-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NW4T+LVF5dd0NWLK5GkvF93PqbE98gykMmsIYsl4AmLH9mQAJG1dqmFesgp2vgC4 8ub4WAInqRmRo6irgOYF0A== 0000946275-00-000093.txt : 20000215 0000946275-00-000093.hdr.sgml : 20000215 ACCESSION NUMBER: 0000946275-00-000093 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCE FINANCIAL BANCORP CENTRAL INDEX KEY: 0001023398 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 550753533 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21885 FILM NUMBER: 537190 BUSINESS ADDRESS: STREET 1: 1015 COMMERCE STREET CITY: WELLSBURG STATE: WV ZIP: 26070 BUSINESS PHONE: 3047373531 MAIL ADDRESS: STREET 1: 1015 COMMERCE STREET CITY: WELLSBURG STATE: WV ZIP: 26070 10QSB 1 FORM 10QSB United States Securities and Exchange Commission Washington, D.C. 20552 FORM 10QSB {x} QUARTERLY REPORT UNDER SECTION 13 OF 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 { } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCAHANGE ACT For the transition period from _________,_______to__________________ Commission file Number 0-21885 ------------------------------ Advance Financial Bancorp ------------------------- (Exact name of registrant as specified in its charter) West Virginia 55-0753533 - ------------- ---------- (State or jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1015 Commerce Street, Wellsburg, WV 26070 ----------------------------------------- (Address of principal executive offices) (304) 737-3531 -------------- (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding for each of the issuer's classes of common equity as of the latest practicable date: Class: Common Stock, par value $.10 per share Outstanding at February 10, 2000: 932,285 Advance Financial Bancorp Index Page Number Part I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheet (Unaudited) as of December 31, 1999 and June 30, 1999 3 Consolidated Statement of Income (Unaudited) For the Three Months ended December 31, 1999 and 1998 4 Consolidated Statement of Income (Unaudited) For the Six Months ended December 31, 1999 and 1998 5 Consolidated Statement of Cash Flows (Unaudited) For the Six Months ended December 31, 1999 and 1998 6 Notes to the Unaudited Consolidated Financial Statements 7-8 Item 2 - Management's Discussion and Analysis 9-14 Part II - OTHER INFORMATION Item 1 - Legal Proceedings 15 Item 2 - Changes in Securities 15 Item 3 - Default Upon Senior Securities 15 Item 4 - Submissions of Matters to a vote of Security Holders 15 Item 5 - Other Information 15 Item 6 - Exhibits and Reports on Form 8-K 16 SIGNATURES 17 ADVANCE FINANCIAL BANCORP CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, JUNE 30, 1999 1999 ----------------- ------------------- Assets Cash and cash equivalents: Cash and amounts due from banks $2,324,108 $1,395,704 Interest bearing deposits with other institutions 2,562,893 2,964,166 ----------------- ------------------- Total cash and cash equivalents 4,887,001 4,359,870 ----------------- ------------------- Investment securities: Securities held to maturity (fair value of $1,183,904 and $970,914) 1,249,453 999,896 Securities available for sale 8,200,413 4,481,475 ----------------- ------------------- Total investment securities 9,449,866 5,481,371 ----------------- ------------------- Mortgaged-backed securities: Securities held to maturity (fair value of $2,230,585 and $2,456,645) 2,275,330 2,472,681 Securities available for sale 1,641,695 1,832,845 ----------------- ------------------- Total mortgage-backed securities 3,917,025 4,305,526 ----------------- ------------------- Loans receivable, (net of allowance for loan losses of $606,920 and $582,280 ) 118,261,571 109,899,551 Office properties and equipment, net 4,114,529 4,084,793 Federal Home Loan Bank Stock, at cost 800,000 629,500 Accrued interest receivable 833,530 664,058 Other assets 934,891 501,967 ----------------- ------------------- TOTAL ASSETS $143,198,413 $129,926,636 ================= =================== Liabilities: Deposits $112,041,671 $105,338,770 Advances from Federal Home Loan Bank 16,000,000 9,000,000 Advance payments by borrowers for taxes and insurance 190,650 196,993 Accrued interest payable and other liabilities 352,789 397,421 ----------------- ------------------- TOTAL LIABILITIES 128,585,110 114,933,184 ----------------- ------------------- Stockholders' Equity: Preferred stock, $.10 par value; 500,000 shares authorized, none issued - - Common stock, $.10 par value; 2,000,000 shares authorized 1,084,450 shares issued 108,445 108,445 Additional paid in capital 10,326,840 10,316,719 Retained earnings - substantially restricted 7,866,214 7,623,733 Unallocated shares held by Employee Stock Ownership Plan (ESOP) (554,387) (597,767) Unallocated shares held by Restricted Stock Plan (RSP) (571,245) (682,357) Treasury Stock (152,165 and 103,165 shares at cost) (2,233,265) (1,626,890) Accumulated other comprehensive loss (329,299) (148,431) ----------------- ------------------- TOTAL STOCKHOLDERS' EQUITY 14,613,303 14,993,452 ----------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,198,413 $129,926,636 ================= ===================
See accompanying notes to the unaudited consolidated financial statements. -3- ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1999 1998 ---------------- ------------------ INTEREST AND DIVIDEND INCOME Loans $2,370,995 $2,150,478 Investment securities 177,137 36,230 Interest-bearing deposits with other institutions 28,368 89,658 Mortgage-backed securities 65,267 9,002 Dividends on Federal Home Loan Bank Stock 13,721 10,194 ---------------- ------------------ Total interest and dividend income 2,655,488 2,295,562 ---------------- ------------------ INTEREST EXPENSE Deposits 1,218,001 1,088,214 Advances from Federal Home Loan Bank 205,986 121,793 ---------------- ------------------ Total interest expense 1,423,987 1,210,007 ---------------- ------------------ NET INTEREST INCOME 1,231,501 1,085,555 Provision for loan losses 37,500 37,500 ---------------- ------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,194,001 1,048,055 ---------------- ------------------ NONINTEREST INCOME Service charges on deposit accounts 112,931 99,654 Gain on sale of loans 3,528 37,010 Other income 62,088 71,289 ---------------- ------------------ Total noninterest income 178,547 207,953 ---------------- ------------------ NONINTEREST EXPENSE Compensation and employee benefits 483,359 428,332 Occupancy and equipment 165,456 152,482 Professional fees 25,512 47,742 Advertising 28,280 30,269 Data processing charges 85,136 86,658 Other expenses 245,384 212,471 ---------------- ------------------ Total noninterest expenses 1,033,127 957,954 ---------------- ------------------ Income before income taxes 339,421 298,054 Income taxes 130,657 112,575 ---------------- ------------------ NET INCOME $208,764 $185,479 ================ ================== EARNINGS PER SHARE Basic $ .23 0.19 Diluted $ .23 0.19
See accompanying notes to the unaudited consolidated financial statements. -4- ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1999 1998 ------------------ ------------------- INTEREST AND DIVIDEND INCOME Loans $4,632,901 $4,195,272 Investment securities 309,324 63,535 Interest-bearing deposits with other institutions 82,069 209,741 Mortgage-backed securities 129,580 16,719 Dividends on Federal Home Loan Bank Stock 24,431 20,388 ------------------ ------------------- Total interest and dividend income 5,178,305 4,505,655 ------------------ ------------------- INTEREST EXPENSE Deposits 2,387,345 2,166,850 Advances from Federal Home Loan Bank 351,376 246,527 ------------------ ------------------- Total interest expense 2,738,721 2,413,377 ------------------ ------------------- NET INTEREST INCOME 2,439,584 2,092,278 Provision for loan losses 75,000 75,000 ------------------ ------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,364,584 2,017,278 ------------------ ------------------- NONINTEREST INCOME Service charges on deposit accounts 217,895 186,085 Gain on sale of loans 4,139 70,235 Other income 121,982 137,313 ------------------ ------------------- Total noninterest income 344,016 393,633 ------------------ ------------------- NONINTEREST EXPENSE Compensation and employee benefits 939,899 859,037 Occupancy and equipment 327,297 293,208 Professional fees 58,022 85,363 Advertising 63,108 63,999 Data processing charges 175,305 172,176 Other expenses 464,726 409,368 ------------------ ------------------- Total noninterest expenses 2,028,357 1,883,151 ------------------ ------------------- Income before income taxes 680,243 527,760 Income taxes 266,382 207,452 ------------------ ------------------- NET INCOME $413,861 $320,308 ================== =================== EARNINGS PER SHARE Basic $ .46 0.33 Diluted $ .46 0.33
See accompanying notes to the unaudited consolidated financial statements. -5- ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER,31 1999 1998 ---------------- ---------------- OPERATING ACTIVITIES Net Income $413,861 $320,308 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net 282,974 308,992 Provision for loan losses 75,000 75,000 Gain on sale of loans (4,139) (70,235) Origination of loans held for sale (1,056,640) (6,169,869) Proceeds from the sale of loans 1,060,779 5,692,648 Increase in other assets and liabilities (142,717) (205,385) ---------------- ----------------- Net cash provided by (used in) operating activities 629,118 (48,541) ---------------- ----------------- INVESTING ACTIVITIES Investment securities held to maturity: Purchases (249,453) (1,500,000) Maturities and repayments - 2,000,000 Investment securities available for sale: Purchases (4,467,656) (3,013,675) Maturities and repayments 503,740 6,895 Mortgage-backed securities held to maturity: Purchases - (1,006,296) Maturities and repayments 196,166 7,448 Mortgage-backed securities available for sale: Purchases - - Maturities and repayments 162,660 - Purchases of Federal Home Loan Bank Stock (170,500) Net increase in loans (8,794,518) (7,296,031) Purchases of premises and equipment (201,228) (147,925) ---------------- ----------------- Net cash used in investing activities (13,020,789) (10,949,584) ---------------- ----------------- FINANCING ACTIVITIES Net increase in deposits 6,702,901 8,484,964 Net Proceeds (Repayments) from advances from Federal Home Loan Bank 7,000,000 (1,000,000) Net change in advances for taxes and insurance (6,343) (10,605) Purchase of treasury stock (606,375) - Cash dividends paid (171,381) (144,203) ---------------- ----------------- Net cash provided by financing activities 12,918,802 7,330,156 ---------------- ----------------- Increase (decrease) in cash and cash equivalents 527,131 (3,667,969) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,359,870 9,084,193 ---------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,887,001 $5,416,224 ================ ================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest on deposits and borrowings $2,656,284 $2,414,931 Income taxes $267,672 $230,779
See accompanying notes to the unaudited consolidated financial statements. -6- ADVANCE FINANCIAL BANCORP NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of Advance Financial Bancorp (the "Company"), includes its wholly-owned subsidiary, Advance Financial Savings Bank (the "Bank"), and its wholly-owned subsidiary, Advance Financial Service Corporation of West Virginia. All significant intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not necessarily include all information that would be included in audited financial statements. The information furnished reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of results of operations. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the fiscal year ended June 30, 2000 or any other interim period. These statements should be read in conjunction with the consolidated statements of and for the year ended June 30, 1999 and related notes which are included on the Form 10-KSB (file no. 0-21885) NOTE 2 - EARNINGS PER SHARE The following table sets forth a reconciliation of the denominator of the basic and dilutive earnings per share computation in accordance with SFAS No. 128.
Six Months Ended December 31 1999 1998 -------------- --------------- Denominator: Denominator for basic earnings per share Weighted-average shares 900,878 956,287 Effect of dilutive securities: Employee stock options - - -------------- --------------- Dilutive potential common shares 900,878 956,287 Denominator; Denominator for dilutive earnings per share adjusted Weighted-average shares 900,878 956,287 ============== ===============
-7- NOTE 2 - EARNINGS PER SHARE (CONTINUED)
Three Months Ended December 31 1999 1998 -------------- ---------------- Denominator: Denominator for basic earnings per share Weighted-average shares 888,110 958,096 Effect of dilutive securities: Employee stock options - - -------------- ---------------- Dilutive potential common shares 888,110 958,096 Denominator; Denominator for dilutive earnings per share adjusted Weighted-average shares 888,110 958,096 ============== ================
NOTE 3 - COMPREHENSIVE INCOME Other accumulated comprehensive loss consists solely of net unrealized gains and losses on available for sale securities. For the three and six months ended December 31, 1999, comprehensive income totaled $69,162 and $232,993, respectively. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes", "anticipates", "contemplates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the ability to control costs and expenses, Year 2000 issues, and general economic conditions. Advance Financial Bancorp (the "Company") undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Company conducts no significant business or operations of its own other than holding all of the outstanding stock of the Advance Financial Savings Bank (the "Bank"). As a result, references to the Company generally refer to the Bank unless the context indicates otherwise. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31,1999 AND JUNE 30, 1999 - ----------------------------------------------------------------------- Total assets increased $13,272,000 to $143,198,000 at December 31, 1999, from $129,926,000 at June 30, 1999. At December 31, 1999, deposits and Federal Home Loan Bank ("FHLB") advances increased $6,703,000 and $7,000,000, respectively. These increases were used to fund loan demand, to purchase investment securities, and to fund cash liquidity for the Year 2000. Cash and amounts due from banks increased by $928,000 to $2,324,000 at December 31, 1999 from $1,396,000 at June 30, 1999. This increase was funded by a short-term advance from the FHLB in anticipation of Y2K liquidity needs. These excess funds were returned to the Federal Reserve in January 2000 and the outstanding advance from the FHLB was reduced by $1 million. Interest-bearing deposits with other financial institutions decreased by $401,000 to $2,563,000 at December 31, 1999, from $2,964,000 at June 30, 1999. This decrease was used primarily to purchase investment securities. Investment securities available for sale increased by $3,719,000 to $8,200,000 at December 31, 1999, from $4,481,000 at June 30, 1999. This increase includes approximately $1,470,000 in three FHLB bonds with callable options ranging from 6 months to 2 years and an effective weighted average interest rate of 7.11%. The funding for these bonds came from the strong deposit growth and the use of interest-bearing deposits with other financial institutions. In November 1999, the Company had one $500,000 FHLB bond called and the proceeds were used to fund loan demand during the month of December 1999. The increase also includes the purchase of a $2,500,000 15-year FHLB bond in August 1999 with a callable option of 1-year and an effective interest yield of 8.10%. The funding for this bond came from a FHLB advance that matures in August 2000 and has an effective cost of funds of 5.94%. Management placed these investments into this category for liquidity purposes while maximizing interest yields in excess of the federal overnight rates paid on interest-bearing demand deposits. Net loans receivable increased by $8,362,000 to $118,262,000 at December 31, 1999, from $109,900,000 at June 30, 1999. The loan increase was spread over the entire portfolio. Loans secured by 1-4 family residences increased by $2,850,000 due to demand for ARMs and the bank's "no fee" Equity Line of Credit program. The company's "no fee" program ended during November 1999. Multi-family residential loans increased by $2,880,000 due to strong loan demand for the Company's competitively priced ARM products. Automobile loans increased $1,180,000 due principally to increased loan activity written by automobile dealership customers of the Company. Commercial loans increased by $1,040,000 due principally to the addition of a new automobile dealership to the Company's customer base. See "Risk Elements". -9- Deposits increased by $6,703,000 to $112,042,000 at December 31,1999 from $105,339,000 at June 30, 1999. Within the deposit line item, certificates of deposit increased by $7,002,000 to $70,718,000 at December 31, 1999 from $63,716,000 at June 30, 1999. This increase is primarily the result of two certificate of deposit specials. The first was called "Advantage 2000", this certificate offered above market rates on certificates of deposit at 5.25% for 12 months and 5.50% for 18 months. The "advantage" of this product was that the customers had a 10-day option at the end of 1999 to redeem the certificate with no penalty. This successful special was offered from June 20, 1999 to September 30, 1999. During the ten day option period of 1999, the Company had approximately $2,350,000 of the "Advantage 2000" certificates redeemed without penalty which was approximately 35% of the total amount deposited in the certificate product. The Company was able to retain all but approximately $330,000 of the redeemed certificates with customers generally transferring the funds into another of the certificate products called "Fives Are Wild". The second certificate of deposit special was called "Fives Are Wild", this certificate offered above market interest rates on certificates of deposit of 5.55% for five months, 5.75% for ten months, and 6.0% for 15 or 18 months. The "Fives Are Wild" program began in mid October and is currently still in place. During the latter part of December 1999, the company added to the "Fives Are Wild" program a 21 month product at 6.07%. Savings deposits increased $287,000 while demand deposits decreased $586,000 for the six-month period ended December 31, 1999. The demand deposit decrease was primarily the net result of an increase in non-interest bearing deposits of $900,000 and a decrease in large money market demand accounts of $1,375,000. The majority of the money withdrawn from the money market demand account was generally deposited in a "Fives Are Wild" certificate product. Advances from the FHLB increased by $7,000,000 to $16,000,000 at December 31, 1999 from $9,000,000 at June 30, 1999. This increase involves three separate advances. The first advance was for $2,500,000 with a weighted average rate of 5.94% that has a one-year maturity of August of 2000. The proceeds of this advance were used to purchase a FHLB bond described above under investment securities. The second advance was to increase an existing $3,000,000 callable advance to $5,000,000 with a weighted average rate of 5.52% that has an initial call date in October 2001. The additional $2,000,000 in proceeds from this advance were used to fund a three year adjustable rate mortgage loan originated in October 1999. The third advance was for $2,500,000 with a weighted average rate of 5.76% that matured in January 2000. The proceeds of this advance were held to fund Y2K liquidity. At maturity of this advance in January 2000, the Company repaid $1,000,000 of the outstanding amount by utilizing excess liquid resources remaining after December 31, 1999. The remaining $1,500,000 was put onto the RepoPlus line of credit. In addition to the increases and changes to advances from the FHLB discussed above, during the quarter ended December 31, 1999, the FHLB called all three outstanding advances at June 30, 1999, amounting to $9,000,000. The Company elected to renew these advances at the proposed higher rates offered by the FHLB. The new weighted average rate of the renewed $9,000,000 in advances increased to 5.63% from 5.37% prior to the calls. Equity capital decreased by approximately, $380,000 to $14,613,000 at December 31, 1999 from $14,993,000 at June 30, 1999. Net income of $413,900 and the recognition of shares in the Employee Stock Ownership Plan and Restricted Stock Plan of $164,700, were offset by the payment of cash dividends of $171,300, an increase in net unrealized loss on securities of $180,900 and the purchase of 49,000 shares of treasury stock for $606,400, at an average cost of approximately $12.38 per share. -10- COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED - --------------------------------------------------------------------------- DECEMBER 31, 1999 AND 1998 - -------------------------- Net interest income increased $146,000 or 13.44%, to $1,232,000 for the three months ended December 31, 1999 from $1,086,000 for the comparable period ended 1998. The increase in net interest income resulted primarily from an increase in the average volume of the underlying principle balances in interest earning assets and liabilities. The net interest spread for the three months ended December 31, 1999 decreased to 3.25% from 3.30% for the comparable period ended 1998. The average yield on interest earning assets decreased by 19 basis points to 7.91% for the three months ended December 31, 1999, from 8.10% for the comparable period ended 1998. The average cost of funds decreased by 14 basis points to 4.66% for the three months ended December 31, 1999 from 4.80% for the comparable period ended 1998. Net interest income increased $347,000 or 16.60%, to $2,440,000 for the six months ended December 31, 1999 from $2,092,000 for the comparable period ended 1998. The increase in net interest income resulted primarily from an increase in the average volume of the underlying principle balances in interest earning assets and liabilities. The net interest spread for the six months ended December 31, 1999 increased to 3.27% from 3.23% for the comparable period ended 1998. The average yield on interest earning assets decreased by 20 basis points to 7.89% for the six months ended December 31, 1999, from 8.09% for the comparable period ended 1998. The average cost of funds decreased by 24 basis points to 4.62% for the six months ended December 31, 1999 from 4.86% for the comparable period ended 1998. Interest and dividend income increased $360,000 or 15.68% for the three months ended December 31, 1999 compared to the same period ended 1998. This increase was primarily due to an increase in earnings on loans of $221,000 as the average principle balance increased $13,276,000 to $116,418,000 for the period ended December 31, 1999, from $103,142,000 for the comparable 1998 period. Interest and dividend income on investments and interest-bearing deposits with other financial institutions increased approximately $139,000 as average principal balances increased $7,691,000 to $17,850,000 for the period ended December 31, 1999, from $10,159,000 for the comparable 1998 period. Interest and dividend income increased $673,000 or 14.92% for the six months ended December 31, 1999 compared to the same period ended 1998. This increase was primarily due to an increase in earnings on loans of $438,000 as the average principle balance increased $13,094,000 to $114,076,000 for the period ended December 31, 1999, from $100,982,000 for the comparable 1998 period. Interest and dividend income on investments and interest-bearing deposits with other financial institutions increased approximately $235,000 as average principal balances increased $6,665,000 to $17,117,000 for the period ended December 31, 1999, from $10,452,000 for the comparable 1998 period. Interest expense increased $214,000 or 17.68%, for the three months ended December 31, 1999 compared to the same period ended 1998. This increase was primarily due to an increase in interest on deposits of $130,000 as the average balance increased $15,816,000 to $107,572,000 for the period ended December 31, 1999, from $91,756,000 for the comparable 1998 period. Interest expense on advances increased $84,000 as the average balance increased $5,750,000 to $14,750,000 for the period ended December 31, 1999, from $9,000,000 for the comparable 1998 period. Interest expense increased $325,000 or 13.48%, for the six months ended December 31, 1999 compared to the same period ended 1998. This increase was primarily due to an increase in interest on deposits of $220,000 as the average balance increased $15,842,000 to $106,030,000 for the period ended December 31, 1999, from $90,188,000 for the comparable 1998 period. Interest expense on advances increased $105,000 as the average balance increased $3,417,000 to $12,500,000 for the period ended December 31, 1999, from $9,083,000 for the comparable 1998 period. -11- Based upon management's continuing evaluation of the adequacy of the allowance for loan losses which encompasses the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors, the provision of loan losses remained stable for the three and six months ended December 31, 1999,compared to the same 1998 periods. See "Risk Elements". Noninterest income decreased $29,000 or 14.14%, to $179,000 for the three months ended December 31, 1999 from $208,000 for the comparable period ended 1998. Noninterest income decreased $50,000 or 12.60%, to $344,000 for the six months ended December 31, 1999 from $394,000 for the comparable period ended 1998. For the three and six month periods of 1999, gains on sales of fixed rate mortgage loans and related servicing rights decreased by a combined $59,000 and $117,000, respectively. These decreases are due to the lack of demand of fixed rate mortgages as a result of the changing interest rate environment during the six months ended December 31, 1999 in comparison to the rate environment during the same period ended 1998. Offsetting these decreases for the three and six month periods of 1999 are increases in service charges on deposit accounts of $ 13,000 and $32,000, respectively, and ATM income of $8,000 and $19,000, respectively. These increases are due to increased customer activity. Noninterest expense increased $75,000 or 7.85%, to $1,033,000 for the three months ended December 31, 1999, from $958,000 for the comparable 1998 period. Noninterest expense increased $145,000 or 7.71%, to $2,028,000 for the six months ended December 31, 1999 from $1,883,000 for the comparable 1998 period. For the three and six month periods ended December 31, 1999, compensation and employee benefits increased $55,000 and $81,000, respectively, due to the hiring of additional employees for loan collection, accounting and data processing, as well as, additional costs of living increases for all full time employees. Occupancy and equipment increased $13,000 and $34,000, respectively, due primarily to the incurrence of real estate taxes for the Wintersville branch of $7,500 and $15,000, respectively, and an increase in combined equipment depreciation and maintenance of $3,000 and $18,000, respectively. Professional fees decreased $22,000 and $27,000, respectively, primarily due to the preparation of regulatory reports internally that were previously out sourced. Other expenses increased $33,000 and $55,000, respectively due primarily to board fees in connection with the Company's directors of $4,000 and $11,000, respectively, ATM expense due to increased usage of $5,000 and $7,000,respectively, loan expenses in connection with the Company's Line of Credit program of $2,000 and $6,000, respectively, and additional Ohio franchise tax due to the Wintersville branch of $8,000 and $16,000, respectively. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of December 31, 1999, the Company had commitments to fund loans of approximately $232,200. These loan commitments were funded in January 2000. Management monitors both the Company's and the Bank's total risk-based, Tier I risk-based and Tier I leveraged capital ratios in order to assess compliance with regulatory guidelines. At December 31, 1999, both the Company and the Bank exceeded the minimum risk-based and leveraged capital ratio requirements. The Company's and the Bank's total risk-based, Tier I risk-based and Tier I leverage ratios are 16.25%, 15.61%, 10.43% and 15.01%, 14.39%, and 9.70%, respectively, at December 31, 1999. -12- YEAR 2000 - --------- The Company relies on computers to conduct its business and information systems processing. Industry experts were concerned that on January 1, 2000, some computers might not be able to interpret the new year properly, causing computer malfunctions. Some banking experts remain concerned that some computers may not be able to interpret additional dates in the year 2000 properly. The Company has operated and evaluated its computer operating systems following January 1, 2000 and has not identified any errors or experienced any computer system malfunctions. Additionally, the Company began in-house item processing on January 3, 2000. The item processing equipment and software was tested and validated for Year 2000 compliance prior to December 31, 1999. The Company has operated and evaluated this equipment and software following January 3, 2000 and has not identified any errors or experienced any computer malfunctions. Nevertheless, the Company continues to monitor its information system to assess whether its systems are at risk of misinterpreting any future dates and will develop, if needed, appropriate contingency plans to prevent any potential system malfunction or correct any system failures. The Company has not been informed of any such problem experienced by its vendors or its customers. However, it is too soon to conclude that there will not be any problems arising from the Year 2000 problem. The Company will continue to monitor its significant vendors of goods and services and customers with respect to any Year 2000 problems they may encounter, as those issues may effect its ability to continue operations, or might adversely affect the company's financial position, results of operations and cash flows. At this time, the Company does not believe that these potential problems will materially impact the ability to continue operations. However, no assurance can be given that this will be the case. RISK ELEMENTS - ------------- The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days past due, other real estate loans and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deterioration of the borrower. December 31, June 30, 1999 1999 ------------- ----------- Loans on a nonaccrual basis $237 $456 Loans past due 90 days or more and still accruing 188 309 ------------- --------- Total nonperforming loans 425 765 ------------- --------- Other real estate 407 50 Repossessed assets - 9 ------------- --------- Total nonperforming assets $832 $824 ------------- --------- Nonperforming loans as a percentage of total loans 0.36% 0.69% ============= ========= Nonperforming assets as a percentage of total assets 0.58% 0.63% ============= ========= Allowance for loan losses to nonperforming loans 142.80% 76.12% ============= ========= -13- Management monitors impaired loans on a continual basis. As of December 31, 1999, impaired loans had no material effect on the Company's financial position or result of operations. During the quarter ended December 31, 1999, the Company transferred $355,000 of impaired loans, which were classified as nonperforming loans as of September 30, 1999, into Other Real Estate. The Company has realized no loss on such loans. During the six month period ended December 31, 1999, net loans increased approximately $8,362,000 and nonperforming loans decreased $340,000 while the allowance for loan losses increased $25,000 for the same period. The level of funding for the provision is a reflection of the overall increase in the loan portfolio and the change in the mix of the loan portfolio. Nonaccrual loans consist of $181,000 in one to four family residential mortgages and $56,000 in a commercial real estate mortgage. Management regularly performs an analysis to identify the inherent risks of loss in its loan portfolio. This evaluation includes evaluations of concentrations of credit, past loss experience, current economic conditions, amount and composition of loan portfolio (including loans being specifically monitored by management), estimated fair value of underlying collateral, loan commitments outstanding, delinquencies, and other information available at such times. The Company monitors its allowance for loan losses and makes future adjustments to the allowance through the provision for loan losses as economic conditions dictate. Management continues to offer a wide variety of loan products. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate to provide for the inherent risk of loss in its portfolio, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods due to the higher degree of credit risk included in the loan portfolio. The following is a breakdown of the loan portfolio mix at December 31, 1999 and June 30, 1999: December 31, June 30, 1999 1999 ----------------- ----------------- Mortgage loans: 1-4 family $62,514,904 $59,673,803 Multi-family 5,572,020 2,689,531 Non-residential 22,948,730 23,216,018 Construction 3,307,813 2,073,165 ----------------- ----------------- 94,343,467 87,652,517 ----------------- ----------------- Consumer Loans: Home Improvement 1,154,655 1,195,518 Automobile 9,828,931 8,647,953 Share loans 1,232,722 1,360,054 Other 2,581,007 2,384,401 ----------------- ----------------- 14,797,315 13,587,926 ----------------- ----------------- ----------------- ----------------- Commercial Loans 11,425,936 10,387,570 ----------------- ----------------- Less: Loans in process 1,573,052 1,006,813 Net deferred loan fees 125,175 139,369 Allowance for loan losses 606,920 582,280 ----------------- ----------------- 2,305,147 1,728,462 ----------------- ----------------- Total $118,261,571 $109,899,551 ================= ================= -14- PART II - OTHER INFORMATION Item 1 - Legal Proceedings NONE Item 2 - Changes in securities NONE Item 3 - Defaults upon senior securities NOT APPLICABLE Item 4 - Submission of matters to a vote of security holders The annual meeting of the shareholders of the Company was held on October 19, 1999 and the following matters were voted upon: PROPOSAL I - Election of Directors with term to expire in 2002. FOR WITHHELD --- -------- George H. Johnson 506,734 950 John R. Sperlazza 504,334 3,335 Directors continuing in office are William B. Chesson, Stephen M. Gagliardi, James R. Murphy, William E. Watson, and Frank Gary Young. PROPOSAL II - Ratification of the appointment of S.R. Snodgrass, AC., as independent auditors for the Company, for the fiscal year ending June 30, 2000. FOR AGAINST ABSTAIN --- ------- ------- 506,684 1,000 0 Item 5 - Other information NONE -15- Item 6 - Exhibits and reports on Form 8-K (a) List of Exhibits: 3 (i) Certificate of Incorporation of Advance Financial Bancorp * 3 (ii) Amended Bylaws of Advance Financial Bancorp ***** 4 (i) Specimen Stock Certificate * 4 (ii) Shareholders Rights Plan ** 10 Employment Agreement between the Bank and Stephen M. Gagliardi *** 10.1 1998 Stock Option Plan **** 10.2 Restricted Stock Plan and Trust Agreement **** 27 Financial Data Schedule (electronic filing only) (b) None - -------------------------------------------------------------------------------- * Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-13021) declared effective by the SEC on November 12, 1996 ** Incorporated by reference to the Form 8-K ( File No. 0-21885) filed July 17, 1997 *** Incorporated by reference to the June 30, 1997 Form 10K-SB (File No. 0-21885) filed September 23, 1997 **** Incorporated by reference to the proxy statement for the Special Meeting of the Stockholders on January 20, 1998 and filed with the SEC on December 12, 1997. *****Incorporated by reference to the June 30, 1999 Form 10KSB (File No. 0-21885) filed on . September 23, 1999. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. Advance Financial Bancorp Date: February 14, 2000 By:/s/Stephen M. Gagliardi --------------------------------------- Stephen M. Gagliardi President and Chief Executive Officer Date: February 14, 2000 By:/s/Stephen M. Magnone --------------------------------------- Stephen M. Magnone Vice President and CFO -17- EX-27 2 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL INFORMATION. 1000 6-MOS JUN-30-2000 DEC-31-1999 2,324 2,563 0 0 9,842 3,525 3,414 118,262 607 143,198 112,042 2,500 543 13,500 0 0 108 14,505 143,198 4,633 545 0 5,178 2,387 2,739 2,440 75 0 2,028 680 0 0 0 414 0.46 0.46 3.72 237 188 0 0 582 53 3 607 607 0 607
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