SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
Quarterly Period Ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
transition period from ________ to __________.
Commission File Number 0-19794
Advantage Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1714425
(State of Incorporation) (I.R.S. Employer Identification No.)
5935 7th Avenue
Kenosha, Wisconsin 53140
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (414) 658-4861
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the issuer's common stock, par value
$.01 per share, was 3,368,694 at July 31, 1996.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Part I. Financial Information
Item 1 Financial Statements (unaudited):
Consolidated Statements of Financial Condition as of
June 30, 1996 and September 30, 1995 . . . . . . . 3
Consolidated Statements of Income for the Three Months
and Nine Months ended June 30, 1996 and 1995 . . . 4
Consolidated Statements of Cash Flows for the Nine
Months ended June 30, 1996 and 1995 . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 10
Part II. Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . . . 15
Item 2 Changes in Securities . . . . . . . . . . . . . . . . 15
Item 3 Default Upon Senior Securities . . . . . . . . . . . 15
Item 4 Submission of Matters to a Vote of Security Holders . 15
Item 5 Other Information . . . . . . . . . . . . . . . . . . 15
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . 15
Signature Page . . . . . . . . . . . . . . . . . . . 15
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
June 30 September 30
ASSETS 1996 1995
Cash and cash equivalents (includes
interest-earning deposits of
$12,363,053, June 30, 1996; $9,602,982
- Sept. 30, 1995) . . . . . . . . . . $ 30,481,560 $ 32,510,205
Certificates of deposit (approximates
market value) . . . . . . . . . . . . 611,026 308,247
U.S. government and agency securities
available for sale (at market value) . 29,384,850 25,016,363
Mortgage-backed securities available
for sale (at market value) . . . . . . 148,552,602 145,030,586
Mortgage-backed securities held to
maturity (market value of $11,608,403
- June 30, 1996; $45,663,035 - Sept.
30, 1995) . . . . . . . . . . . . . . 11,443,694 44,766,566
Mortgage-related securities available for
sale (at market value) . . . . . . . . 15,301,949 10,495,782
Mortgage-related securities held to
maturity (market value of $166,973,830
- June 30,1996; $153,593,126 - Sept.
30, 1995) . . . . . . . . . . . . . . 166,416,060 151,306,148
Marketable equity securities (at market
value) . . . . . . . . . . . . . . . . 5,338,376 4,644,340
Loans held for sale (at lower of cost or
market) . . . . . . . . . . . . . . . 1,992,950 2,405,000
Loans receivable - net . . . . . . . . . 541,525,952 509,877,127
Foreclosed properties and properties
subject to foreclosure - net . . . . 1,979,134 2,080,423
Investments in and advances to
unconsolidated partnerships . . . . . 4,698,309 4,871,676
Office properties and equipment . . . . . 12,077,245 10,546,592
Federal Home Loan Bank stock - at cost . 8,645,600 9,847,600
Accrued interest on investments and
mortgage-related securities . . . . . 2,884,081 2,702,495
Intangible assets . . . . . . . . . . . . 12,203,877 14,208,028
Prepaid expenses and other assets . . . . 2,707,406 2,616,954
------------ ------------
$996,244,671 $973,234,132
============ ============
LIABILITIES
Deposits . . . . . . . . . . . . . . . . $695,814,524 $681,924,883
Notes payable to Federal Home Loan Bank . 172,910,000 163,010,000
Securities sold under agreements to
repurchase . . . . . . . . . . . . . 15,492,383 12,109,637
Advance payments by borrowers for taxes
and insurance . . . . . . . . . . . . 6,723,153 10,657,934
Accrued interest payable . . . . . . . . 5,224,644 5,497,733
Deferred income taxes . . . . . . . . . . 1,167,514 2,368,334
Other liabilities . . . . . . . . . . . . 4,796,740 4,587,118
------------ ------------
Total liabilities . . . . . . . . . . 902,128,958 880,155,639
STOCKHOLDERS' EQUITY
Serial preferred stock, $.01 par value;
authorized 5,000,000 shares; none
outstanding . . . . . . . . . . . . . - -
Common stock, $.01 par value; authorized
10,000,000 shares; issued 4,124,780
shares; outstanding shares: 3,392,694 -
June 30, 1996; 3,464,355 - Sept. 30,
1995 . . . . . . . . . . . . . . . . . 33,000 33,000
Additional paid-in capital . . . . . . . 37,451,179 37,249,638
Loan to Employee Stock Ownership Plan . . (1,985,803) (1,985,803)
Unearned restricted stock awarded . . . . (766,606) (886,606)
Treasury stock, at cost (732,086 shares -
June 30, 1996; 660,645 shares - Sept.
30, 1995) . . . . . . . . . . . . . . (15,231,682) (12,351,400)
Unrealized gain (loss) on securities
available for sale - net . . . . . . . (1,398,952) 774,844
Retained earnings . . . . . . . . . . . 76,014,577 70,244,820
------------ ------------
Total stockholders' equity . . . . . . 94,115,713 93,078,493
------------ ------------
$996,244,671 $973,234,132
============ ============
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
Interest income:
Interest on loans . . $11,265,693 $10,629,214 $33,385,973 $29,604,906
Interest on
mortgage-related
securities . . . . 6,158,392 6,298,997 18,579,138 17,067,061
Interest and dividends
on investment
securities . . . . . 706,660 596,566 2,204,521 1,629,023
Other interest
income . . . . . . . 249,626 299,942 758,310 954,548
---------- ---------- ---------- ----------
Total interest
income . . . . . . . 18,380,371 17,824,719 54,927,942 49,255,538
Interest expense:
Interest on deposits. 7,897,784 8,151,944 23,770,466 21,510,598
Interest on notes
payable and other
borrowings . . . . . 2,899,410 2,672,901 8,812,870 6,951,568
---------- ---------- ---------- ----------
Total interest expense 10,797,194 10,824,845 32,583,336 28,462,166
---------- ---------- ---------- ----------
Net interest income. . 7,583,177 6,999,874 22,344,606 20,793,372
Provision for losses
on loans . . . . . . 100,000 40,000 340,000 340,000
---------- ---------- ---------- ----------
Net interest income
after provision for
losses on loans . . . 7,483,177 6,959,874 22,004,606 20,453,372
Non-interest income:
Loan fees and service
charges. . . . . . . 174,224 135,469 495,877 383,640
Mortgage brokerage
commissions . . . . 529,245 - 1,548,980 -
Service charges on
deposit accounts . . 666,787 531,281 1,813,785 1,413,135
Gain on sales of
loans - net. . . . . 117,656 26,745 732,496 54,519
Gain on sale of
securities available
for sale . . . . . . 105,715 140,000 594,663 140,000
Equity in net income
of unconsolidated
partnerships . . . . 2,521 17,412 59,081 85,612
Other . . . . . . . . 286,132 271,140 777,649 779,083
---------- ---------- ---------- ----------
Total non-interest
income . . . . . . . 1,882,280 1,122,047 6,022,531 2,855,989
Non-interest expenses:
Compensation and
employee benefits. . 2,497,473 2,047,229 7,467,952 5,992,500
Occupancy . . . . . . 754,538 608,147 2,140,035 1,764,036
Data processing . . . 165,494 129,359 484,597 433,917
Advertising . . . . . 135,269 186,963 357,352 371,334
Federal deposit
insurance premiums . 400,323 328,928 1,196,552 917,569
Amortization of
intangible assets. . 590,062 548,843 2,029,691 1,454,801
Professional services 101,881 86,486 374,070 289,378
Other . . . . . . . . 1,264,851 933,952 3,404,644 2,589,893
---------- ---------- ---------- ----------
Total non-interest
expenses . . . . . . 5,909,891 4,869,907 17,454,893 13,813,428
---------- ---------- ---------- ----------
Income before income
taxes . . . . . . . . 3,455,566 3,212,014 10,572,244 9,495,933
Income taxes . . . . . 1,266,636 1,147,316 3,864,154 3,420,788
---------- ---------- ---------- ----------
Net income . . . . . . $ 2,188,930 $ 2,064,698 $ 6,708,090 $ 6,075,145
=========== ========== =========== ===========
Earnings per share . . $0.60 $0.56 $1.82 $1.64
=========== ========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended June 30
1996 1995
Operating activities:
Net income . . . . . . . . . . . . . . . . $ 6,708,090 $ 6,075,145
Provision for losses on loans . . . . . . 340,000 340,000
Provision for depreciation . . . . . . . 795,884 733,978
Amortization of intangible assets . . . . 2,029,691 1,454,801
Equity in net income of unconsolidated
partnerships . . . . . . . . . . . . . (59,081) (85,612)
Net (gain) loss on sale or writedown of
foreclosed properties . . . . . . . . . 28,120 (5,578)
Net amortization of mortgage-related
securities discounts and premiums . . . (682,640) (566,524)
Decrease in deferred income tax
liability . . . . . . . . . . . . . . . (114,816) -
Increase (decrease) in accrued income
taxes . . . . . . . . . . . . . . . . . (1,848,287) 1,006,128
Decrease (increase) in interest
receivable . . . . . . . . . . . . . . (423,208) 82,684
Increase (decrease) in interest payable (273,089) 2,093,195
Loans originated for sale . . . . . . . . (47,738,265) (8,771,719)
Proceeds from sales of loans. . . . . . . 48,150,315 7,051,919
Amortization of cost of restricted stock
benefit plan . . . . . . . . . . . . . 120,000 243,000
Other . . . . . . . . . . . . . . . . . . 815,686 (2,757,561)
------------ -----------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . 7,848,400 6,893,856
Investing activities:
Proceeds from maturities of certificates
of deposit . . . . . . . . . . . . . . . 198,000 815,598
Proceeds from sales and maturities of
U.S. government and agency securities
available for sale . . . . . . . . . . . 4,500,000 35,326,805
Proceeds from sales of marketable equity
securities . . . . . . . . . . . . . . 1,410,214 435,750
Purchases of FHLB stock . . . . . . . . . (275,600) -
Proceeds from sales of FHLB stock . . . . 1,477,600 -
Proceeds from sales of mortgage-backed
securities available for sale . . . . . - 9,459,280
Purchases of certificates of deposit. . . (500,779) (202,372)
Purchases of U.S. agency securities
available for sale . . . . . . . . . . (9,000,000) (3,003,770)
Purchases of mortgage loans . . . . . . . - (9,929,250)
Purchases of mortgage-related securities
held to maturity . . . . . . . . . . . (32,560,469) (78,014,767)
Purchases of mortgage-backed securities
held to maturity . . . . . . . . . . . - (4,874,040)
Principal repayments on mortgage-related
securities held to maturity . . . . . . 11,496,337 8,613,327
Principal repayments on mortgage backed
securities held to maturity . . . . . . 2,648,616 2,462,041
Loan principal repayments . . . . . . . . 155,672,497 115,960,028
Loans originated . . . . . . . . . . . . (186,666,415) (149,181,656)
Principal repayments on loan to ESOP. . . - 290,176
Purchases of marketable equity
securities . . . . . . . . . . . . . . (2,459,890) (1,553,187)
Purchases of mortgage-backed securities
available for sale . . . . . . . . . . (2,035,207) (24,737,402)
Principal repayments on mortgage-backed
securities available for sale . . . . . 26,736,907 14,465,584
Principal repayments on mortgage-related
securities available for sale . . . . . 1,393,769 444,811
Proceeds from sale of foreclosed
properties . . . . . . . . . . . . . . 762,875 498,741
Principal repayments on loans to
unconsolidated partnership . . . . . . 132,448 124,594
Cash distributions from unconsolidated
partnerships . . . . . . . . . . . . . 100,000 50,000
Additions to office properties and
equipment . . . . . . . . . . . . . . . (2,326,537) (627,431)
Business acquisition, net of cash and
cash equivalents acquired of $5,727,802:
Loans receivable . . . . . . . . . . . . - (37,181,491)
Mortgage-backed securities . . . . . . . - (34,168,133)
U.S. government and agency securities . . - (45,543,011)
Intangible assets . . . . . . . . . . . . - (14,462,723)
Deposit accounts . . . . . . . . . . . . - 106,934,528
FHLB advances . . . . . . . . . . . . . . - 3,000,000
Other - net . . . . . . . . . . . . . . . - 2,364,176
------------ -----------
Net cash used in investing activities . . . (29,295,634) (102,233,794)
Financing activities:
Net increase in deposits . . . . . . . . 13,889,641 65,090,270
Proceeds from notes payable to the
Federal Home Loan Bank . . . . . . . . . 46,000,000 41,000,000
Repayment of notes payable to the
Federal Home Loan Bank . . . . . . . . . (36,100,000) (14,400,000)
Net increase in securities sold under
agreements to repurchase. . . . . . . . 3,382,746 2,100,000
Net decrease in advance payments by
borrowers for taxes and insurance . . . (3,934,781) (2,012,049)
Purchases of treasury stock . . . . . . (3,200,405) (3,027,919)
Dividends paid . . . . . . . . . . . . (776,357) (442,127)
Proceeds from exercise of stock options 157,745 580,833
------------ -----------
Net cash provided by financing
activities . . . . . . . . . . . . . . . 19,418,589 88,889,008
------------ -----------
Decrease in cash and cash equivalents (2,028,645) (6,450,930)
Cash and cash equivalents:
At beginning of period . . . . . . . . . 32,510,205 30,015,434
------------ -----------
At end of period . . . . . . . . . . . . $ 30,481,560 $ 23,564,504
============ ============
Supplemental disclosures of cash flow
information:
Interest paid (including amounts
credited to deposits). . . . . . . . . . $ 32,856,425 $ 25,662,053
Income taxes paid . . . . . . . . . . . . 5,827,258 2,499,583
Supplemental schedule of noncash
investing activities:
Loans receivable transferred to
foreclosed properties. . . . . . . . . . 689,706 1,197,437
See accompanying notes to unaudited consolidated financial statements.
* * * * * * * * * * * * * * * *
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended June 30, 1996
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
(GAAP) for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
necessary for a fair presentation have been included. All adjustments are
of a normal recurring nature. The unaudited consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto for the fiscal
year ended September 30, 1995 included in the Annual Report on Form 10-K
as filed by Advantage Bancorp, Inc. (the "Company") with the Securities
and Exchange Commission.
The results of operations and other data for the nine months ended June
30, 1996 are not necessarily indicative of results that may be expected
for the entire fiscal year ending September 30, 1996.
The unaudited consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Advantage Bank, FSB (the
"Bank"), and the Bank's wholly-owned subsidiaries, Advantage Financial
Center, Inc., Advantage Real Estate Services, Inc., Advantage Investments,
Inc., Advantage Financial Services and Insurance, Inc., and Amity Service
Corporation. All material intercompany accounts and transactions have
been eliminated in consolidation.
(2) Earnings Per Share Information
Earnings per share of common stock have been computed based on the
consolidated net income and weighted average shares of outstanding stock
of the Company.
Nine Months Ended June 30
1996 1995
Net income . . . . . . . . . . . . . . . $ 6,708,090 $6,075,145
=========== ==========
Weighted average shares outstanding . . . 3,457,426 3,451,609
Net effect of dilutive stock options
based on the treasury stock method
using average market price . . . . . . 228,990 261,320
----------- ----------
Total weighted average common shares
and equivalents . . . . . . . . . . . . 3,686,416 3,712,929
=========== ==========
Earnings per share (primary) . . . . . . $1.82 $1.64
=========== ==========
Weighted average shares outstanding . . . 3,457,426 3,451,609
Net effect of dilutive stock options
based on the treasury stock method
using quarter-end market price . . . . 231,431 263,265
----------- ----------
Total outstanding shares for fully
diluted purposes . . . . . . . . . . . 3,688,857 3,714,874
=========== ==========
Earnings per share (fully diluted) . . . $1.82 $1.64
=========== ==========
(3) Commitments and Contingencies
Commitments to originate mortgage loans of $9.6 million at June 30, 1996
represent amounts which the Bank plans to fund within the normal
commitment period of thirty to ninety days. Commitments to sell fixed-
rate mortgage loans were $2.4 million as of June 30, 1996. The Bank had
unissued credit under existing home equity line-of-credit loans and
commercial line-of-credit loans of $24.7 million and $25.6 million,
respectively, as of June 30, 1996.
(4) Change in Accounting Principle
During the quarter ended December 31, 1995, the Company adopted FASB
Statement No. 114 "Accounting by Creditors for Impairment of a Loan."
Under this Statement, impaired loans are measured at the present value of
expected future cashflows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. The
adoption of this Statement had no effect on the financial statements.
During the quarter ended December 31, 1995, the Company also adopted FASB
Statement No. 122, "Accounting for Mortgage Servicing Rights," which
requires that an allocation of costs be made between loans and their
related servicing rights for loans originated with a definitive plan to
sell or securitize these loans and retain the servicing rights. Statement
No. 122 requires entities to recognize a separate asset for servicing
rights which will increase the gain on sale of loans when the servicing
rights are retained. Statement No. 122 is being applied on a prospective
basis to mortgage servicing rights acquired after September 30, 1995.
Mortgage servicing rights acquired prior to October 1, 1995 will continue
to be accounted for under the prior accounting rules, under which costs
were fully allocated to the loan and servicing income was recognized as it
was received over the life of the loan. The effect of adopting this
statement was to increase net income by $331,000 during the nine months
ended June 30, 1996.
As of December 31, 1995, the Company reclassified approximately $37.3
million in securities from held-to-maturity to available-for-sale under
the one-time-opportunity allowed under the Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities, which was issued by the FASB in November 1995. Under this
Guide, a one-time classification could be made without calling into
question the propriety of the Company's stated intent relating to these
securities in prior or subsequent periods.
(5) Stockholders' Equity
Under federal law and regulations, the Bank is required to meet certain
tangible, core, and risk-based capital requirements. Tangible capital
generally consists of stockholders' equity minus certain intangible assets
and investments in and advances to "nonincludable" subsidiaries and joint
ventures. Core capital generally consists of tangible capital plus
qualifying intangible assets. The risk-based capital requirements address
credit risk related to both recorded assets and off-balance sheet
commitments and obligations. Risk-weighted assets, for regulatory
measurement purposes, at June 30, 1996, totaled $457,133,000.
The following table summarizes the Bank's capital amounts and capital
ratios, and the capital ratios required by federal law and regulations at
June 30, 1996 (dollars in thousands):
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
Tangible capital $67,994 $14,779 $53,215 6.90% 1.50% 5.40%
Core capital 67,994 29,558 38,436 6.90 3.00 3.90
Risk-based capital 73,572 36,571 37,001 16.09 8.00 8.09
The Bank's regulatory capital as of June 30, 1996 was as follows (in
thousands):
Tangible Core Risk-Based
Capital Capital Capital
Total consolidated stockholders'
equity . . . . . . . . . . . . . $94,116 $94,116 $94,116
Add unrealized loss on securities
available for sale (Bank only). . 598 598 598
Less parent company stockholders'
equity not includable in
regulatory capital . . . . . . . (18,909) (18,909) (18,909)
Loan loss allowances (limited to
1% of loans) . . . . . . . . . . - - 5,578
Nonallowable intangibles . . . . . (12,204) (12,204) (12,204)
Income tax effect of intangibles. . 4,393 4,393 4,393
-------- ------- -------
Regulatory capital . . . . . . . $67,994 $67,994 $73,572
======== ======= =======
In August 1993 the Office of Thrift Supervision ("OTS") issued a final
regulation which adds an interest-rate risk component to the risk-based
capital requirement. The regulation will become effective at a yet-to-be-
determined date. The capital requirement will be increased if the change
in the market value of the Bank's net portfolio equity as a result of a
200 basis point change in the market interest rates exceeds 2% of the
Bank's total assets. The additional capital requirement will be equal to
one-half of such excess. Management believes that this regulation will
not have a material effect on the Bank's capital requirement.
(6) Reclassifications
Certain amounts in the prior year consolidated financial statements have
been reclassified to conform with the fiscal 1996 presentation.
(7) Business Combinations
On December 16, 1994, the Company completed the acquisition of Amity
Bancshares, Inc. ("Amity") in a cash transaction for $24.8 million. The
transaction has been accounted for as a purchase. Amity, based in Tinley
Park, Illinois, was the parent company of Amity Federal Bank for Savings.
Amity had total assets of $141.2 million as of December 16, 1994. This
acquisition resulted in the recording of a core deposit intangible of
$11.8 million and goodwill (unidentifiable intangible asset) of $2.6
million. The core deposit intangible is being amortized to expense on an
accelerated basis over the estimated life of the deposits. Goodwill is
being amortized to expense at a constant rate applied to the carrying
amount of the long-term interest-earning assets.
On August 21, 1995, the Company's newly formed subsidiary, Advantage
Financial Center, Inc., completed the cash purchase of substantially all
of the assets of The Financial Center of Illinois, Inc., a mortgage
brokerage company operating in the Chicago and Milwaukee metropolitan
areas with offices in Naperville, Illinois and Wauwatosa, Wisconsin. The
purchase price was not material to the Company's consolidated financial
statements.
(8) Dividends
On February 23, 1996, the Company paid a 25% stock dividend (five-for-four
stock split) to shareholders of record on February 5, 1996.
On July 24, 1996, the Company announced the declaration of an eight cents
per share cash dividend on the Company's common stock payable August 22,
1996 to shareholders of record on August 8, 1996.
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's only active business is the business of the Bank. The
Bank's principal business is attracting retail deposits from the general
public and using such deposits to originate residential loans in its
primary market area. The Bank also originates commercial real estate,
multi-family, construction, consumer and commercial business loans. In
addition, the Bank also invests in mortgage-related securities, investment
securities, certificates of deposit, short-term liquid assets and real
estate. Finally, the Bank offers, on an agency basis, certain securities
brokerage services and insurance products to its customers. The Bank
operates out of 15 locations. It has seven full service offices located
in Kenosha, Wisconsin and full service branch offices located in Lake
Geneva, Paddock Lake, and Racine, Wisconsin; and Burbank, Gurnee, North
Chicago, Tinley Park and Zion, Illinois. The Bank also operates loan
origination facilities in Kenosha, and Racine, Wisconsin and Grayslake,
Illinois. The Bank owns five service corporations, Advantage Real Estate
Services, Inc., which owns interests in two real estate partnerships,
Advantage Investments, Inc., which invests in mortgage-related
securities, Advantage Financial Services and Insurance, Inc. which is
engaged in the business of selling non-insured investments and insurance
and providing financial planning, Advantage Financial Center, Inc., which
provides mortgage brokerage services and has offices in Wauwatosa,
Wisconsin and Naperville, Illinois, and Amity Service Corporation, which
formerly operated an insurance agency and is now inactive. Deposits of
the Bank are insured up to the maximum allowable amount by the Federal
Deposit Insurance Corporation (the "FDIC"). The Bank is subject to
regulation by the OTS and the FDIC.
The Company's results of operations are dependent primarily on net
interest income, which is the difference between the interest income
earned on its loan, mortgage-related securities and investment portfolios
and its cost of funds, consisting of interest paid on its deposits and
borrowings. When interest-bearing liabilities mature or reprice more
quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest
income. Conversely, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling interest rates could
result in a decrease in net interest income. In managing its asset-
liability mix, the Company intends to continue to emphasize, subject to
future conditions, the origination of adjustable rate mortgage loans and
the purchase of short-term and intermediate-term mortgage-related
securities and other assets.
The Company's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of regulatory
authorities.
Liquidity and Capital Resources
The Company's most liquid assets are cash and cash equivalents, which
include investments in highly liquid, short-term investments. The level
of these assets is dependent on the Company's operating, financing and
investing activities during any given period. Cash and cash equivalents
totalled $30.5 million and $23.6 million as of June 30, 1996 and 1995,
respectively.
The Company's primary sources of funds are deposits, proceeds from
principal and interest payments on loans and mortgage-related securities,
notes payable to Federal Home Loan Bank of Chicago ("FHLB") and, to a
lesser extent, reverse repurchase agreements. While maturities and
scheduled amortization of loans and mortgage-related securities are a
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
A primary investing activity of the Company is the origination of mortgage
and other loans. During the nine months ended June 30, 1996 and 1995, the
Company originated and purchased loans (including loans originated for
sale) in the amounts of $234.4 million and $167.9 million, respectively.
Other investing activities include the purchase of mortgage-related
securities (including securities available for sale) which totalled $34.6
million and $107.6 million for the nine months ended June 30, 1996 and
1995, respectively.
During the nine months ended June 30, 1996 and 1995, these activities were
funded primarily by (1) principal repayments on loans and mortgage-related
securities totalling $198.0 million and $142.4 million, respectively, (2)
net increases in deposits of $13.9 million and $65.1 million,
respectively, (3) proceeds from sales of loans of $48.2 million and $7.1
million, respectively, (4) net proceeds from borrowings from the FHLB of
$9.9 and $26.6 million, respectively, and (5) net proceeds from borrowings
under repurchase agreements of $3.4 million and $2.1 million,
respectively.
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows,
is based upon a percentage of deposits and short-term borrowings. The
current required ratio is 5.0%. The Bank's liquidity ratio was 8.9% for
the month of June 1996. Excess funds are generally invested in short-term
investments such as federal funds. In the event that the Bank should
require funds beyond its ability to generate them internally, additional
sources of funds are available through the use of FHLB advances,
repurchase agreements, and brokered deposits.
As of June 30, 1996, the Bank's capital exceeded all capital requirements
of the OTS as mandated by federal law and regulations. See Note 5 of the
Notes to Unaudited Consolidated Financial Statements.
Changes in Financial Condition
Total assets increased $23.0 million, or 2.4%, from $973.2 million at
September 30, 1995 to $996.2 million at June 30, 1996.
Loans receivable increased $31.6 million from $509.9 million as of
September 30, 1995 to $541.5 million as of June 30, 1996.
Mortgage-related securities decreased $9.9 million, or 2.8%, from $351.6
million as of September 30, 1995 to $341.7 million at June 30, 1996. This
decrease was due to the Bank's strategy of investing most of the funds
received from principal repayments on mortgage-related securities in loans
receivable since loans generally have higher yields than securities.
Deposits increased $13.9 million from $681.9 million at September 30, 1995
to $695.8 million at June 30, 1996.
Notes payable to the FHLB increased $9.9 million from $163.0 million as of
September 30, 1995 to $172.9 million as of June 30, 1996. Securities sold
under agreement to repurchase increased $3.4 million from $12.1 million as
of September 30, 1995 to $15.5 million as of June 30, 1996.
Stockholders' equity increased from $93.1 million as of September 30, 1995
to $94.1 million as of June 30, 1996. Stockholders' equity was increased
by: (1) net income of $6.7 million, and, (2) amortization of cost of
restricted stock issued under the Bank Incentive Plan of $120,000.
Stockholders' equity was reduced by (1) the open market repurchase of
$3.2 million of Company stock, (2) the payment of $776,000 in cash
dividends, and (3) a decrease of $2.2 million in the unrealized gain
(loss) (net of income tax effect) relating to securities available for
sale.
Asset Quality
The Company and Bank regularly review assets to determine proper
valuation. Management's monitoring of the asset portfolio includes a
review of historical loss experience, known and inherent risks in the
portfolio, the value of any underlying collateral, and prospective
economic conditions. Loans are placed on nonaccrual status when loans are
contractually delinquent more than 90 days or earlier if warranted based
on management's assessment of the loan. When loans are placed on
nonaccrual status, interest previously accrued is reversed with a charge
to interest income. The following table sets forth information regarding
the Company's nonaccrual loans and foreclosed properties at the dates
indicated (dollars in thousands). All loans which are contractually past
due more than 90 days are included in nonaccrual loans.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
1996 1996 1995 1995 1995
Nonperforming loans:
One- to four-family . . $1,959 $ 948 $ 608 $ 604 $1,124
Commercial real estate. 1,393 2,094 1,608 1,685 1,769
Construction and land . - 72 72 - -
Commercial business . . 42 89 46 105 78
Consumer and other . . 102 72 40 13 107
------ ------ ------ ------ ------
Total non-performing
loans . . . . . . . . . $3,496 $3,275 $2,374 $2,407 $3,078
====== ====== ====== ====== ======
Foreclosed properties:
One-to four-family . . $1,165 $1,568 $1,617 $1,547 $ 679
Commercial real estate. 534 558 558 533 621
Construction and land . 280 280 280 - 280
------ ------ ------ ------ ------
Total foreclosed
properties . . . . . . $1,979 $2,406 $2,455 $2,080 $1,580
====== ====== ====== ====== ======
Total non-performing
assets . . . . . . . . $5,475 $5,681 $4,829 $4,487 $4,658
====== ====== ====== ====== ======
Non-performing loans
to total loans . . . . 0.64% 0.62% 0.46% 0.47% 0.61%
====== ====== ====== ====== ======
Non-performing assets
to total assets . . . . 0.55% 0.58% 0.50% 0.46% 0.49%
====== ====== ====== ====== ======
Allowance for Losses on Loans
The following table sets forth an analysis of the Company's allowance for
losses on loans (dollars in thousands):
Nine Year Year
Months Ended Ended Ended
June 30, Sept. 30, Sept 30,
1996 1995 1994
Balance at beginning of period . . $5,271 $5,327 $4,937
Additions charged to operations:
One- to four-family . . . . . . . - 30 50
Multi-family and commercial real - 60 526
estate . . . . . . . . . . . .
Consumer . . . . . . . . . . . . - 50 24
Commercial business . . . . . . . 340 320 120
------ ------ ------
340 460 720
Additions from business acquisitions:
One- to four-family . . . . . . . - 469 -
Multi-family and commercial real
estate . . . . . . . . . . . - 49 -
------ ------ ------
0 518 0
Recoveries:
One- to four-family . . . . . . . - 14 31
Consumer . . . . . . . . . . . . 5 12 61
Commercial business . . . . . . . 1 12 6
------ ------ ------
6 38 98
Charge-offs:
One- to four-family . . . . . . . (29) (40) -
Multi-family and commercial real
estate . . . . . . . . . . . . (4) (841) (408)
Consumer . . . . . . . . . . . . (6) (32) (20)
Commercial business . . . . . . . - (159) -
------ ------ ------
(39) (1,072) (428)
------ ------ ------
Net charge-offs . . . . . . . . . . (33) (1,034) (330)
------ ------ ------
Balance at end of period . . . . . $5,578 $5,271 $5,327
====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the
period (annualized) . . . . . . . 0.00% 0.20% 0.08%
====== ====== ======
Allowance for losses on loans to
non-performing loans at end of
the period . . . . . . . . . . . 159.5% 219.0% 106.8%
====== ====== ======
Allowance for losses on loans to
total loans at end of the period. 1.02% 1.03% 1.25%
====== ====== ======
While management believes that it uses the best information available to
determine the allowance for losses on loans, unforeseen changes in market
conditions could result in adjustments and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in determining the allowance.
Results of Operations - Comparison of the Three months Ended June 30, 1996
and 1995
General
Net income for the three months ended June 30, 1996 was $2.19 million
compared to $2.06 million for the comparable 1995 quarter.
Net Interest Income
The following table presents certain information related to net interest
income (dollars in thousands):
For the Three Months
Ended June 30
1996 1995
Average interest-earning assets . . . . $933,489 $900,400
Total interest income . . . . . . . . . 18,380 17,825
Average yield on interest-earning
assets . . . . . . . . . . . . . . . . 7.88% 7.92%
Average interest-bearing liabilities . $874,657 $846,756
Total interest expense . . . . . . . . 10,797 10,825
Average rate on interest-bearing
liabilities. . . . . . . . . . . . . . 4.94% 5.11%
Average net earning assets . . . . . . $58,832 $53,644
Net interest income before provision
for loan losses. . . . . . . . . . . . 7,583 7,000
Net interest rate spread . . . . . . . 2.86% 2.81%
Net interest margin (net interest
income divided by average
interest-earning assets) . . . . . . . 3.25% 3.11%
Net interest income before provision for loan losses was $7.6 million for
the three months ended June 30, 1996, compared with $7.0 million for the
comparable 1995 quarter, an increase of $600,000. This increase was
primarily due to a $33.1 million increase in average interest-bearing
assets from the 1995 quarter to the 1996 quarter.
The net interest rate spread increased from 2.81% for the 1995 quarter to
2.86% for the 1996 quarter. This increase was primarily due to the
Company's strategy to maintain or increase its margin by increasing its
commercial and consumer loans, which have higher margins than mortgage
loans. Commercial and consumer loans also have higher credit risk. While
the Company's credit losses on these loans have been minimal in the past,
there can be no assurance that such losses will remain minimal in the
future.
Provision for Losses on Loans
The provision for losses on loans was $100,000 for the three months ended
June 30, 1996 compared to $40,000 for the comparable 1995 quarter.
Nonperforming loans increased from $3.1 million as of June 30, 1995 to
$3.5 million as of June 30, 1996.
Non-interest Income
Non-interest income was $1.9 million for the three months ended June 30,
1996 compared to $1.1 million for the comparable 1995 quarter, an increase
of $800,000. This increase was due to (1) a $91,000 increase in gains on
sale of loans, (2) mortgage brokerage commissions of $529,000 earned
during the 1996 quarter by the Company's wholly-owned subsidiary,
Advantage Financial Center, Inc., which began operations on August 21,
1995 (there were no such commissions during the comparable 1995 quarter),
and (3) a $136,000 increase in service charges on deposit accounts
primarily relating to an increase in the number of checking accounts. The
increase in gains on sale of loans related primarily to the Company's
adoption of FASB Statement No. 122, "Accounting for Mortgage Servicing
Rights," as of October 1, 1995 (see Note 4 of the Notes to Unaudited
Ccnsolidated Financial Statements).
Non-interest Expense
Non-interest expense was $5.9 million for the three months ended June 30,
1996 compared to $4.9 million for the comparable 1995 quarter, an
increase of $1.0 million. This increase was primarily the result of
expenses associated with the Company's new subsidiary, Advantage Financial
Center, Inc. Excluding expenses relating to this new subsidiary, total
expenses for the 1996 quarter increased 8% compared to the 1995 quarter.
This increase was due to a general increase in the Company's business
including the lease of a new Operations Center in Kenosha, Wisconsin
which opened in April 1996 and houses several departments that were
formerly in the Company's Home Office.
Income Taxes
The Company's effective income tax rate was 36.7% for the quarter ended
June 30, 1996 compared to 35.7% for the quarter ended June 30, 1995.
Results of Operations - Comparison of the Nine Months Ended June 30, 1996
and 1995
General
Net income for the nine months ended June 30, 1996 was $6.7 million
compared to $6.1 million for the comparable 1995 period.
Net Interest Income
The following table presents certain information related to net interest
income (dollars in thousands):
For the Nine Months
Ended June 30
1996 1995
Average interest-earning assets . . . . . $927,767 $841,178
Total interest income . . . . . . . . . . 54,928 49,256
Average yield on interest-earning assets. 7.89% 7.81%
Average interest-bearing liabilities . . $867,737 $786,716
Total interest expense . . . . . . . . . 32,583 28,463
Average rate on interest-bearing
liabilities . . . . . . . . . . . . . . 5.01% 4.82%
Average net earning assets . . . . . . . $ 60,030 $54,462
Net interest income before provision
for loan losses. . . . . . . . . . . . . 22,345 20,793
Net interest rate spread . . . . . . . . 2.89% 2.98%
Net interest margin (net interest
income divided by average
interest-earning assets) . . . . . . . . 3.21% 3.30%
Net interest income before provision for loan losses was $22.3 million for
the nine months ended June 30, 1996, compared with $20.8 million for the
comparable 1995 period, an increase of $1.5 million. The increase in net
interest income relates to a $86.6 million increase in average interest-
earning assets which includes a $45.5 million increase in average loans
receivable and a $32.9 million increase in average mortgage-related
securities. These increases are due primarily to the Amity acquisition as
of December 16, 1994. See Note 7 to the Notes to Unaudited Ccnsolidated
Financial Statements.
The net interest rate spread decreased from 2.98% for the 1995 period to
2.89% for the 1996 period. This decrease was primarily due to an increase
in competition for loans and deposits in the Company's market area. This
decrease in margin was reversed during the quarter ended June 30, 1996 but
could continue in the future. However, the Company's strategy is to
maintain or increase its margin by increasing its commercial and consumer
loans, which have higher margins than mortgage loans.
Provision for Losses on Loans
The provision for losses on loans remained unchanged at $340,000 for the
nine months ended June 30, 1996 compared with the comparable 1995 period.
Non-interest Income
Non-interest income was $6.0 million for the nine months ended June 30,
1996 compared to $2.9 million for the comparable 1995 period, an increase
of $3.1 million. This increase was due to (1) a $678,000 increase in
gains on sale of loans, (2) mortgage brokerage commissions of $1.5 million
earned during the 1996 period by the Company's wholly-owned subsidiary,
Advantage Financial Center, Inc., which started operations on August 21,
1995 (there were no such comissions during the comparable 1995 period),
(3) a $455,000 increase in gains on sales of securities available for
sale, and (4) a $401,000 increase in service charges on deposit accounts
primarily relating to an increase in the number of checking accounts. The
increase in gains on sale of loans related to (1) relatively low market
interest rates during the 1996 period compared to the 1995 period, which
resulted in an increase in the origination of fixed rate loans which are
typically sold by the Company in the secondary market, and (2) the
Company's adoption of FASB Statement No. 122, "Accounting for Mortgage
Servicing Rights," as of October 1, 1995 (see Note 4 to Unaudited
Consolidated Financial Statements).
Non-interest Expense
Non-interest expense was $17.5 million for the nine months ended June 30,
1996 compared to $13.8 million in the comparable 1995 period, an increase
of $3.7 million. This increase was primarily due to costs incurred
relating to the acquisition and ongoing operations of Amity and Advantage
Financial Center.
Income Taxes
The Company's effective income tax rate was 36.6% for the period ended
June 30, 1996 compared to 36.0% for the period ended June 30, 1995.
Part II - Other Information
Item 1 Legal Proceedings
From time to time the Bank and its subsidiaries is a party to legal
proceedings arising out of its lending activities and other operations.
However, there are no pending legal proceedings to which the Bank is a
party which, if determined adversely to the Bank, would have a material
adverse effect on the consolidated financial position of the Company.
Item 2 Changes in Securities
Not applicable.
Item 3 Default upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Reference is made to the Exhibit Index with respect to the
exhibit filed with this Form 10-Q. In addition, see Note 3 to
the Unaudited Consolidated Financial Statements for the
information required by Exhibit 11 - Computation of Earnings Per
Share
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
* * * * * * * * * * * * * * * * * * * * * * * *
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advantage Bancorp, Inc.
(registrant)
Date: August 2, 1996 By: /s/ Paul P. Gergen
Paul P. Gergen
Chairman of the Board
Chief Executive Officer
By: /s/ John Stampfl
John Stampfl
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
ADVANTAGE BANCORP, INC.
FORM 10Q
Quarterly Period Ended June 30, 1996
Exhibit No. Exhibit Page Number
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF ADVANTAGE BANCORP, INC. AS
OF AND FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 18,119
<INT-BEARING-DEPOSITS> 12,974
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 169,193
<INVESTMENTS-CARRYING> 177,860
<INVESTMENTS-MARKET> 178,582
<LOANS> 543,519
<ALLOWANCE> 5,578
<TOTAL-ASSETS> 996,245
<DEPOSITS> 695,815
<SHORT-TERM> 15,492
<LIABILITIES-OTHER> 17,912
<LONG-TERM> 172,910
0
0
<COMMON> 94,116
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 996,245
<INTEREST-LOAN> 33,386
<INTEREST-INVEST> 20,784
<INTEREST-OTHER> 758
<INTEREST-TOTAL> 54,928
<INTEREST-DEPOSIT> 23,770
<INTEREST-EXPENSE> 32,583
<INTEREST-INCOME-NET> 22,345
<LOAN-LOSSES> 340
<SECURITIES-GAINS> 595
<EXPENSE-OTHER> 17,455
<INCOME-PRETAX> 10,572
<INCOME-PRE-EXTRAORDINARY> 6,708
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,708
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 7.89
<LOANS-NON> 3,496
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,271
<CHARGE-OFFS> 39
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 5,578
<ALLOWANCE-DOMESTIC> 5,578
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
