------------ ------------
Commercial Loans 10,904,760 10,387,570
------------ ------------
Less:
Loans in process 1,313,543 1,006,813
Net deferred loan fees 133,755 139,369
Allowance for loan losses 606,084 582,280
------------ ------------
2,053,382 1,728,462
------------ ------------
Total $114,414,775 $109,899,551
============ ============
YEAR 2000 EVALUATION
- --------------------
Rapid and accurate data processing is essential to the Company's operations.
Many computer programs can only distinguish the final two digits of the year
entered (a common programming practice in prior years) and are expected to read
entries for the year 2000 as the year 1900 or as zero and an incorrect attempt
to compute payment, interest, delinquency and other data. The Company has been
evaluating both information technology (computer systems) and non-information
technology systems (e.g. vault timers, electronic door lock and elevator
controls). Based upon such evaluations; management has determined that the
Company has year 2000 risk in three areas: (1) Company's own computers, (2)
Computers of others used by the Company's borrowers, and (3) Computers of others
who provide the Company with data processing.
-11-
<PAGE>
COMPANY'S OWN COMPUTERS. As of September 30, 1999, the Company has upgraded its
computer system to comply with the year 2000 risk. Such costs expended were not
material to the financial statements of the Company. The Company does not
anticipate any additional costs throughout the remainder of calendar 1999.
BORROWERS The Company has evaluated most of their borrowers and does not believe
the year 2000 problem should, on an aggregate basis, impact their ability to
make payments to the Company. The Company believes that most of their
residential borrowers are not dependent on their home computers for income and
that none of their commercial borrowers are so large that the year 2000 problem
would render them unable to collect revenue or rent and, in turn, continue to
make loan payments to the Company. The Company does not expect any material
costs to address this risk area throughout the remainder of calendar 1999, and
believes they are year 2000 compliant in this risk area.
DATA PROCESSING This risk is primarily focused on one third party service bureau
that provides virtually all of the Company's data processing. In November of
1998, this service bureau has advised the Company that they are year 2000
compliant. Additionally, on January 1, 2000, the Company will begin in-house
item processing. The equipment and software purchased to perform this function
is certified by the vendor as being year 2000 compliant. In-house testing and
validation of the equipment is expected to be completed by November 30, 1999.
CONTINGENCY PLAN. The Company is continuing to monitor any changes to the
service bureau and any effects that they might have on their status as year 2000
compliant. If the service bureau fails, the Company will attempt to locate an
alternative service bureau that is year 2000 compliant. If the Company is
unsuccessful, it will use its existing computer system to enter deposit balances
and interest on these accounts. If this labor-intensive approach is necessary,
management and employees will become much less efficient. However, the Company
believes that they would be able to operate in this manner indefinitely, until
their existing service bureau, or their replacement, is able to again provide
data processing services. If very few institutional service bureaus were
operating in the year 2000, the Company's replacement costs, assuming the
Company could negotiate an agreement, could be material. The written contingency
plan and business resumption plan has been completed, validated, and tested. In
July of 1999, the Board of Directors approved such plan. The plan will be
updated for any changes in the Company's mission critical applications. Plan
updates and changes through the remainder of 1999 are subject to additional
validation, testing and approval upon implementation.
While the Company's year 2000 plan was designed to significantly address
the year 2000 problems, the occurrence of the following could negatively impact
the Company:
(a) utility service companies may be unable to provide the necessary service to
implement the Company's data systems or provide sufficient sanitary
conditions for its offices; or
(b) the Company's service bureau provider could have a major malfunction in
their system or their service could be disrupted due to their utility
providers, or some combination of the two; or
(c) the Company may have to transact its business manually.
Successful and timely completion of the year 2000 plan is based upon the
Company's best estimates derived from various assumptions of future events which
are inherently uncertain, including the progress and results of its external
service bureau, testing plans, and all vendors, suppliers and customer
readiness.
Despite the Company's best efforts to address the year 2000 problems, the
vast number of external entities that have direct and indirect business
relationships with the Company, such as, customers, vendors, payment system
providers, utility providers, and other financial institutions, make it
impossible to assure that a failure to achieve compliance by one or more of
these entities would not have a material adverse impact on the Company's
business or its consolidated financial statements.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
NONE
Item 2 - Changes in securities
NONE
Item 3 - Defaults upon senior securities
NOT APPLICABLE
Item 4 - Submission of matters to a vote of security holders
NONE
Item 5 - Other information
NONE
Item 6 - Exhibits and reports on Form 8-K
(a) List of Exhibits:
3(i) Certificate of Incorporation of Advance Financial
Bancorp *
3(ii)Amended Bylaws of Advance Financial Bancorp *****
4(i) Specimen Stock Certificate * 4 (ii) Shareholders Rights
Plan **
10 Employment Agreement between the Bank and Stephen M.
Gagliardi ***
10.1 1998 Stock Option Plan ****
10.2 Restricted Stock Plan and Trust Agreement ****
27 Financial Data Schedule (electronic filing only)
- --------------------------------------------------------------------------------
(b) None
o 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 10K-SB (File No.
0-21885) filed September 23, 1997
**** Incorporated by reference to the proxy statement for the Special Meeting of
the Stockholders on January 20, 1998 and filed with the SEC on December 12,
1997.
*****Incorporated by reference to the June 30, 1999 Form 10KSB (File No.
0-21885) filed on . September 23, 1999.
-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: November 12, 1999 By: /s/Stephen M. Gagliardi
----------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
Date: November 12, 1999 By: /s/Stephen M. Magnone
----------------------------------
Stephen M. Magnone
Vice President and CFO
-14-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
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<INT-BEARING-DEPOSITS> 1,800
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,591
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<INVESTMENTS-MARKET> 3,546
<LOANS> 115,021
<ALLOWANCE> 606
<TOTAL-ASSETS> 137,569
<DEPOSITS> 110,591
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 524
<LONG-TERM> 9,000
0
0
<COMMON> 108
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