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 March 31, 1997
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 3,231,583 at April 30, 1997.
<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 March 31, 1997 and September 30, 1996 . . . . 3
Consolidated Statements of Income for the Three
Months and Six Months ended March 31, 1997 and
1996 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Six
Months ended March 31, 1997 and 1996 . . . . . . 5
Notes to Consolidated Financial Statements . . . 7
Management's Discussion and Analysis of Financial
Item 2 Condition and Results of Operations . . . . . . . 9
Part II. Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . . . . 14
Item 2 Changes in Securities . . . . . . . . . . . . . . 14
Item 3 Default Upon Senior Securities . . . . . . . . . 14
Item 4 Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . 14
Item 5 Other Information . . . . . . . . . . . . . . . . 14
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . 15
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
March 31 September 30
ASSETS 1997 1996
Cash and cash equivalents (includes
interest-earning deposits of
$38,106,009, Mar. 31, 1997;
$17,714,761 - Sept. 30, 1996) . . . . $ 52,222,397 $35,445,646
Certificates of deposit (approximates
market value) . . . . . . . . . . . 508,443 611,067
U.S. government and agency securities
available for sale (at market value) 21,850,497 29,385,356
Mortgage-backed securities available for
sale (at market value) . . . . . . 128,067,237 140,086,665
Mortgage-backed securities held to
maturity (market value of $9,730,648 -
Mar. 31, 1997; $11,159,367 - Sept. 30,
1996) . . . . . . . . . . . . . . . . 9,684,856 11,011,238
Mortgage-related securities available
for sale (at market value) . . . . . 14,476,645 15,226,120
Mortgage-related securities held to
maturity (market value of $176,846,000
- Mar. 31,1997; $172,913,430 - Sept.
30, 1996) . . . . . . . . . . . . . . 175,570,788 171,470,022
Marketable equity securities (at market
value) . . . . . . . . . . . . . . . 6,974,704 5,043,091
Loans held for sale (at lower of cost or
market) . . . . . . . . . . . . . . . 2,688,926 3,056,000
Loans receivable . . . . . . . . . . . 564,605,168 559,725,640
Foreclosed properties and properties
subject to foreclosure . . . . . . . 2,606,220 1,403,440
Investments in and advances to
unconsolidated partnerships . . . . 7,260,994 7,397,416
Office properties and equipment . . . 12,732,345 12,531,601
Federal Home Loan Bank stock - at cost 8,795,600 8,795,600
Accrued interest on investments and
mortgage-related securities . . . . . 2,776,596 2,640,672
Intangible assets . . . . . . . . . . . 6,377,107 6,902,259
Deferred income tax . . . . . . . . . . 2,126,630 2,641,659
Prepaid expenses and other assets . . . 2,113,811 3,012,020
------------- ------------
$1,021,438,964 $1,016,385,512
============= =============
LIABILITIES
Deposits . . . . . . . . . . . . . . . $671,943,299 $680,850,865
Notes payable to Federal Home Loan Bank 162,360,000 175,910,000
Securities sold under agreements to
repurchase . . . . . . . . . . . . . 81,077,898 48,355,457
Advance payments by borrowers for taxes
and insurance . . . . . . . . . . . . 3,749,381 8,496,925
Accrued interest on deposit accounts . 2,746,380 3,711,995
Accrued interest on notes payable and
other borrowings . . . . . . . . . . 2,873,277 1,377,204
Other liabilities . . . . . . . . . . . 3,203,054 8,419,561
Accrued income taxes . . . . . . . . . 3,240,104 397,102
----------- -----------
Total liabilities . . . . . . . . 931,193,393 927,519,109
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: 3,231,583
- Mar. 31, 1997; 3,326,768 - Sept. 30,
1996 . . . . . . . . . . . . . . . . . 33,000 33,000
Additional paid-in capital . . . . . . 37,751,499 37,751,499
Loan to Employee Stock Ownership Plan . (1,704,941) (1,704,941)
Unearned restricted stock awarded . . . (791,277) (894,777)
Treasury stock, at cost (893,197 shares
- Mar. 31, 1997; 798,102 shares -
Sept. 30, 1996) . . . . . . . . . . . (21,385,840) (17,627,105)
Unrealized gain (loss) on securities
available for sale - net . . . . . . 94,487 (699,857)
Retained earnings . . . . . . . . . . 76,248,643 72,008,584
------------- -------------
Total stockholders' equity . . . . 90,245,571 88,866,403
------------- -------------
$1,021,438,964 $1,016,385,512
============= =============
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest on loans . . . . . $11,890,247 $11,030,701 23,937,695 22,120,280
Interest on mortgage-related
securities . . . . . . . . 5,935,140 6,117,318 12,044,996 12,420,746
Interest and dividends on
investment securities . . 591,248 781,168 1,254,261 1,497,861
Other interest income . . . 374,121 220,429 704,513 508,684
---------- ---------- ---------- ----------
Total interest income . . . 18,790,756 18,149,616 37,941,465 36,547,571
Interest expense:
Interest on deposits . . . 7,593,405 7,817,810 15,492,596 15,872,682
Interest on notes payable
and other borrowings . . . 3,693,885 2,971,395 7,247,418 5,913,460
---------- ---------- ---------- ----------
Total interest expense . . 11,287,290 10,789,205 22,740,014 21,786,142
---------- ---------- ---------- ----------
Net interest income . . . . . 7,503,466 7,360,411 15,201,451 14,761,429
Provision for losses on loans 100,000 120,000 180,000 240,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on
loans . . . . . . . . . . . 7,403,466 7,240,411 15,021,451 14,521,429
Non-interest income:
Loan fees and service
charges . . . . . . . . . 199,261 170,919 369,681 321,653
Mortgage brokerage
commissions . . . . . . . 333,027 589,833 804,164 1,019,735
Service charges on deposit
accounts . . . . . . . . . 687,730 582,333 1,386,977 1,146,998
Gain on sales of loans - net 185,109 359,362 388,800 614,840
Gain on sale of securities
available for sale . . . . 94,587 - 312,703 488,948
Equity in net income of
unconsolidated
partnerships . . . . . . . 46,090 27,360 90,590 56,560
Other . . . . . . . . . . . 285,204 275,887 551,330 491,517
---------- ---------- ---------- ----------
Total non-interest income . 1,831,008 2,005,694 3,904,245 4,140,251
Non-interest expenses:
Compensation and employee
benefits . . . . . . . . . 2,652,062 2,528,145 5,360,944 4,970,479
Occupancy . . . . . . . . . 807,206 681,387 1,621,874 1,385,497
Data processing . . . . . . 175,418 165,231 356,572 319,103
Advertising . . . . . . . . 113,190 88,982 323,798 222,083
Federal deposit insurance
premiums . . . . . . . . . 112,235 399,997 428,198 796,229
Amortization of intangible
assets . . . . . . . . . . 258,528 590,061 525,153 1,439,629
Professional services . . . 90,859 156,125 204,527 272,189
Other . . . . . . . . . . . 1,105,373 1,105,208 2,287,729 2,139,793
---------- ---------- ---------- ----------
Total non-interest expenses 5,314,871 5,715,136 11,108,795 11,545,002
---------- ---------- ---------- ----------
Income before income taxes . 3,919,603 3,530,969 7,816,901 7,116,678
Income taxes . . . . . . . . 1,382,229 1,292,289 2,826,428 2,597,518
---------- ---------- ---------- ----------
Net income . . . . . . . . . $2,537,374 $2,238,680 $4,990,473 $4,519,160
========= ========= ========= =========
Earnings per share . . . . . $0.73 $0.60 $1.44 $1.22
===== ===== ===== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended March 31
1997 1996
Operating activities:
Net income . . . . . . . . . . . . . . $4,990,473 $4,519,160
Provision for losses on loans . . . . 180,000 240,000
Provision for depreciation . . . . . 676,140 503,322
Amortization of intangible assets . . 525,153 1,439,629
Equity in net income of
unconsolidated partnerships . . . . (90,590) (56,560)
Net amortization of mortgage-related
securities discounts and premiums . (338,503) (428,011)
Decrease in deferred income tax
liability . . . . . . . . . . . . . - (114,816)
Increase (decrease) in accrued income
taxes . . . . . . . . . . . . . . . 2,843,002 (1,735,923)
Decrease (increase) in interest
receivable . . . . . . . . . . . . . (159,629) (173,459)
Decrease in accrued FDIC SAIF special
assessment . . . . . . . . . . . . . (4,434,589) -
Decrease (increase) in interest
payable . . . . . . . . . . . . . . 530,458 (826,029)
Loans originated for sale . . . . . . (19,900,088) (36,321,922)
Proceeds from sales of loans . . . . 20,267,162 34,731,922
Amortization of cost of restricted
stock benefit plan . . . . . . . . . 103,500 90,000
Other . . . . . . . . . . . . . . . . (555,737) (784,697)
---------- ----------
Net cash provided by operating
activities . . . . . . . . . . . . . 4,636,752 1,082,616
Investing activities:
Proceeds from maturities of
certificates of deposit . . . . . . 102,706 198,000
Proceeds from sales and maturities of
U.S. government and agency
securities available for sale . . . 7,500,000 5,500,000
Proceeds from sales of marketable
equity securities . . . . . . . . . 606,783 1,135,525
Proceeds from sale of FHLB stock . . - 1,478,810
Purchases of certificates of deposit - (500,779)
Purchases of U.S. agency securities
available for sale . . . . . . . . . - (7,000,000)
Purchases of mortgage-related
securities held to maturity . . . . (13,984,653) (16,628,437)
Principal repayments on mortgage-
related securities held to maturity
10,169,892 8,989,619
Principal repayments on mortgage-
backed securities held to maturity . 1,464,242 2,030,564
Loan principal repayments . . . . . . 111,729,975 104,853,581
Loans originated . . . . . . . . . . (117,776,871) (111,913,290)
Purchases of marketable equity
securities . . . . . . . . . . . . . (1,721,393) (1,956,017)
Principal repayments on mortgage-
backed securities available for sale 12,598,961 17,466,633
Principal repayments on mortgage-
related securities available for
sale . . . . . . . . . . . . . . . . 611,809 788,525
Proceeds from sale of foreclosed
properties . . . . . . . . . . . . . 479,938 358,785
Principal repayments on loans to
unconsolidated partnership . . . . . 120,049 87,360
Cash distributions from
unconsolidated partnerships . . . . 107,263 100,000
Additions to office properties and
equipment . . . . . . . . . . . . . (876,884) (1,165,877)
------------ -----------
Net cash provided by investing
activities . . . . . . . . . . . . . 11,131,817 3,823,002
Financing activities:
Net increase (decrease) in deposits . (8,907,566) 1,715,794
Proceeds from notes payable to the
Federal Home Loan Bank . . . . . . . 37,000,000 34,000,000
Repayment of notes payable to the
Federal Home Loan Bank . . . . . . . (50,550,000) (33,100,000)
Net increase in securities sold under
agreements to repurchase . . . . . 32,722,441 10,873,970
Net decrease in advance payments by
borrowers for taxes and insurance . (4,747,544) (6,438,529)
Purchases of treasury stock . . . . . (4,185,066) (1,075,155)
Dividends paid . . . . . . . . . . . (589,687) (499,131)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . 265,604 118,665
----------- ----------
Net cash provided by financing
activities . . . . . . . . . . . . . 1,008,182 5,595,614
----------- ----------
Increase in cash and cash equivalents . 16,776,751 10,501,232
Cash and cash equivalents:
At beginning of period . . . . . . . 35,445,646 32,510,205
---------- ----------
At end of period . . . . . . . . . . $52,222,397 $43,011,437
========== ==========
Supplemental disclosures of cash flow
information:
Interest paid (including amounts
credited to deposits) . . . . . . . $ 22,209,556 $ 22,612,171
Income taxes paid (refunded) . . . . (16,574) 4,448,258
Supplemental schedule of noncash
investing activities:
Loans receivable transferred to
foreclosed properties . . . . . . . 1,682,718 685,830
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Six Months Ended March 31, 1997
(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, 1996 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 six months ended March
31, 1997 are not necessarily indicative of results that may be expected
for the entire fiscal year ending September 30, 1997.
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. As of October 31, 1996, Advantage Financial Center, Inc. was
liquidated and dissolved and its mortgage brokerage business is now
conducted as a division of the Bank. 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.
Six Months Ended March 31
1997 1996
Net income . . . . . . . . . . . . $ 4,990,473 $4,519,160
========== =========
Weighted average shares
outstanding . . . . . . . . . . . 3,269,989 3,468,514
Net effect of dilutive stock options
based on the treasury stock method
using average market price . . . 207,309 228,258
--------- ---------
Total weighted average common shares
and equivalents . . . . . . . . . 3,477,298 3,696,772
========= =========
Earnings per share (primary) . . . $1.44 $1.22
==== ====
Weighted average shares
outstanding . . . . . . . . . . . 3,269,989 3,468,514
Net effect of dilutive stock options
based on the treasury stock method
using quarter-end market price . 216,476 232,504
--------- ---------
Total outstanding shares for fully
diluted purposes . . . . . . . . 3,486,465 3,701,018
========= =========
Earnings per share (fully diluted) $1.43 $1.22
===== =====
Statement of Financial Accounting Standard No. 128, Earnings Per Share,
was issued in February 1997 and will be effective for interim and annual
periods ending after December 15, 1997. Statement No. 128 replaces the
presentation of primary earnings per share ("EPS") with a presentation of
basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Basic EPS will typically be higher
than primary EPS. Statement No. 128 also requires presentation of diluted
EPS which is computed similarly to fully diluted EPS under existing
accounting rules.
EPS computed under Statement No. 128 would be reported as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
Basic earnings per $0.78 $0.64 $1.53 $1.30
share
Diluted earnings $0.73 $0.60 $1.43 $1.22
per share
(3) Commitments and Contingencies
Commitments to originate mortgage loans of $7.6 million at March 31, 1997
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 $1.3 million as of March 31, 1997. The Bank had
unissued credit under existing home equity line-of-credit loans and
commercial line-of-credit loans of $28.8 million and $25.8 million,
respectively, as of March 31, 1997.
(4) 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 March 31, 1997, totaled $473,554,000.
The following table summarizes the Bank's capital amounts and capital
ratios, and the capital ratios required by federal law and regulations at
March 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
<S> <C> <C> <C> <C>
Tangible capital $64,320 $15,022 $49,298 6.37% 1.50% 4.87%
Core capital 64,320 30,044 34,276 6.37 3.00 3.37
Risk-based capital 70,116 37,884 32,232 14.81 8.00 6.81
</TABLE>
The Bank's regulatory capital as of March 31, 1997 was as follows (in
thousands):
Tangible Core Risk-Based
Capital Capital Capital
Total consolidated stockholders'
equity . . . . . . . . . . . . . . $90,246 $90,246 $90,246
Add unrealized loss on securities
available for sale (Bank only) . . 536 536 536
Less parent company stockholders'
equity not includable in regulatory
capital . . . . . . . . . . . . . (22,256) (22,256) (22,256)
Loan loss allowances (limited to 1%
of loans) . . . . . . . . . . . . - - 5,796
Nonallowable intangibles . . . . . . (6,572) (6,572) (6,572)
Income tax effect of intangibles . . 2,366 2,366 2,366
------ ------ ------
Regulatory capital . . . . . . . . $64,320 $64,320 $70,116
====== ====== ======
(5) Reclassifications
Certain amounts in the prior year consolidated financial statements have
been reclassified to conform with the fiscal 1997 presentation.
(6) Dividends
On April 25, 1997, the Company declared a $0.10 per share cash dividend on
the Company's common stock payable May 22, 1997 to shareholders of record
on May 8, 1997.
<PAGE>
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, Waukegan, North
Chicago, Tinley Park and Zion, Illinois. The Bank also operates loan
origination facilities in Kenosha, Racine and Wauwatosa, Wisconsin and
Grayslake and Naperville, Illinois. The Bank owns four service
corporations, Advantage Real Estate Services, Inc., which owns interests
in three 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, 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 Office of Thrift
Supervision ("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 $52.2 million and $43.0 million as of March 31, 1997 and 1996,
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 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.
The primary investing activity of the Company is the origination of
mortgage and other loans. During the six months ended March 31, 1997 and
1996, the Company originated and purchased loans (including loans
originated for sale) in the amounts of $137.7 million and $148.2 million,
respectively. Other investing activities include the purchase of
mortgage-related securities (including securities available for sale)
which totalled $14.0 million and $16.6 million for the six months ended
March 31, 1997 and 1996, respectively.
During the six months ended March 31, 1997 and 1996, these activities were
funded primarily by (1) principal repayments on loans and mortgage-related
securities totalling $136.7 million and $134.2 million, respectively, (2)
proceeds from sales of loans of $20.3 million and $34.7 million,
respectively, and (3) net proceeds from borrowings under repurchase
agreements of $32.7 million and $10.9 million, respectively. These items
were partially offset by net repayments of notes payable to the FHLB
during the six months ended March 31, 1997 of $13.6 million. Borrowings
under repurchase agreements increased during the 1997 period due to new
repurchase agreements with local customers which provide more favorable
terms relative to other funding sources.
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 10.7% for
the month of March 1997. 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 March 31, 1997, the Bank's capital exceeded all capital requirements
of the OTS as mandated by federal law and regulations. See Note 4 of the
Notes to Unaudited Consolidated Financial Statements.
Changes in Financial Condition
Total assets increased $5.0 million from $1.016 billion at September 30,
1996 to $1.021 billion at March 31, 1997.
Loans receivable increased $4.9 million from $559.7 million as of
September 30, 1996 to $564.6 million as of March 31, 1997.
Mortgage-related securities decreased $10.0 million from $337.8 million as
of September 30, 1996 to $327.8 million at March 31, 1997. 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 mortgage-related
securities.
Deposits decreased $9.0 million from $680.9 million at September 30, 1996
to $671.9 million at March 31, 1997. This decrease relates primarily to a
decrease in brokered deposits from $89.3 million as of September 30.1996
to $82.3 million as of March 31, 1997.
Notes payable to the FHLB decreased $13.5 million from $175.9 million as
of September 30, 1996 to $162.4 million as of March 31, 1997. This
decrease was more than offset by a $32.7 million increase in securities
sold under agreement to repurchase during the same period.
Stockholders' equity increased from $88.9 million as of September 30, 1996
to $90.2 million as of March 31, 1997. Stockholders' equity was increased
by: (1) net income of $5.0 million, and (2) an increase of $794,000 in
the unrealized gain (net of income tax effect) relating to securities
available for sale. Stockholders' equity was reduced by: (1) the open
market repurchase of $4.2 million of the Company's common stock, and (2)
the payment of $590,000 in cash dividends.
Asset Quality
The Company and the 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.
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
1997 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
One- to four-family . . $2,463 $1,851 $666 $1,959 $948
Commercial real estate . 469 1,138 616 1,393 2,094
Construction and land - - 1,774 - 72
Commercial business . . 23 23 274 42 89
Consumer and other . . . 121 271 84 102 72
----- ----- ----- ----- -----
Total non-performing loans
$3,076 $3,283 $3,414 $3,496 $3,275
===== ===== ===== ===== =====
Foreclosed properties:
One-to four-family . . . $1,771 $1,452 $894 $1,165 $1,568
Commercial real estate . 835 971 534 534 558
Construction and land . - - - 280 280
----- ----- ----- ----- -----
Total foreclosed
properties . . . . . . $2,606 $2,423 $1,428 $1,979 $2,406
===== ===== ===== ===== =====
Total non-performing
assets . . . . . . . . . $5,682 $5,706 $4,842 $5,475 $5,681
===== ===== ===== ===== =====
Non-performing loans to
total loans . . . . . . 0.54% 0.57% 0.61% 0.64% 0.62%
===== ===== ===== ===== =====
Non-performing assets to
total assets . . . . . . 0.56% 0.55% 0.48% 0.55% 0.58%
===== ===== ===== ===== =====
</TABLE>
Allowance for Losses on Loans
The following table sets forth an analysis of the Company's allowance for
losses on loans (dollars in thousands):
Six Months Year Year
Ended Ended Ended
Mar. 31, Sept. 30, Sept. 30,
1997 1996 1995
Balance at beginning of period
$5,773 $ 5,271 $ 5,327
Additions charged to
operations:
One- to four-family . . . - - 30
Multi-family and commercial
real estate . . . . . . - - 60
Consumer . . . . . . . . . - - 50
Commercial business . . . 180 480 320
------- ------- --------
180 480 460
Additions from business
acquisitions:
One- to four-family . . . - - 469
Multi-family and commercial
real estate . . . . . . - - 49
------- ------- --------
0 0 518
Recoveries:
One- to four-family 26 40 14
Consumer . . . . . . . . . - 21 12
Commercial business . . . 22 1 12
------- ------- --------
48 62 38
Charge-offs:
One- to four-family . . . (123) (29) (40)
Multi-family and commercial
real estate . . . . . . - - (841)
Consumer . . . . . . . . . (67) (8) (32)
Commercial business . . . - (3) (159)
------- ------- --------
(190) (40) (1,072)
------- ------- --------
Net recoveries (charge-offs) (142) 22 (1,034)
------- ------- --------
Balance at end of period . . $5,811 $5,773 $5,271
====== ====== ======
Ratio of net charge-offs to
average loans outstanding
during the period
(annualized) . . . . . . . 0.05% 0.00% 0.21%
====== ====== =====
Allowance for losses on loans
to non-performing loans at
end of the period . . . . 188.9% 169.1% 219.0%
====== ====== ======
Allowance for losses on loans
to total loans at end of the
period . . . . . . . . . . 1.02% 1.03% 1.03%
====== ====== ======
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 March 31,
1997 and 1996
General
Net income for the three months ended March 31, 1997 increased 13.3% to
$2.5 million from $2.2 million for the comparable 1996 quarter.
Net Interest Income
The following table presents certain information related to net interest
income (dollars in thousands):
For the Three Months
Ended March 31
1997 1996
Average interest-earning assets . . . . $969,018 $ 922,652
Total interest income . . . . . . . . . 18,790 18,150
Average yield on interest-earning
assets . . . . . . . . . . . . . . . 7.76% 7.87%
Average interest-bearing liabilities . $909,548 $ 861,980
Total interest expense . . . . . . . . 11,287 10,789
Average rate on interest-bearing
liabilities . . . . . . . . . . . . 4.96% 5.01%
Average net earning assets . . . . . . $59,470 $60,672
Net interest income before provision
for loan losses . . . . . . . . . . 7,503 7,361
Net interest rate spread . . . . . . . 2.79% 2.86%
Net interest margin (net interest
income divided by average interest-
earning assets) . . . . . . . . . . 3.10% 3.19%
Net interest income before provision for loan losses was $7.5 million for
the three months ended March 31, 1997, compared with $7.4 million for the
comparable 1996 quarter, an increase of $100,000. This increase was
primarily due to a $46.4 million increase in average interest-earning
assets which includes a $49.3 million increase in average loans
receivable. This increase was partially offset by a $12.7 million
reduction in average mortgage-related securities.
The net interest rate margin decreased from 3.19% for the 1996 quarter to
3.10% for the 1997 quarter. This decrease was primarily due to an increase
in competition for loans and deposits. This decrease could continue in
the future but it is the Company's strategy to maintain its interest rate
margin by increasing its higher-yielding commercial and consumer loans and
decreasing its mortgage-related securities. While commercial and consumer
loans earn higher yields than mortgage-related securities, they 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
March 31, 1997 compared to $120,000 for the comparable 1996 quarter. The
Company's ratio of allowance for losses on loans to nonperforming loans
increased to 188.9% as of March 31, 1997 compared to 168.04% as of March
31, 1996.
Non-interest Income
Non-interest income decreased to $1.8 million for the three months ended
March 31, 1997 compared to $2.0 million for the comparable 1996 quarter.
This decrease was due to a 44% decrease in mortgage brokerage commissions
and a 49% decrease in gains on sales of loans, both relating to higher
market interest rates during fiscal 1997 which have decreased mortgage
origination volume nationwide. Excluding the aforementioned items which
decreased, the other categories of noninterest income increased by 24%.
Service charges on deposit accounts, which is the largest category of
noninterest income, increased 18% from $582,000 in the 1996 quarter to
$688,000 in the 1997 quarter.
Non-interest Expense
Non-interest expenses decreased to $5.3 million for the 1997 quarter
compared to $5.7 million for the 1996 quarter. This decrease was due to a
$332,000 reduction in amortization of intangible assets and a $288,000
reduction in FDIC premiums relating to a decrease in the FDIC premium rate
from 0.23% to 0.065% as of January 1, 1997. Without giving effect to
these two items, noninterest expenses increased by 5% primarily due to
increased salary and benefits expenses relating to growth in the Company's
business and increased occupancy expenses relating to the lease of new
corporate office space for administrative departments beginning in March
1996.
Income Taxes
The Company's effective income tax rate was 35.3% for the quarter ended
March 31, 1997 compared to 36.6% for the quarter ended March 31, 1996.
Results of Operations - Comparison of the Six months Ended March 31,
1997 and 1996
General
Net income for the six months ended March 31, 1997 was $5.0 million
compared to $4.5 million for the comparable 1996 period.
Net Interest Income
The following table presents certain information related to net interest
income (dollars in thousands):
For the Six Months
Ended March 31
1997 1996
Average interest-earning assets . . . . . $973,077 $ 924,906
Total interest income . . . . . . . . . . 37,941 36,548
Average yield on interest-earning
assets . . . . . . . . . . . . . . . . 7.80% 7.90%
Average interest-bearing
liabilities . . . . . . . . . . . . . $914,053 $ 864,277
Total interest expense . . . . . . . . . 22,740 21,786
Average rate on interest-bearing
liabilities . . . . . . . . . . . . . 4.98% 5.04%
Average net earning assets . . . . . . . $59,024 $60,629
Net interest income before provision
for loan losses . . . . . . . . . . . 15,201 14,762
Net interest rate spread . . . . . . . . 2.82% 2.86%
Net interest margin (net interest
income divided by average
interest-earning assets) . . . . . . . 3.12% 3.19%
Net interest income before provision for loan losses was $15.2 million for
the six months ended March 31, 1997, compared with $14.8 million for the
comparable 1996 quarter, an increase of $400,000. This increase was
primarily due to a $48.2 million increase in average interest-earning
assets which includes a $52.7 million increase in average loans
receivable. This increase was partially offset by a $13.3 million
reduction in average mortgage-related securities.
The net interest rate margin decreased from 3.19% for the 1996 period to
3.12% for the 1997 period. This decrease was primarily due to an increase
in competition for loans and deposits. This decrease could continue in
the future but it is the Company's strategy to maintain its interest rate
margin by increasing its higher-yielding commercial and consumer loans and
decreasing its mortgage-related securities. While commercial and consumer
loans have higher yields than mortgage-related securities, they 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 $180,000 for the six months ended
March 31, 1997 compared to $240,000 for the comparable 1996 period.
Non-interest Income
Non-interest income decreased to $3.9 million for the six months ended
March 31, 1997 compared to $4.1 million for the comparable 1996 period.
This decrease was primarily due to a 21% decrease in mortgage brokerage
commissions and a 37% decrease in gains on sales of loans, both relating
to higher market interest rates during fiscal 1997 which have decreased
mortgage origination volume nationwide. This decrease is also
attributable to a 36% decrease in gains on sales of securities available
for sale. Excluding the aforementioned items which decreased, the other
categories of noninterest income increased by 19%. Service charges on
deposit accounts, which is the largest category of noninterest income,
increased 21% from $1.1 million in the 1996 period to $1.4 million in the
1997 period.
Non-interest Expense
Non-interest expenses decreased to $11.1 million for the six months ended
March 31, 1997 compared to $11.5 million for the comparable 1996 period.
This decrease was due to a $914,000 reduction in amortization of
intangible assets and a $368,000 reduction in FDIC premiums relating to a
decrease in the FDIC premium rate from 0.23% to 0.065% as of January 1,
1997. Without giving effect to these two items, noninterest expenses
increased by 9% primarily due to increased salary and benefits expenses
relating to growth in the Company's business and increased occupancy
expenses relating to the lease of new corporate office space for
administrative departments beginning in March 1996.
Income Taxes
The Company's effective income tax rate was 36.2% for the period ended
March 31, 1997 compared to 36.5% for the period ended March 31, 1996.
Part II - Other Information
Item 1 Legal Proceedings
From time to time the Company (through the Bank) 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
The Company held its fifth annual Shareholders' Meeting on January 30,
1997. At the meeting, Paul Gergen and Eugene Snarski were elected as
directors of the Company for terms expiring in the year 2000.
Shares with respect to
which Authority to
Name of Nominee Shares Voted For Vote was Withheld
Paul Gergen 2,836,630 26,999
Eugene Snarski 2,839,572 24,057
The following table sets forth the other directors of the Company whose
terms of office continued after the annual meeting:
Year in Which
Name of Director Term Expires
Ben-Ami Chemerow 1998
Dennis Troha 1998
Rita Petretti 1999
Michael Wells 1999
No other matters were voted upon at the 1997 annual meeting.
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.
* * * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
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: May 8, 1997 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 March 31, 1997
Exhibit No. Exhibit
27 Financial Data Schedule [Edgar version only]
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADVANTAGE BANCORP, INC. AS OF AND FOR THE SIX
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 14,116
<INT-BEARING-DEPOSITS> 38,106
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 171,369
<INVESTMENTS-CARRYING> 185,256
<INVESTMENTS-MARKET> 186,577
<LOANS> 570,294
<ALLOWANCE> 5,811
<TOTAL-ASSETS> 1,021,439
<DEPOSITS> 671,943
<SHORT-TERM> 81,078
<LIABILITIES-OTHER> 15,811
<LONG-TERM> 162,360
0
0
<COMMON> 90,246
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,021,439
<INTEREST-LOAN> 23,938
<INTEREST-INVEST> 13,299
<INTEREST-OTHER> 704
<INTEREST-TOTAL> 37,941
<INTEREST-DEPOSIT> 15,493
<INTEREST-EXPENSE> 22,740
<INTEREST-INCOME-NET> 15,201
<LOAN-LOSSES> 180
<SECURITIES-GAINS> 313
<EXPENSE-OTHER> 11,109
<INCOME-PRETAX> 7,817
<INCOME-PRE-EXTRAORDINARY> 7,817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,990
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 7.80
<LOANS-NON> 3,076
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,773
<CHARGE-OFFS> 190
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 5,811
<ALLOWANCE-DOMESTIC> 5,811
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
