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
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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
incorporation or organization) Identification No.)
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 February 10, 2000: 932,285
<PAGE>
Advance Financial Bancorp
Index
Page
Number
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (Unaudited) as of
December 31, 1999 and June 30, 1999 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended December 31, 1999 and 1998 4
Consolidated Statement of Income (Unaudited)
For the Six Months ended December 31, 1999 and 1998 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months ended December 31, 1999 and 1998 6
Notes to the Unaudited Consolidated Financial Statements 7-8
Item 2 - Management's Discussion and Analysis 9-14
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Default Upon Senior Securities 15
Item 4 - Submissions of Matters to a vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
----------------- -------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and amounts due from banks $2,324,108 $1,395,704
Interest bearing deposits with other institutions 2,562,893 2,964,166
----------------- -------------------
Total cash and cash equivalents 4,887,001 4,359,870
----------------- -------------------
Investment securities:
Securities held to maturity (fair value of $1,183,904 and $970,914) 1,249,453 999,896
Securities available for sale 8,200,413 4,481,475
----------------- -------------------
Total investment securities 9,449,866 5,481,371
----------------- -------------------
Mortgaged-backed securities:
Securities held to maturity (fair value of $2,230,585 and $2,456,645) 2,275,330 2,472,681
Securities available for sale 1,641,695 1,832,845
----------------- -------------------
Total mortgage-backed securities 3,917,025 4,305,526
----------------- -------------------
Loans receivable, (net of allowance for loan losses
of $606,920 and $582,280 ) 118,261,571 109,899,551
Office properties and equipment, net 4,114,529 4,084,793
Federal Home Loan Bank Stock, at cost 800,000 629,500
Accrued interest receivable 833,530 664,058
Other assets 934,891 501,967
----------------- -------------------
TOTAL ASSETS $143,198,413 $129,926,636
================= ===================
Liabilities:
Deposits $112,041,671 $105,338,770
Advances from Federal Home Loan Bank 16,000,000 9,000,000
Advance payments by borrowers for taxes and insurance 190,650 196,993
Accrued interest payable and other liabilities 352,789 397,421
----------------- -------------------
TOTAL LIABILITIES 128,585,110 114,933,184
----------------- -------------------
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 10,326,840 10,316,719
Retained earnings - substantially restricted 7,866,214 7,623,733
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (554,387) (597,767)
Unallocated shares held by Restricted Stock Plan (RSP) (571,245) (682,357)
Treasury Stock (152,165 and 103,165 shares at cost) (2,233,265) (1,626,890)
Accumulated other comprehensive loss (329,299) (148,431)
----------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 14,613,303 14,993,452
----------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,198,413 $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
DECEMBER 31,
1999 1998
---------------- ------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $2,370,995 $2,150,478
Investment securities 177,137 36,230
Interest-bearing deposits with other institutions 28,368 89,658
Mortgage-backed securities 65,267 9,002
Dividends on Federal Home Loan Bank Stock 13,721 10,194
---------------- ------------------
Total interest and dividend income 2,655,488 2,295,562
---------------- ------------------
INTEREST EXPENSE
Deposits 1,218,001 1,088,214
Advances from Federal Home Loan Bank 205,986 121,793
---------------- ------------------
Total interest expense 1,423,987 1,210,007
---------------- ------------------
NET INTEREST INCOME 1,231,501 1,085,555
Provision for loan losses 37,500 37,500
---------------- ------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,194,001 1,048,055
---------------- ------------------
NONINTEREST INCOME
Service charges on deposit accounts 112,931 99,654
Gain on sale of loans 3,528 37,010
Other income 62,088 71,289
---------------- ------------------
Total noninterest income 178,547 207,953
---------------- ------------------
NONINTEREST EXPENSE
Compensation and employee benefits 483,359 428,332
Occupancy and equipment 165,456 152,482
Professional fees 25,512 47,742
Advertising 28,280 30,269
Data processing charges 85,136 86,658
Other expenses 245,384 212,471
---------------- ------------------
Total noninterest expenses 1,033,127 957,954
---------------- ------------------
Income before income taxes 339,421 298,054
Income taxes 130,657 112,575
---------------- ------------------
NET INCOME $208,764 $185,479
================ ==================
EARNINGS PER SHARE
Basic $ .23 0.19
Diluted $ .23 0.19
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
-4-
<PAGE>
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1999 1998
------------------ -------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans $4,632,901 $4,195,272
Investment securities 309,324 63,535
Interest-bearing deposits with other institutions 82,069 209,741
Mortgage-backed securities 129,580 16,719
Dividends on Federal Home Loan Bank Stock 24,431 20,388
------------------ -------------------
Total interest and dividend income 5,178,305 4,505,655
------------------ -------------------
INTEREST EXPENSE
Deposits 2,387,345 2,166,850
Advances from Federal Home Loan Bank 351,376 246,527
------------------ -------------------
Total interest expense 2,738,721 2,413,377
------------------ -------------------
NET INTEREST INCOME 2,439,584 2,092,278
Provision for loan losses 75,000 75,000
------------------ -------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,364,584 2,017,278
------------------ -------------------
NONINTEREST INCOME
Service charges on deposit accounts 217,895 186,085
Gain on sale of loans 4,139 70,235
Other income 121,982 137,313
------------------ -------------------
Total noninterest income 344,016 393,633
------------------ -------------------
NONINTEREST EXPENSE
Compensation and employee benefits 939,899 859,037
Occupancy and equipment 327,297 293,208
Professional fees 58,022 85,363
Advertising 63,108 63,999
Data processing charges 175,305 172,176
Other expenses 464,726 409,368
------------------ -------------------
Total noninterest expenses 2,028,357 1,883,151
------------------ -------------------
Income before income taxes 680,243 527,760
Income taxes 266,382 207,452
------------------ -------------------
NET INCOME $413,861 $320,308
================== ===================
EARNINGS PER SHARE
Basic $ .46 0.33
Diluted $ .46 0.33
</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
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $413,861 $320,308
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 282,974 308,992
Provision for loan losses 75,000 75,000
Gain on sale of loans (4,139) (70,235)
Origination of loans held for sale (1,056,640) (6,169,869)
Proceeds from the sale of loans 1,060,779 5,692,648
Increase in other assets and liabilities (142,717) (205,385)
---------------- -----------------
Net cash provided by (used in) operating activities 629,118 (48,541)
---------------- -----------------
INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases (249,453) (1,500,000)
Maturities and repayments - 2,000,000
Investment securities available for sale:
Purchases (4,467,656) (3,013,675)
Maturities and repayments 503,740 6,895
Mortgage-backed securities held to maturity:
Purchases - (1,006,296)
Maturities and repayments 196,166 7,448
Mortgage-backed securities available for sale:
Purchases - -
Maturities and repayments 162,660 -
Purchases of Federal Home Loan Bank Stock (170,500)
Net increase in loans (8,794,518) (7,296,031)
Purchases of premises and equipment (201,228) (147,925)
---------------- -----------------
Net cash used in investing activities (13,020,789) (10,949,584)
---------------- -----------------
FINANCING ACTIVITIES
Net increase in deposits 6,702,901 8,484,964
Net Proceeds (Repayments) from advances from Federal Home Loan Bank 7,000,000 (1,000,000)
Net change in advances for taxes and insurance (6,343) (10,605)
Purchase of treasury stock (606,375) -
Cash dividends paid (171,381) (144,203)
---------------- -----------------
Net cash provided by financing activities 12,918,802 7,330,156
---------------- -----------------
Increase (decrease) in cash and cash equivalents 527,131 (3,667,969)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,359,870 9,084,193
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,887,001 $5,416,224
================ =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $2,656,284 $2,414,931
Income taxes $267,672 $230,779
</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 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>
Six Months Ended
December 31
1999 1998
-------------- ---------------
<S> <C> <C>
Denominator:
Denominator for basic earnings per share
Weighted-average shares 900,878 956,287
Effect of dilutive securities:
Employee stock options - -
-------------- ---------------
Dilutive potential common shares 900,878 956,287
Denominator;
Denominator for dilutive earnings per share adjusted
Weighted-average shares 900,878 956,287
============== ===============
</TABLE>
-7-
<PAGE>
NOTE 2 - EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1999 1998
-------------- ----------------
<S> <C> <C>
Denominator:
Denominator for basic earnings per share
Weighted-average shares 888,110 958,096
Effect of dilutive securities:
Employee stock options - -
-------------- ----------------
Dilutive potential common shares 888,110 958,096
Denominator;
Denominator for dilutive earnings per share adjusted
Weighted-average shares 888,110 958,096
============== ================
</TABLE>
NOTE 3 - COMPREHENSIVE INCOME
Other accumulated comprehensive loss consists solely of net unrealized gains and
losses on available for sale securities. For the three and six months ended
December 31, 1999, comprehensive income totaled $69,162 and $232,993,
respectively.
-8-
<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 DECEMBER 31,1999 AND JUNE 30, 1999
- -----------------------------------------------------------------------
Total assets increased $13,272,000 to $143,198,000 at December 31, 1999, from
$129,926,000 at June 30, 1999. At December 31, 1999, deposits and Federal Home
Loan Bank ("FHLB") advances increased $6,703,000 and $7,000,000, respectively.
These increases were used to fund loan demand, to purchase investment
securities, and to fund cash liquidity for the Year 2000.
Cash and amounts due from banks increased by $928,000 to $2,324,000 at December
31, 1999 from $1,396,000 at June 30, 1999. This increase was funded by a
short-term advance from the FHLB in anticipation of Y2K liquidity needs. These
excess funds were returned to the Federal Reserve in January 2000 and the
outstanding advance from the FHLB was reduced by $1 million.
Interest-bearing deposits with other financial institutions decreased by
$401,000 to $2,563,000 at December 31, 1999, from $2,964,000 at June 30, 1999.
This decrease was used primarily to purchase investment securities.
Investment securities available for sale increased by $3,719,000 to $8,200,000
at December 31, 1999, from $4,481,000 at June 30, 1999. This increase includes
approximately $1,470,000 in three FHLB bonds with callable options ranging from
6 months to 2 years and an effective weighted average interest rate of 7.11%.
The funding for these bonds came from the strong deposit growth and the use of
interest-bearing deposits with other financial institutions. In November 1999,
the Company had one $500,000 FHLB bond called and the proceeds were used to fund
loan demand during the month of December 1999. The increase also includes the
purchase of a $2,500,000 15-year FHLB bond in August 1999 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 August 2000 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 $8,362,000 to $118,262,000 at December 31,
1999, from $109,900,000 at June 30, 1999. The loan increase was spread over the
entire portfolio. Loans secured by 1-4 family residences increased by $2,850,000
due to demand for ARMs and the bank's "no fee" Equity Line of Credit program.
The company's "no fee" program ended during November 1999. Multi-family
residential loans increased by $2,880,000 due to strong loan demand for the
Company's competitively priced ARM products. Automobile loans increased
$1,180,000 due principally to increased loan activity written by automobile
dealership customers of the Company. Commercial loans increased by $1,040,000
due principally to the addition of a new automobile dealership to the Company's
customer base. See "Risk Elements".
-9-
<PAGE>
Deposits increased by $6,703,000 to $112,042,000 at December 31,1999 from
$105,339,000 at June 30, 1999. Within the deposit line item, certificates of
deposit increased by $7,002,000 to $70,718,000 at December 31, 1999 from
$63,716,000 at June 30, 1999. This increase is primarily the result of two
certificate of deposit specials. The first was called "Advantage 2000", this
certificate 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 was that the
customers had 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. During the ten day option period of 1999, the Company had
approximately $2,350,000 of the "Advantage 2000" certificates redeemed without
penalty which was approximately 35% of the total amount deposited in the
certificate product. The Company was able to retain all but approximately
$330,000 of the redeemed certificates with customers generally transferring the
funds into another of the certificate products called "Fives Are Wild". The
second certificate of deposit special was called "Fives Are Wild", this
certificate offered above market interest rates on certificates of deposit of
5.55% for five months, 5.75% for ten months, and 6.0% for 15 or 18 months. The
"Fives Are Wild" program began in mid October and is currently still in place.
During the latter part of December 1999, the company added to the "Fives Are
Wild" program a 21 month product at 6.07%.
Savings deposits increased $287,000 while demand deposits decreased $586,000 for
the six-month period ended December 31, 1999. The demand deposit decrease was
primarily the net result of an increase in non-interest bearing deposits of
$900,000 and a decrease in large money market demand accounts of $1,375,000. The
majority of the money withdrawn from the money market demand account was
generally deposited in a "Fives Are Wild" certificate product.
Advances from the FHLB increased by $7,000,000 to $16,000,000 at December 31,
1999 from $9,000,000 at June 30, 1999. This increase involves three separate
advances. The first advance was for $2,500,000 with a weighted average rate of
5.94% that has a one-year maturity of August of 2000. The proceeds of this
advance were used to purchase a FHLB bond described above under investment
securities. The second advance was to increase an existing $3,000,000 callable
advance to $5,000,000 with a weighted average rate of 5.52% that has an initial
call date in October 2001. The additional $2,000,000 in proceeds from this
advance were used to fund a three year adjustable rate mortgage loan originated
in October 1999. The third advance was for $2,500,000 with a weighted average
rate of 5.76% that matured in January 2000. The proceeds of this advance were
held to fund Y2K liquidity. At maturity of this advance in January 2000, the
Company repaid $1,000,000 of the outstanding amount by utilizing excess liquid
resources remaining after December 31, 1999. The remaining $1,500,000 was put
onto the RepoPlus line of credit.
In addition to the increases and changes to advances from the FHLB discussed
above, during the quarter ended December 31, 1999, the FHLB called all three
outstanding advances at June 30, 1999, amounting to $9,000,000. The Company
elected to renew these advances at the proposed higher rates offered by the
FHLB. The new weighted average rate of the renewed $9,000,000 in advances
increased to 5.63% from 5.37% prior to the calls.
Equity capital decreased by approximately, $380,000 to $14,613,000 at December
31, 1999 from $14,993,000 at June 30, 1999. Net income of $413,900 and the
recognition of shares in the Employee Stock Ownership Plan and Restricted Stock
Plan of $164,700, were offset by the payment of cash dividends of $171,300, an
increase in net unrealized loss on securities of $180,900 and the purchase of
49,000 shares of treasury stock for $606,400, at an average cost of
approximately $12.38 per share.
-10-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
- ---------------------------------------------------------------------------
DECEMBER 31, 1999 AND 1998
- --------------------------
Net interest income increased $146,000 or 13.44%, to $1,232,000 for the three
months ended December 31, 1999 from $1,086,000 for the comparable period ended
1998. 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
December 31, 1999 decreased to 3.25% from 3.30% for the comparable period ended
1998. The average yield on interest earning assets decreased by 19 basis points
to 7.91% for the three months ended December 31, 1999, from 8.10% for the
comparable period ended 1998. The average cost of funds decreased by 14 basis
points to 4.66% for the three months ended December 31, 1999 from 4.80% for the
comparable period ended 1998.
Net interest income increased $347,000 or 16.60%, to $2,440,000 for the six
months ended December 31, 1999 from $2,092,000 for the comparable period ended
1998. 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 six months ended
December 31, 1999 increased to 3.27% from 3.23% for the comparable period ended
1998. The average yield on interest earning assets decreased by 20 basis points
to 7.89% for the six months ended December 31, 1999, from 8.09% for the
comparable period ended 1998. The average cost of funds decreased by 24 basis
points to 4.62% for the six months ended December 31, 1999 from 4.86% for the
comparable period ended 1998.
Interest and dividend income increased $360,000 or 15.68% for the three months
ended December 31, 1999 compared to the same period ended 1998. This increase
was primarily due to an increase in earnings on loans of $221,000 as the average
principle balance increased $13,276,000 to $116,418,000 for the period ended
December 31, 1999, from $103,142,000 for the comparable 1998 period. Interest
and dividend income on investments and interest-bearing deposits with other
financial institutions increased approximately $139,000 as average principal
balances increased $7,691,000 to $17,850,000 for the period ended December 31,
1999, from $10,159,000 for the comparable 1998 period.
Interest and dividend income increased $673,000 or 14.92% for the six months
ended December 31, 1999 compared to the same period ended 1998. This increase
was primarily due to an increase in earnings on loans of $438,000 as the average
principle balance increased $13,094,000 to $114,076,000 for the period ended
December 31, 1999, from $100,982,000 for the comparable 1998 period. Interest
and dividend income on investments and interest-bearing deposits with other
financial institutions increased approximately $235,000 as average principal
balances increased $6,665,000 to $17,117,000 for the period ended December 31,
1999, from $10,452,000 for the comparable 1998 period.
Interest expense increased $214,000 or 17.68%, for the three months ended
December 31, 1999 compared to the same period ended 1998. This increase was
primarily due to an increase in interest on deposits of $130,000 as the average
balance increased $15,816,000 to $107,572,000 for the period ended December 31,
1999, from $91,756,000 for the comparable 1998 period. Interest expense on
advances increased $84,000 as the average balance increased $5,750,000 to
$14,750,000 for the period ended December 31, 1999, from $9,000,000 for the
comparable 1998 period.
Interest expense increased $325,000 or 13.48%, for the six months ended December
31, 1999 compared to the same period ended 1998. This increase was primarily due
to an increase in interest on deposits of $220,000 as the average balance
increased $15,842,000 to $106,030,000 for the period ended December 31, 1999,
from $90,188,000 for the comparable 1998 period. Interest expense on advances
increased $105,000 as the average balance increased $3,417,000 to $12,500,000
for the period ended December 31, 1999, from $9,083,000 for the comparable 1998
period.
-11-
<PAGE>
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 and six months ended December 31,
1999,compared to the same 1998 periods. See "Risk Elements".
Noninterest income decreased $29,000 or 14.14%, to $179,000 for the three months
ended December 31, 1999 from $208,000 for the comparable period ended 1998.
Noninterest income decreased $50,000 or 12.60%, to $344,000 for the six months
ended December 31, 1999 from $394,000 for the comparable period ended 1998. For
the three and six month periods of 1999, gains on sales of fixed rate mortgage
loans and related servicing rights decreased by a combined $59,000 and $117,000,
respectively. These decreases are due to the lack of demand of fixed rate
mortgages as a result of the changing interest rate environment during the six
months ended December 31, 1999 in comparison to the rate environment during the
same period ended 1998. Offsetting these decreases for the three and six month
periods of 1999 are increases in service charges on deposit accounts of $ 13,000
and $32,000, respectively, and ATM income of $8,000 and $19,000, respectively.
These increases are due to increased customer activity.
Noninterest expense increased $75,000 or 7.85%, to $1,033,000 for the three
months ended December 31, 1999, from $958,000 for the comparable 1998 period.
Noninterest expense increased $145,000 or 7.71%, to $2,028,000 for the six
months ended December 31, 1999 from $1,883,000 for the comparable 1998 period.
For the three and six month periods ended December 31, 1999, compensation and
employee benefits increased $55,000 and $81,000, respectively, due to the hiring
of additional employees for loan collection, accounting and data processing, as
well as, additional costs of living increases for all full time employees.
Occupancy and equipment increased $13,000 and $34,000, respectively, due
primarily to the incurrence of real estate taxes for the Wintersville branch of
$7,500 and $15,000, respectively, and an increase in combined equipment
depreciation and maintenance of $3,000 and $18,000, respectively. Professional
fees decreased $22,000 and $27,000, respectively, primarily due to the
preparation of regulatory reports internally that were previously out sourced.
Other expenses increased $33,000 and $55,000, respectively due primarily to
board fees in connection with the Company's directors of $4,000 and $11,000,
respectively, ATM expense due to increased usage of $5,000 and
$7,000,respectively, loan expenses in connection with the Company's Line of
Credit program of $2,000 and $6,000, respectively, and additional Ohio franchise
tax due to the Wintersville branch of $8,000 and $16,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 1999, the Company had commitments to fund loans of
approximately $232,200. These loan commitments were funded in January 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 December 31, 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 16.25%, 15.61%, 10.43% and 15.01%, 14.39%, and 9.70%, respectively,
at December 31, 1999.
-12-
<PAGE>
YEAR 2000
- ---------
The Company relies on computers to conduct its business and information systems
processing. Industry experts were concerned that on January 1, 2000, some
computers might not be able to interpret the new year properly, causing computer
malfunctions. Some banking experts remain concerned that some computers may not
be able to interpret additional dates in the year 2000 properly. The Company has
operated and evaluated its computer operating systems following January 1, 2000
and has not identified any errors or experienced any computer system
malfunctions. Additionally, the Company began in-house item processing on
January 3, 2000. The item processing equipment and software was tested and
validated for Year 2000 compliance prior to December 31, 1999. The Company has
operated and evaluated this equipment and software following January 3, 2000 and
has not identified any errors or experienced any computer malfunctions.
Nevertheless, the Company continues to monitor its information system to assess
whether its systems are at risk of misinterpreting any future dates and will
develop, if needed, appropriate contingency plans to prevent any potential
system malfunction or correct any system failures. The Company has not been
informed of any such problem experienced by its vendors or its customers.
However, it is too soon to conclude that there will not be any problems arising
from the Year 2000 problem. The Company will continue to monitor its significant
vendors of goods and services and customers with respect to any Year 2000
problems they may encounter, as those issues may effect its ability to continue
operations, or might adversely affect the company's financial position, results
of operations and cash flows. At this time, the Company does not believe that
these potential problems will materially impact the ability to continue
operations. However, no assurance can be given that this will be the case.
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.
December 31, June 30,
1999 1999
------------- -----------
Loans on a nonaccrual basis $237 $456
Loans past due 90 days or more and still accruing 188 309
------------- ---------
Total nonperforming loans 425 765
------------- ---------
Other real estate 407 50
Repossessed assets - 9
------------- ---------
Total nonperforming assets $832 $824
------------- ---------
Nonperforming loans as a percentage of total loans 0.36% 0.69%
============= =========
Nonperforming assets as a percentage of total assets 0.58% 0.63%
============= =========
Allowance for loan losses to nonperforming loans 142.80% 76.12%
============= =========
-13-
<PAGE>
Management monitors impaired loans on a continual basis. As of December 31,
1999, impaired loans had no material effect on the Company's financial position
or result of operations. During the quarter ended December 31, 1999, the Company
transferred $355,000 of impaired loans, which were classified as nonperforming
loans as of September 30, 1999, into Other Real Estate. The Company has realized
no loss on such loans.
During the six month period ended December 31, 1999, net loans increased
approximately $8,362,000 and nonperforming loans decreased $340,000 while the
allowance for loan losses increased $25,000 for the same period. The level of
funding for the provision is a reflection of the overall increase in the loan
portfolio and the change in the mix of the loan portfolio. Nonaccrual loans
consist of $181,000 in one to four family residential mortgages and $56,000 in a
commercial real estate mortgage.
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.
The following is a breakdown of the loan portfolio mix at December 31, 1999 and
June 30, 1999:
December 31, June 30,
1999 1999
----------------- -----------------
Mortgage loans:
1-4 family $62,514,904 $59,673,803
Multi-family 5,572,020 2,689,531
Non-residential 22,948,730 23,216,018
Construction 3,307,813 2,073,165
----------------- -----------------
94,343,467 87,652,517
----------------- -----------------
Consumer Loans:
Home Improvement 1,154,655 1,195,518
Automobile 9,828,931 8,647,953
Share loans 1,232,722 1,360,054
Other 2,581,007 2,384,401
----------------- -----------------
14,797,315 13,587,926
----------------- -----------------
----------------- -----------------
Commercial Loans 11,425,936 10,387,570
----------------- -----------------
Less:
Loans in process 1,573,052 1,006,813
Net deferred loan fees 125,175 139,369
Allowance for loan losses 606,920 582,280
----------------- -----------------
2,305,147 1,728,462
----------------- -----------------
Total $118,261,571 $109,899,551
================= =================
-14-
<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
The annual meeting of the shareholders of the Company was held on October 19,
1999 and the following matters were voted upon:
PROPOSAL I - Election of Directors with term to expire in 2002.
FOR WITHHELD
--- --------
George H. Johnson 506,734 950
John R. Sperlazza 504,334 3,335
Directors continuing in office are William B. Chesson, Stephen M. Gagliardi,
James R. Murphy, William E. Watson, and Frank Gary Young.
PROPOSAL II - Ratification of the appointment of S.R. Snodgrass, AC., as
independent auditors for the Company, for the fiscal year ending
June 30, 2000.
FOR AGAINST ABSTAIN
--- ------- -------
506,684 1,000 0
Item 5 - Other information
NONE
-15-
<PAGE>
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 23, 1999.
-16-
<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 14, 2000 By:/s/Stephen M. Gagliardi
---------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
Date: February 14, 2000 By:/s/Stephen M. Magnone
---------------------------------------
Stephen M. Magnone
Vice President and CFO
-17-
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 2,324
<INT-BEARING-DEPOSITS> 2,563
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,842
<INVESTMENTS-CARRYING> 3,525
<INVESTMENTS-MARKET> 3,414
<LOANS> 118,262
<ALLOWANCE> 607
<TOTAL-ASSETS> 143,198
<DEPOSITS> 112,042
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 543
<LONG-TERM> 13,500
0
0
<COMMON> 108
<OTHER-SE> 14,505
<TOTAL-LIABILITIES-AND-EQUITY> 143,198
<INTEREST-LOAN> 4,633
<INTEREST-INVEST> 545
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<INTEREST-TOTAL> 5,178
<INTEREST-DEPOSIT> 2,387
<INTEREST-EXPENSE> 2,739
<INTEREST-INCOME-NET> 2,440
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<EXPENSE-OTHER> 2,028
<INCOME-PRETAX> 680
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 3.72
<LOANS-NON> 237
<LOANS-PAST> 188
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 582
<CHARGE-OFFS> 53
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 607
<ALLOWANCE-DOMESTIC> 607
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</TABLE>
