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
----------------- ------------------
Commission file Number 0-21885
------------------------------
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 1, 2000: 932,285
<PAGE>
Advance Financial Bancorp
Index
Page
Number
------
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet ( Unaudited) as of
September 30, 2000 and June 30, 2000 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended September 30, 2000 and 1999 4
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months ended September 30, 2000 and 1999 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 7-10
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Default Upon Senior Securities 11
Item 4 - Submissions of Matters to a vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------------- --------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and amounts due from banks $1,010,139 $1,109,746
Interest bearing deposits with other institutions 4,621,741 4,641,878
------------------- --------------------
Total cash and cash equivalents 5,631,880 5,751,624
------------------- --------------------
Investment securities:
Securities held to maturity (fair value of $1,201,155 and $1,187,625) 1,249,737 1,249,672
Securities available for sale 8,327,684 8,234,637
------------------- --------------------
Total investment securities 9,577,421 9,484,309
------------------- --------------------
Mortgaged-backed securities:
Securities held to maturity (fair value of $1,928,082 and $2,027,016) 1,959,881 2,089,010
Securities available for sale 1,538,108 1,556,172
------------------- --------------------
Total mortgage-backed securities 3,497,989 3,645,182
------------------- --------------------
Loans held for sale 570,500 -
Loans receivable, (net of allowance for loan losses
of $699,899 and $682,103 ) 122,009,347 119,721,308
Office properties and equipment, net 4,053,468 4,070,295
Federal Home Loan Bank Stock, at cost 800,000 800,000
Accrued interest receivable 859,792 870,955
Other assets 891,367 920,767
------------------- --------------------
TOTAL ASSETS $147,891,764 $145,264,440
=================== ====================
Liabilities:
Deposits $120,423,421 $118,930,939
Advances from Federal Home Loan Bank 11,500,000 10,500,000
Advance payments by borrowers for taxes and insurance 142,786 203,320
Accrued interest payable and other liabilities 467,483 561,907
------------------ --------------------
TOTAL LIABILITIES 132,533,690 130,196,166
------------------- --------------------
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 10,330,970 10,329,885
Retained earnings - substantially restricted 8,312,420 8,181,053
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (489,224) (510,915)
Unallocated shares held by Restricted Stock Plan (RSP) (448,695) (505,849)
Treasury Stock (152,165 shares at cost) (2,233,265) (2,233,265)
Accumulated other comprehensive loss (222,577) (301,080)
------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 15,358,074 15,068,274
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $147,891,764 $145,264,440
=================== ====================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-3-
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- ----------
INTEREST AND DIVIDEND INCOME
Loans $2,542,551 $2,261,906
Investment securities 170,278 132,187
Interest-bearing deposits with other institutions 46,745 53,701
Mortgage-backed securities 59,395 64,313
Dividends on Federal Home Loan Bank Stock 14,579 10,710
---------- ----------
Total interest and dividend income 2,833,548 2,522,817
---------- ----------
INTEREST EXPENSE
Deposits 1,436,647 1,169,344
Advances from Federal Home Loan Bank 165,010 145,390
---------- ----------
Total interest expense 1,601,657 1,314,734
---------- ----------
NET INTEREST INCOME 1,231,891 1,208,083
Provision for loan losses 30,000 37,500
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,201,891 1,170,583
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 105,580 104,964
Gain on sale of loans 5,116 611
Other income 72,414 59,894
---------- ----------
Total noninterest income 183,110 165,469
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 499,490 456,540
Occupancy and equipment 179,432 161,841
Professional fees 29,517 32,510
Advertising 25,646 34,828
Data processing charges 55,554 90,169
Other expenses 236,993 219,342
---------- ----------
Total noninterest expenses 1,026,632 995,230
---------- ----------
Income before income taxes 358,369 340,822
Income taxes 141,697 135,725
---------- ----------
NET INCOME $ 216,672 $ 205,097
========== ==========
EARNINGS PER SHARE
Basic $ .25 $ .23
Diluted $ .25 $ .23
See accompanying notes to the unaudited consolidated financial statements.
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<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 216,672 $ 205,097
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 152,024 145,812
Provision for loan losses 30,000 37,500
Gain on sale of loans (5,116) (611)
Origination of loans held for sale (1,440,984) (170,000)
Proceeds from the sale of loans 875,600 170,611
Decrease in other assets and liabilities (41,324) (1,973)
----------- -----------
Net cash (used in) provided by operating activities (213,128) 386,436
----------- -----------
INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases - (249,453)
Investment securities available for sale:
Purchases - (4,467,656)
Maturities and repayments 1,130 2,005
Mortgage-backed securities held to maturity:
Maturities and repayments 128,589 114,076
Mortgage-backed securities available for sale:
Maturities and repayments 42,457 126,063
Net increase in loans (2,346,873) (4,552,724)
Purchases of premises and equipment (78,562) (120,873)
----------- -----------
Net cash used in investing activities (2,253,259) (9,148,562)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 1,492,482 5,252,366
Net increase in short term advances from FHLB 1,000,000 2,500,000
Net change in advances for taxes and insurance (60,534) (70,850)
Purchase of treasury stock -- (197,700)
Cash dividends paid (85,305) (87,630)
----------- -----------
Net cash provided by financing activities 2,346,643 7,396,186
----------- -----------
Decrease in cash and cash equivalents (119,744) (1,365,940)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,751,624 4,359,870
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,631,880 $ 2,993,930
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 1,716,612 $ 1,309,940
Income taxes $ 169,930 $ 135,255
</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, 2001 or any other
interim period.
These statements should be read in conjunction with the consolidated statements
of and for the year ended June 30, 2000 and related notes which are included on
the Form 10-KSB (file no. 0-21885)
NOTE 2 - EARNINGS PER SHARE
There were no convertible securities, which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income will be used as the numerator.
The following table sets forth the composition of the weighted-average common
shares (denominator) used in the basic and diluted earnings per share
computation.
Three Months Ended
September 30
2000 1999
------------ -----------
Weighted-average common shares outstanding 1,084,450 1,084,450
Average treasury stock shares (152,165) (114,165)
Average unearned ESOP and RSP shares (57,048) (63,844)
---------- ----------
Weighted -average common shares and
common stock equivalents used to
calculate basic earnings per share 875,237 906,441
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share - -
---------- ----------
Weighted-average common shares and
Common stock equivalents used
To calculate diluted earnings per share 875,237 906,441
========== ==========
NOTE 3 - COMPREHENSIVE INCOME
Other accumulated comprehensive loss consists solely of net unrealized gains and
losses on available for sale securities. For the three months ended September
30, 2000, comprehensive income totaled $295,175. 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, Year 2000 issues, 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.
The Company conducts no significant business or operations of its own other
than holding all of the outstanding stock of the Advance Financial Savings Bank
(the "Bank"). As a result, references to the Company generally refer to the Bank
unless the context indicates otherwise.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,2000 AND JUNE 30, 2000
------------------------------------------------------------------------
Total assets increased by approximately $2,627,000 to $147,891,764 at September
30, 2000, from $145,264,440 at June 30, 2000. The increase is primarily due to
increased loan demand. Deposits and Advances from the Federal Home Loan Bank
"FHLB", which increased by $1,492,000 and $1,000,000, respectively, were used to
fund the increased loan demand.
Net loans receivable increased by $2,288,000 to $122,009,347 at September 30,
2000, from $119,721,308 at June 30, 2000. The increase in loans was spread over
the entire loan portfolio. Loans secured by 1-4 family residences, including
construction, increased by $400,800 due to demand for adjustable rate mortgages.
Non-residential mortgage loans, including construction, increased $946,400 due
to strong demand for the Company's competitively priced adjustable rate mortgage
products. Automobile loans increased $805,400 due principally to increased loan
activity written by automobile dealership customers of the Company. Commercial
loans increased by $458,500 due principally to increased demand from existing
customers. See "Risk Elements".
Deposits increased by $1,492,000 to $120,423,421 at September 30, 2000 from
$118,930,939 at June 30, 2000. Within the deposit line item, certificates of
deposit increased by $2,511,000 to $78,522,000 at September 30, 2000 from
$76,011,000 at June 30, 2000. This increase is primarily the result of a current
certificate of deposit special. The current special has an annual percentage
rate of 6.66% on seven (7) and eleven (11) month certificates, and 6.92% on
thirteen (13) and nineteen (19) month certificates. The seven and nineteen month
maturity areas have been equally popular with the Company's customers. There is
a noticeable trend of customers withdrawing money from their money market demand
accounts and placing it in the seven-month certificate special. Savings deposits
and demand deposits decreased $242,000 and $777,000, respectively, for the
three-month period ended September 30, 2000. The demand deposit decrease was
primarily the net result of the current short-term certificate special discussed
above.
Advances from the FHLB increased $1,000,000 to $11,500,000 at September 30, 2000
from $10,500,000 at June 30, 2000. This increase is the net result of a
$2,500,000 advance that matured in August 2000 and a new $3,500,000 commitment
funded in September 2000 with a maturity of March 2001. The new advance is
priced at 1 month LIBOR less 6 basis points, currently 6.56%, while the matured
advance of August 2000 had a fixed rate of 5.94%. The additional funds were used
to fund current loan demand.
Equity capital increased by approximately, $290,000 to $15,358,074 at September
30, 2000 from $15,068,274 at June 30, 2000. Net income of $216,700, the
recognition of shares in the Employee Stock Ownership Plan and Restricted Stock
Plan of $79,000, and a decrease in the net unrealized loss on securities of
$79,000 were offset by the payment of cash dividends of $85,000.
-7-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
2000 AND 1999
-------------
Net interest income increased $24,000 or 1.97%, to $1,232,000 for the three
months ended September 30, 2000 from $1,208,000 for the comparable period ended
1999. The increase in net interest income resulted primarily from an increase in
the average volume of the underlying principle balances in interest earning
assets and liabilities. The net interest spread for the three months ended
September 30, 2000 decreased to 3.04% from 3.29% for the comparable period ended
1999. The average yield on interest earning assets increased by 30 basis points
to 8.18% for the three months ended September 30, 2000, from 7.88% for the
comparable period ended 1999. The average cost of funds increased by 55 basis
points to 5.14% for the three months ended September 30, 2000 from 4.59% for the
comparable period ended 1999.
Interest and dividend income increased $311,000 or 12.32% for the three months
ended September 30, 2000 compared to the same period ended 1999. This increase
was primarily due to an increase in earnings on loans of $281,000 as the average
principle balance increased $9,071,000 to $120,805,000 for the period ended
September 30, 2000, from $111,734,000 for the comparable 1999 period. Interest
and dividend income on investments and interest-bearing deposits with other
financial institutions increased approximately $30,000 as average principal
balances increased $1,288,000 to $17,675,000 for the period ended September 30,
2000, from $16,387,000 for the comparable 1999 period.
Interest expense increased $287,000 or 21.82%, for the three months ended
September 30, 2000 compared to the same period ended 1999. This increase was
primarily due to an increase in interest on deposits of $267,000 as the average
balance increased $9,413,000 to $113,901,000 for the period ended September 30,
2000, from $104,488,000 for the comparable 1999 period. Interest expense on
advances increased $20,000 as the average balance increased $417,000 to
$10,667,000 for the period ended September 30, 2000, from $10,250,000 for the
comparable 1999 period.
Noninterest income increased $18,000 or 10.66%, to $183,000 for the three months
ended September 30, 2000 from $165,000 for the comparable period ended 1999.
This increase was primarily the result of an increase in gains on sales of fixed
rate mortgage loans and related servicing rights
Noninterest expense increased $31,000 or 3.16%, to $1,026,000 for the three
months ended September 30, 2000, from $995,000 for the comparable 1999 period.
For the three-month period ended September 30, 2000, compensation and employee
benefits increased $43,000 or 9.41%, due to the hiring of additional employees
for loan collection and data processing, as well as, additional costs of living
increases for all full time employees. Occupancy and equipment increased
$18,000, due primarily to an increase in combined equipment depreciation and
maintenance of $17,000 directly related to the in-house item-processing
department. Data processing charges decreased $35,000 due to the completion of
the conversion to in house item processing in January 2000. The decrease in data
processing is offset by similar increases in "occupancy and equipment" for
maintenance and depreciation and in "other expenses" for supplies,
communications and postage, which increased $11,000 for the three-month period.
Anticipated future decreases in data processing will be offset by similar
increases in these line items. Other expenses increased $18,000 due primarily
to, supplies, communications and postage as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 2000, the Company had commitments to fund loans of
approximately $1,391,000. These loan commitments are expected to be funded by
October 31, 2000.
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, 2000, 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 15.88%, 15.19%, 10.52% and 15.08%, 14.40%, and 9.91%, respectively,
at September 30, 2000.
-8-
<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,
2000 2000
------ ------
Loans on a nonaccrual basis $ 490 $ 304
Loans past due 90 days or more and still accruing 302 189
------ ------
Total nonperforming loans 792 493
------ ------
Other real estate 407 407
Repossessed assets 50 21
------ ------
Total nonperforming assets $1,249 $ 921
------ ------
Nonperforming loans as a percentage of total net loans 0.65% 0.41%
====== ======
Nonperforming assets as a percentage of total assets 0.84% 0.63%
====== ======
Allowance for loan losses to nonperforming loans 88.37% 138.36%
====== ======
Nonaccrual loans consist of $475,000 in one to four family residential mortgages
and $15,000 in a non-residential real estate mortgage at September 30, 2000.
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.
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.
-9-
<PAGE>
The following is a breakdown of the loan portfolio composition at September 30,
2000 and June 30, 2000:
September 30, June 30,
2000 2000
------------ ------------
Mortgage loans:
1-4 family $ 62,405,903 $ 62,163,992
Multi-family 5,412,798 5,469,906
Non-residential 24,978,435 24,543,795
Construction 3,912,441 3,241,801
------------ ------------
96,709,577 95,419,494
------------ ------------
Consumer Loans:
Home Improvement 1,450,271 1,439,387
Automobile 11,708,814 10,903,416
Share loans 1,448,491 1,406,328
Other 2,797,814 2,675,498
------------ ------------
17,405,390 16,424,629
------------ ------------
------------ ------------
Commercial Loans 10,958,775 10,500,256
------------ ------------
Less:
Loans in process 2,235,258 1,812,877
Net deferred loan fees 129,238 128,091
Allowance for loan losses 699,899 682,103
------------ ------------
3,064,395 2,623,071
------------ ------------
Total $122,009,347 $119,721,308
============ ============
-10-
<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
* 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 28, 1999.
-11-
<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 6, 2000 By: /s/Stephen M. Gagliardi
-------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
Date: November 6, 2000 By: /s/Stephen M. Magnone
-------------------------------------
Stephen M. Magnone
Vice President and CFO
-12-
