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, 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 3,233,747 at July 25, 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 June 30, 1997 and September 30, 1996 . . . . . 3
Consolidated Statements of Income for the Three
Months and Nine Months ended June 30, 1997 and
1996 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine
Months ended June 30, 1997 and 1996 . . . . . . 5
Notes to Consolidated Financial Statements . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 9
Item 3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . 14
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 . . . . . . . . . . . . . . . . . 14
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
June 30 September 30
ASSETS 1997 1996
Cash and cash equivalents (includes
interest-earning deposits of
$8,305,808 - Jun. 30, 1997;
$17,714,761 - Sept. 30, 1996) . . . . $ 23,606,436 $35,445,646
Certificates of deposit (approximates
market value) . . . . . . . . . . . . 508,619 611,067
U.S. government and agency securities
available for sale (at market value) 20,923,157 29,385,356
Mortgage-backed securities available
for sale (at market value) . . . . . 123,154,974 140,086,665
Mortgage-backed securities held to
maturity (market value of $8,998,592
- Jun. 30, 1997; $11,159,367 -
Sept. 30, 1996) . . . . . . . . . . . 8,932,403 11,011,238
Mortgage-related securities available
for sale (at market value) . . . . . 14,146,411 15,226,120
Mortgage-related securities held to
maturity (market value of $210,415,668
- Jun. 30,1997; $172,913,430 -
Sept. 30, 1996) . . . . . . . . . . . 208,322,287 171,470,022
Marketable equity securities
(at market value) . . . . . . . . . . 8,065,289 5,043,091
Loans held for sale (at lower of cost
or market) . . . . . . . . . . . . . 2,878,467 3,056,000
Loans receivable . . . . . . . . . . . 565,075,951 559,725,640
Foreclosed properties and properties
subject to foreclosure . . . . . . . 2,555,185 1,403,440
Investments in and advances to
unconsolidated partnerships . . . . 7,229,803 7,397,416
Office properties and equipment . . . . 12,964,665 12,531,601
Federal Home Loan Bank stock at cost . 8,618,000 8,795,600
Accrued interest on investments and
mortgage-related securities . . . . . 3,002,800 2,640,672
Intangible assets . . . . . . . . . . . 6,118,579 6,902,259
Deferred income tax . . . . . . . . . . 1,419,349 2,641,659
Prepaid expenses and other assets . . . 1,987,933 3,012,020
-------------- -------------
$1,019,510,308 $1,016,385,512
============== =============
LIABILITIES
Deposits . . . . . . . . . . . . . . . $655,915,894 $680,850,865
Notes payable to Federal Home
Loan Bank . . . . . . . . . . . . . 172,360,000 175,910,000
Securities sold under agreements
to repurchase . . . . . . . . . . . . 77,398,358 48,355,457
Advance payments by borrowers for
taxes and insurance . . . . . . . . . 5,973,606 8,496,925
Accrued interest on deposit accounts . 2,636,169 3,711,995
Accrued interest on notes payable and
other borrowings . . . . . . . . . . 3,851,988 1,377,204
Other liabilities . . . . . . . . . . . 3,226,110 8,419,561
Accrued income taxes . . . . . . . . . 4,201,169 397,102
------------ ------------
Total liabilities . . . . . . . . 925,563,294 927,519,109
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:
3,233,747 - Jun. 30, 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 . . . (738,777) (894,777)
Treasury stock, at cost (891,033
shares - Jun. 30, 1997;
798,102 shares - Sept. 30, 1996) . . (21,352,003) (17,627,105)
Unrealized gain (loss) on securities
available for sale - net . . . . . . 1,240,324 (699,857)
Retained earnings . . . . . . . . . . 78,717,912 72,008,584
-------------- --------------
Total stockholders' equity . . . 93,947,014 88,866,403
-------------- --------------
$1,019,510,308 $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 Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest on loans . . . . . . . . . $12,140,266 $11,265,693 36,077,961 33,385,973
Interest on mortgage-related
securities . . . . . . . . . . . 6,074,313 6,158,392 18,119,309 18,579,138
Interest and dividends on investment
securities . . . . . . . . . . . 562,277 706,660 1,816,538 2,204,521
Other interest income . . . . . . . 406,847 249,626 1,111,360 758,310
----------- ---------- ---------- ----------
Total interest income . . . . . . . 19,183,703 18,380,371 57,125,168 54,927,942
Interest expense:
Interest on deposits . . . . . . . 7,439,671 7,897,784 22,932,267 23,770,466
Interest on notes payable and
other borrowings . . . . . . . . 3,946,171 2,899,410 11,193,589 8,812,870
----------- ---------- ----------- -----------
Total interest expense . . . . . . 11,385,842 10,797,194 34,125,856 32,583,336
----------- ---------- ----------- -----------
Net interest income . . . . . . . . . 7,797,861 7,583,177 22,999,312 22,344,606
Provision for losses on loans . . . . 90,000 100,000 270,000 340,000
---------- ---------- ----------- -----------
Net interest income after provision
for losses on loans . . . . . . . . 7,707,861 7,483,177 22,729,312 22,004,606
Non-interest income:
Loan fees and service charges . . . 202,816 174,224 572,497 495,877
Mortgage brokerage commissions . . 424,125 529,245 1,228,289 1,548,980
Service charges on deposit accounts 687,341 666,787 2,074,318 1,813,785
Gain on sales of loans net . . . . 178,725 117,656 591,065 594,663
Gain on sale of securities available
for sale . . . . . . . . . . . . 278,362 105,715 567,525 732,496
Equity in net income of unconsolidated
partnerships . . . . . . . . . . 43,400 2,521 133,990 59,081
Other . . . . . . . . . . . . . . . 291,341 286,132 842,671 777,649
---------- ----------- ----------- -----------
Total non-interest income . . . . . 2,106,110 1,882,280 6,010,355 6,022,531
Non-interest expenses:
Compensation and employee benefits 2,705,401 2,497,473 8,066,345 7,467,952
Occupancy . . . . . . . . . . . . . 803,158 754,538 2,425,032 2,140,035
Data processing . . . . . . . . . . 189,012 165,494 545,584 484,597
Advertising . . . . . . . . . . . . 218,890 135,269 542,688 357,352
Federal deposit insurance premiums 112,970 400,323 541,168 1,196,552
Amortization of intangible assets . 258,527 590,062 783,680 2,029,691
Professional services . . . . . . . 126,628 101,881 331,155 374,070
Other . . . . . . . . . . . . . . . 1,128,446 1,264,851 3,416,175 3,404,644
----------- ----------- ----------- ------------
Total non-interest expenses . . . . 5,543,032 5,909,891 16,651,827 17,454,893
----------- ----------- ----------- ------------
Income before income taxes . . . . . 4,270,939 3,455,566 12,087,840 10,572,244
Income taxes . . . . . . . . . . . . 1,489,958 1,266,636 4,316,386 3,864,154
----------- ----------- ----------- ------------
Net income . . . . . . . . . . . . . $2,780,981 $2,188,930 $7,771,454 $6,708,090
=========== =========== =========== ============
Earnings per share . . . . . . . . . $0.81 $0.60 $2.25 $1.82
=========== =========== =========== ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended June 30
1997 1996
Operating activities:
Net income . . . . . . . . . . . . $7,771,454 $6,708,090
Provision for losses on loans . . 270,000 340,000
Provision for depreciation . . . 1,040,442 795,884
Amortization of intangible assets 783,680 2,029,691
Equity in net income of
unconsolidated partnerships . . (133,990) (59,081)
Net loss on sale or writedown of
foreclosed property . . . . . . - 28,120
Net amortization of mortgage-related
securities discounts and
premiums . . . . . . . . . . . (417,986) (682,640)
Decrease in deferred income
tax liability . . . . . . . . . - (114,816)
Increase (decrease) in accrued
income taxes . . . . . . . . . 3,804,067 (1,848,287)
Increase in interest receivable . (461,020) (423,208)
Decrease in accrued FDIC SAIF
special assessment . . . . . . (4,434,589) -
Decrease (increase) in interest
payable . . . . . . . . . . . . 1,398,958 (273,089)
Loans originated for sale . . . . (46,306,179) (47,738,265)
Proceeds from sales of loans . . 46,483,712 48,150,315
Amortization of cost of restricted
stock benefit plan . . . . . . 156,000 120,000
Other . . . . . . . . . . . . . . (874,452) 815,686
----------- -----------
Net cash provided by operating
activities . . . . . . . . . . . 9,080,097 7,848,400
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 . 8,500,000 4,500,000
Proceeds from sales of marketable
equity securities . . . . . . . 1,359,619 1,410,214
Purchases of FHLB stock . . . . . (500,000) (275,600)
Proceeds from sale of FHLB stock 677,600 1,477,600
Purchases of certificates of
deposit . . . . . . . . . . . . - (500,779)
Purchases of U.S. agency securities
available for sale . . . . . . - (9,000,000)
Purchases of mortgage-related
securities held to maturity . . (53,429,937) (32,560,469)
Principal repayments on mortgage-
related securities held to
maturity . . . . . . . . . . . 16,904,133 11,496,337
Principal repayments on mortgage-
backed securities held to
maturity . . . . . . . . . . . 2,277,241 2,648,616
Loan principal repayments . . . . 163,513,602 155,672,497
Loans originated . . . . . . . . (169,810,430) (186,666,415)
Purchases of marketable equity
securities . . . . . . . . . . (2,910,211) (2,459,890)
Purchases of mortgage-backed
securities available for sale . - (2,035,207)
Principal repayments on mortgage-
backed securities available for
sale . . . . . . . . . . . . . 18,585,589 26,736,907
Principal repayments on mortgage-
related securities available for
sale . . . . . . . . . . . . . 972,014 1,393,769
Proceeds from sale of foreclosed
properties . . . . . . . . . . 763,083 762,875
Principal repayments on loans to
unconsolidated partnership . . 185,186 132,448
Cash distributions from
unconsolidated partnerships . . 116,417 100,000
Additions to office properties
and equipment . . . . . . . . . (1,473,506) (2,326,537)
------------ ------------
Net cash used in investing
activities . . . . . . . . . . . (14,166,894) (29,295,634)
Financing activities:
Net increase (decrease) in
deposits . . . . . . . . . . . (24,934,971) 13,889,641
Proceeds from notes payable
to the Federal Home Loan Bank . 47,000,000 46,000,000
Repayment of notes payable to
the Federal Home Loan Bank . . (50,550,000) (36,100,000)
Net increase in securities
sold under agreements to
repurchase . . . . . . . . . . 29,042,900 3,382,746
Net decrease in advance payments
by borrowers for taxes and
insurance . . . . . . . . . . . (2,523,319) (3,934,781)
Purchases of treasury stock . . . (4,185,066) (3,200,405)
Dividends paid . . . . . . . . . (912,972) (776,357)
Proceeds from exercise of stock
options . . . . . . . . . . . . 311,015 157,745
------------ -------------
Net cash provided by (used in)
financing activities . . . . . . (6,752,413) 19,418,589
------------ -------------
Decrease in cash and cash
equivalents . . . . . . . . . . . (11,839,210) (2,028,645)
Cash and cash equivalents:
At beginning of period . . . . . 35,445,646 32,510,205
------------ -------------
At end of period . . . . . . . . $23,606,436 $30,481,560
============ =============
Supplemental disclosures of cash
flow information:
Interest paid (including amounts
credited to deposits) . . . . . $ 32,726,898 $ 32,856,425
Income taxes paid . . . . . . . . 512,319 5,827,258
Supplemental schedule of noncash
investing activities:
Loans receivable transferred to
foreclosed properties . . . . . 1,914,828 689,706
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ADVANTAGE BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended June 30, 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 nine months ended June
30, 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. (dissolved and liquidated into the Bank as of October 31,
1996), 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.
Nine Months Ended June 30
1997 1996
Net income . . . . . . . . . . . . $ 7,771,454 $6,708,090
=========== ==========
Weighted average shares outstanding 3,242,913 3,457,426
Net effect of dilutive stock options
based on the treasury stock method
using average market price . . . . 209,340 228,990
----------- ----------
Total weighted average common shares
and equivalents . . . . . . . . . . 3,452,253 3,686,416
=========== ==========
Earnings per share (primary) . . . $2.25 $1.82
=========== ==========
Weighted average shares outstanding 3,242,913 3,457,426
Net effect of dilutive stock options
based on the treasury stock method
using quarter-end market price . . 215,187 231,431
----------- ----------
Total outstanding shares for fully
diluted purposes . . . . . . . . . 3,458,100 3,688,857
=========== ==========
Earnings per share (fully diluted) $2.25 $1.82
=========== ==========
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 June 30, Nine Months Ended June 30,
1997 1996 1997 1996
Basic earnings per
share $0.86 $0.64 $2.40 $1.94
Diluted earnings per
share $0.81 $0.60 $2.25 $1.82
(3) Commitments and Contingencies
Commitments to originate mortgage loans of $9.2 million at June 30, 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 $3.5 million as of June 30, 1997. The Bank had
unissued credit under existing home equity line-of-credit loans and
commercial line-of-credit loans of $31.7 million and $27.8 million,
respectively, as of June 30, 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 June 30, 1997, totaled $472,402,000.
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, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Actual Required Actual Required
Amount Amount Excess Ratio Ratio Excess
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $64,610 $15,116 $49,494 6.41% 1.50% 4.91%
Core capital 64,610 30,232 34,378 6.41 3.00 3.41
Risk-based capital 70,401 37,792 32,609 14.90 8.00 6.90
</TABLE>
The Bank's regulatory capital as of June 30, 1997 was as follows (in
thousands):
Tangible Core Risk-Based
Capital Capital Capital
Total consolidated stockholders'
equity . . . . . . . . . . . . . . $93,947 $93,947 $93,947
Deduct unrealized gain on
securities available for sale (Bank
only) . . . . . . . . . . . . . . . (208) (208) (208)
Less parent company stockholders'
equity not includable
in regulatory capital . . . . (25,098) (25,098) (25,098)
Loan loss allowances (limited to 1%
of loans) . . . . . . . . . . . - - 5,791
Nonallowable intangibles . . . . . (6,299) (6,299) (6,299)
Income tax effect of intangibles . 2,268 2,268 2,268
---------- -------- -------
Regulatory capital . . . . . . . $64,610 $64,610 $70,401
========== ======== =======
(5) Reclassifications
Certain amounts in the prior year consolidated financial statements have
been reclassified to conform with the fiscal 1997 presentation.
(6) Dividends
On June 27, 1997, the Company declared a $0.10 per share cash dividend on
the Company's common stock payable August 22, 1997 to shareholders of
record on August 8, 1997.
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 $23.6 million and $30.5 million as of June 30, 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 nine months ended June 30, 1997 and
1996, the Company originated and purchased loans (including loans
originated for sale) in the amounts of $216.1 million and $234.4 million,
respectively. Other investing activities include the purchase of
mortgage-related securities (including securities available for sale)
which totalled $53.4 million and $34.6 million for the nine months ended
June 30, 1997 and 1996, respectively.
During the nine months ended June 30, 1997 and 1996, these activities were
funded primarily by (1) principal repayments on loans and mortgage-related
securities totalling $202.4 million and $198.0 million, respectively, (2)
proceeds from sales of loans of $46.5 million and $48.2 million,
respectively, and (3) net proceeds from borrowings under repurchase
agreements of $29.0 million and $3.4 million, respectively. For the nine
months ended June 30, 1996, these activities were also funded by net
proceeds of $9.9 million from notes payable to the FHLB. For the nine
months ended June 30, 1997, the activities providing funds were partially
offset by net repayments of notes payable to the FHLB of $3.6 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 6.7% for
the month of June 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 June 30, 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 $4 million from $1.016 billion at September 30,
1996 to $1.020 billion at June 30, 1997.
Loans receivable increased $5.4 million from $559.7 million as of
September 30, 1996 to $565.1 million as of June 30, 1997.
Mortgage-related securities increased $16.8 million from $337.8 million as
of September 30, 1996 to $354.6 million at June 30, 1997. This increase
relates to the increase in purchases of mortgage-related securities
previously mentioned.
Deposits decreased $25.0 million from $680.9 million at September 30, 1996
to $655.9 million at June 30, 1997. This decrease relates in part to a
decrease in brokered deposits from $89.3 million as of September 30, 1996
to $74.3 million as of June 30, 1997.
Notes payable to the FHLB decreased $3.5 million from $175.9 million as of
September 30, 1996 to $172.4 million as of June 30, 1997. This decrease
was more than offset by a $29.0 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 $93.9 million as of June 30, 1997. Stockholders' equity increased
during this period as a result of: (1) net income of $7.8 million, and
(2) an increase of $1.9 million in the unrealized gain (net of income tax
effect) relating to securities available for sale. The increase in
stockholders' equity was offset by: (1) the open market repurchase of
$4.2 million of the Company's common stock, and (2) the payment of
$913,000 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>
June 30 Mar. 31 Dec. 31 Sept. 30 June 30
1997 1997 1996 1996 1996
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
One- to four-family . . . . . $1,376 $2,463 $1,851 $666 $1,959
Commercial real estate . . . . 486 469 1,138 616 1,393
Construction and land . . . - - - 1,774 -
Commercial business . . . . . 24 23 23 274 42
Consumer and other . . . . . . 94 121 271 84 102
--------- -------- ------- ------ -------
Total non-performing loans . . . $1,980 $3,076 $3,283 $3,414 $3,496
========= ======== ======= ====== =======
Foreclosed properties:
One-to four-family . . . . . . $1,715 $1,771 $1,452 $894 $1,165
Commercial real estate . . . . 840 835 971 534 534
Construction and land . . . . - - - - 280
--------- -------- ------- ------- -------
Total foreclosed properties . $2,555 $2,606 $2,423 $1,428 $1,979
========= ======== ======= ======= =======
Total non-performing assets . . . $4,535 $5,682 $5,706 $4,842 $5,475
========= ======== ======= ======= =======
Non-performing loans to total
loans . . . . . . . . . . . . . . 0.35% 0.54% 0.57% 0.61% 0.64%
======== ======= ======= ======= =======
Non-performing assets to total
assets . . . . . . . . . . . . . 0.44% 0.56% 0.55% 0.48% 0.55%
======== ======= ======= ======= =======
</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):
Nine Months Year Year
Ended Ended Ended
June 30, 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 . . . . . . . . . . . 60 - 50
Commercial business . . . . . 210 480 320
------- ------- -------
270 480 460
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 . . . . . (145) (29) (40)
Multi-family and commercial real
estate . . . . . . . . . . . . - - (841)
Consumer . . . . . . . . . . . (140) (8) (32)
Commercial business . . . . . - (3) (159)
------- ------- -------
(285) (40) (1,072)
------- ------- -------
Net recoveries (charge-offs) . . (237) 22 (1,034)
------- ------- -------
Balance at end of period . . . . $5,806 $5,773 $5,271
======= ======= =======
Ratio of net charge-offs to
average loans outstanding during
the period (annualized) . . . . . 0.06% 0.00% 0.21%
======= ======= =======
Allowance for losses on loans to
non-performing loans at end of the
period . . . . . . . . . . . . . 293.2% 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 June 30,
1997 and 1996
General
Net income for the three months ended June 30, 1997 increased 27.2% to
$2.8 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 June 30
1997 1996
Average interest-earning assets . . . . . $974,115 $ 933,489
Total interest income . . . . . . . . . . 19,184 18,380
Average yield on interest-earning
assets . . . . . . . . . . . . . . . .. 7.88% 7.88%
Average interest-bearing liabilities . . $911,287 $ 874,657
Total interest expense . . . . . . . . . 11,386 10,797
Average rate on interest-bearing
liabilities . . . . . . . . . . . . . . . 5.00% 4.94%
Average net earning assets . . . . . . . $62,828 $58,832
Net interest income before provision for
loan losses . . . . . . . . . . . . . . . 7,798 7,583
Net interest rate spread . . . . . . . . 2.88% 2.94%
Net interest margin (net interest income
divided
by average interest-earning assets) . 3.20% 3.25%
Net interest income before provision for loan losses was $7.8 million for
the three months ended June 30, 1997, compared with $7.6 million for the
comparable 1996 quarter, an increase of $200,000. This increase was
primarily due to a $40.6 million increase in average interest-earning
assets which includes a $36.7 million increase in average loans
receivable.
The net interest rate margin decreased from 3.25% for the 1996 quarter to
3.20% 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 $90,000 for the three months ended
June 30, 1997 compared to $100,000 for the comparable 1996 quarter. The
Company's ratio of allowance for losses on loans to nonperforming loans
increased to 293.2% as of June 30, 1997 compared to 159.5% as of June 30,
1996.
Non-interest Income
Non-interest income increased to $2.1 million for the three months ended
June 30, 1997 compared to $1.9 million for the comparable 1996 quarter.
This increase was due to a 137% ($61,000) increase in gains on sales of
loans and a 69% ($172,000) increase in gain on sale of securities
available for sale. These gains were partially offset by a 20% ($105,000)
decrease in mortgage brokerage commissions. Service charges on deposit
accounts, which is the largest component of noninterest income, increased
3.0% from $667,000 in the 1996 quarter to $687,000 in the 1997 quarter.
Non-interest Expense
Non-interest expenses decreased to $5.5 million for the 1997 quarter
compared to $5.9 million for the 1996 quarter. This decrease was due to a
$331,000 reduction in amortization of intangible assets and a $287,000
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.
Income Taxes
The Company's effective income tax rate was 34.9% for the quarter ended
June 30, 1997 compared to 36.6% for the quarter ended June 30, 1996.
Results of Operations - Comparison of the Nine Months Ended June 30,
1997 and 1996
General
Net income for the nine months ended June 30, 1997 was $7.8 million
compared to $6.7 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 Nine Months
Ended June 30
1997 1996
Average interest-earning assets . . . . . . $973,423 $ 927,767
Total interest income . . . . . . . . . . . 57,125 54,928
Average yield on interest-earning assets . 7.82% 7.89%
Average interest-bearing liabilities . . . $913,131 $ 867,737
Total interest expense . . . . . . . . . . 34,126 32,583
Average rate on interest-bearing
liabilities . . . . . . . . . . . . . . . . 4.98% 5.01%
Average net earning assets . . . . . . . . $60,292 $60,030
Net interest income before provision for
loan losses . . . . . . . . . . . . . . . . 22,999 22,345
Net interest rate spread . . . . . . . . . 2.84% 2.89%
Net interest margin (net interest income
divided
by average interest-earning assets) . . 3.15% 3.21%
Net interest income before provision for loan losses was $23.0 million for
the nine months ended June 30, 1997, compared with $22.3 million for the
comparable 1996 quarter, an increase of $700,000. This increase was
primarily due to a $45.7 million increase in average interest-earning
assets which includes a $47.4 million increase in average loans
receivable. This increase was partially offset by a $9.8 million
reduction in average mortgage-related securities.
The net interest rate margin decreased from 3.21% for the 1996 period to
3.15% 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 $270,000 for the nine months ended
June 30, 1997 compared to $340,000 for the comparable 1996 period.
Non-interest Income
Non-interest income remained unchanged at $6.0 million for the nine months
ended June 30, 1997 compared to the the comparable 1996 period. Service
charges on deposit accounts, which is the largest component of noninterest
income, increased 17% from $1.8 million in the 1996 period to $2.1 million
in the 1997 period. This increase was offset by a 26% ($321,000) decrease
in mortgage brokerage commissions and a 19% ($164,000) decrease in gains
on sales of loans. The decrease in mortgage brokerage commissions relates
to higher market interest rates during fiscal 1997 which have decreased
mortgage origination volume nationwide.
Non-interest Expense
Non-interest expenses decreased to $16.7 million for the nine months ended
June 30, 1997 compared to $17.5 million for the comparable 1996 period.
This decrease was due to a $1.2 million reduction in amortization of
intangible assets and a $655,000 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 8% 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 April 1996.
Income Taxes
The Company's effective income tax rate was 35.7% for the period ended
June 30 1997 compared to 36.6% for the period ended June 30, 1996.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not applicable
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
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.
<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: August 1, 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
CONSOLIDATED FINANCIAL STATEMENTS OF ADVANTAGE BANCORP, INC. AS OF AND
FOR THE PERIOD ENDED JUNE 30, 1997 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-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 23,606
<INT-BEARING-DEPOSITS> 509
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 166,289
<INVESTMENTS-CARRYING> 217,254
<INVESTMENTS-MARKET> 219,415
<LOANS> 573,760
<ALLOWANCE> 5,806
<TOTAL-ASSETS> 1,019,510
<DEPOSITS> 655,916
<SHORT-TERM> 77,398
<LIABILITIES-OTHER> 3,226
<LONG-TERM> 172,360
0
0
<COMMON> 93,947
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,019,510
<INTEREST-LOAN> 36,078
<INTEREST-INVEST> 19,936
<INTEREST-OTHER> 1,111
<INTEREST-TOTAL> 57,125
<INTEREST-DEPOSIT> 22,932
<INTEREST-EXPENSE> 34,126
<INTEREST-INCOME-NET> 22,999
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 568
<EXPENSE-OTHER> 16,652
<INCOME-PRETAX> 12,088
<INCOME-PRE-EXTRAORDINARY> 12,088
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,771
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 7.82
<LOANS-NON> 1,980
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,773
<CHARGE-OFFS> 285
<RECOVERIES> 48
<ALLOWANCE-CLOSE> 5,806
<ALLOWANCE-DOMESTIC> 5,806
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
