-----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, CYyVVA61O5jcVmFRabPAFpX1UDmj8CDEbkOJqRQTV3XrjvoriARHtP5+YITdZnrV W4/Ba6QejR8J8GI0XVBLfQ== 0001018712-98-000003.txt : 19980218 0001018712-98-000003.hdr.sgml : 19980218 ACCESSION NUMBER: 0001018712-98-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD 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: 98536375 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20552 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 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 subject to such filing requirements for the past 90 days. Yes X No --- --- State the number of shares outstanding of 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 2, 1998: 1,084,450 shares ADVANCE FINANCIAL BANCORP INDEX Page Number ------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet (Unaudited) as of December 31, 1997 and June 30, 1997 3 Consolidated Statement of Income (Unaudited) for the Six Months ended December 31, 1997 and 1996 4 Consolidated Statement of Income (Unaudited) for the Three Months ended December 31, 1997 and 1996 5 Consolidated Statement of Cash Flows (Unaudited) for the Six Months ended December 31, 1997 and 1996 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Recent Developments 8-12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Default Upon Senior Securities 13 Item 4. Submissions of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 ADVANCE FINANCIAL BANCORP CONSOLIDATED BALANCE SHEET (UNAUDITED)
December 31, June 30, 1997 1997 ------------- ------------- ASSETS Cash and Cash Equivalents: Cash and amounts due from banks $ 1,155,364 $ 903,981 Interest-bearing deposits with other institutions 3,824,637 5,888,439 ------------- ------------- Total cash and cash equivalents 4,980,001 6,792,420 Investment Securities: Securities held to maturity (fair value of $4,508,469 and $7,831,187) 4,494,886 7,844,305 Securities available for sale 49,845 55,051 ------------- ------------- Total investment securities 4,544,731 7,899,356 Mortgage-backed securities held to maturity (fair value of $390,875 and $394,743) 362,264 367,553 Loans receivable, (net of allowance for loan losses of $328,607 and $367,779) 94,349,721 86,067,848 Office properties and equipment, net 2,352,987 2,055,651 Federal Home Loan Bank Stock, at cost 576,700 576,700 Accrued interest receivable 693,831 655,667 Other assets 171,737 148,184 ------------- ------------- TOTAL ASSETS $108,031,972 $104,563,379 ============= ============= LIABILITIES Deposits $81,227,291 $80,069,078 Advances from Federal Home Loan Bank 9,729,699 7,747,449 Advances from borrowers for taxes and insurance 182,117 186,738 Accrued interest payable and other liabilities 449,711 435,069 ------------- ------------- TOTAL LIABILITIES 91,588,818 88,438,334 ------------- ------------- 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 and outstanding 108,445 108,445 Additional paid - in capital 10,249,065 10,221,528 Retained Earnings - substantially restricted 6,843,630 6,597,836 Net unrealized loss on securities (5,921) (6,569) Unearned Employee Stock Ownership Plan shares (ESOP) (752,065) (796,195) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 16,443,154 16,125,045 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $108,031,972 $ 104,563,379 ============= =============
See accompanying notes to the unaudited consolidated financial statements. 3 ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended December 31, 1997 1996 ------------ ------------ INTEREST AND DIVIDEND INCOME Loans $ 3,752,359 $ 3,293,431 Investment securities 220,955 149,974 Interest-bearing deposits with other institutions 116,887 107,223 Mortgage-backed securities 16,883 21,066 Dividends on Federal Home Loan Bank Stock 18,540 17,504 ------------ ------------ Total interest and dividend income 4,125,624 3,589,198 ------------ ------------ INTEREST EXPENSE Deposits 1,881,300 1,838,064 Advances from Federal Home Loan Bank 235,036 183,167 ------------ ------------ Total interest expense 2,116,336 2,021,231 ------------ ------------ NET INTEREST INCOME 2,009,288 1,567,967 Provision for loan losses 46,365 17,384 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,962,923 1,550,583 ------------ ------------ NONINTEREST INCOME Service charges on deposit accounts 125,199 113,542 Gain on sale of loans 45,933 15,576 Other income 42,347 42,867 ------------ ------------ Total noninterest income 213,479 171,985 ------------ ------------ NONINTEREST EXPENSE Compensation and employee benefits 642,840 469,784 Occupancy and equipment 181,355 126,392 Deposit insurance premiums 26,291 551,602 Professional fees 115,056 46,667 Advertising 59,208 47,860 Data processing charges 145,485 129,192 Other expenses 339,166 252,321 ------------ ------------ Total noninterest expense 1,509,401 1,623,818 ------------ ------------ Income before income taxes 667,001 98,750 Income taxes 246,781 43,881 ------------ ------------ NET INCOME $ 420,220 $ 54,869 ============ ============ EARNINGS PER SHARE $.42 - WEIGHTED AVERAGE SHARES OUTSTANDING 1,006,665 -
See accompanying notes to the unaudited consolidated financial statements. 4 ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended December 31, 1997 1996 ------------ ------------ INTEREST AND DIVIDEND INCOME Loans $ 1,938,596 $ 1,669,547 Investment securities 89,524 69,797 Interest-bearing deposits with other institutions 55,278 77,920 Mortgage-backed securities 8,420 9,574 Dividends on Federal Home Loan Bank Stock 9,273 8,538 ------------ ------------ Total interest and dividend income 2,101,091 1,835,306 ------------ ------------ INTEREST EXPENSE Deposits 946,476 932,268 Advances from Federal Home Loan Bank 124,409 109,651 ------------ ------------ Total interest expense 1,070,885 1,041,919 ------------ ------------ NET INTEREST INCOME 1,030,206 793,387 Provision for loan losses 30,694 14,384 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 999,512 779,003 ------------ ------------ NONINTEREST INCOME Service charges on deposit accounts 67,456 56,334 Gain on sale of loans 25,676 8,533 Other income 25,017 24,234 ------------ ------------ Total noninterest income 118,149 89,101 ------------ ------------ NONINTEREST EXPENSE Compensation and employee benefits 336,696 240,697 Occupancy and equipment 96,016 74,165 Deposit insurance premiums 13,141 36,009 Professional fees 52,416 23,309 Advertising 24,324 18,810 Data processing charges 71,481 62,058 Other expenses 203,387 109,278 ------------ ------------ Total noninterest expense 797,461 564,326 ------------ ------------ Income before income taxes 320,200 303,778 Income taxes 104,542 99,477 ------------ ------------ NET INCOME $ 215,658 $ 204,301 ============ ============ EARNINGS PER SHARE $ .21 $ - WEIGHTED AVERAGE SHARES OUTSTANDING 1,008,112 -
See accompanying notes to the unaudited consolidated financial statements. 5 ADVANCE FINANCIAL BANCORP CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended December 31, 1997 1996 ------------ ------------ OPERATING ACTIVITIES Net income $ 420,220 $ 54,869 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion, net 83,422 70,473 Provision for loan losses 46,365 17,384 Amortization of unearned ESOP 71,667 - Origination of loans held for sale (2,305,678) - Proceeds from sale of loans 2,351,611 1,129,143 Decrease (increase) in other assets and liabilities (60,819) 47,450 ------------ ------------ Net cash provided by operating activities 2,606,788 1,319,319 ------------ ------------ INVESTING ACTIVITIES Proceeds from maturities of held to maturity securities 4,350,000 1,750,000 Purchases of held to maturity securities (1,000,000) - Principal collected on available for sale securities 6,188 6,684 Principal collected on mortgage - backed securities 5,294 121,826 Net increase in loans (8,374,171) (5,880,872) Purchases of office properties and equipment (381,344) (90,860) ------------ ------------ Net cash used for investing activities (5,394,033) (4,093,222) ------------ ------------ FINANCING ACTIVITIES Net increase (decrease)in deposits 1,158,213 (4,654,311) Proceeds from sale of common stock - 9,485,274 Proceeds (repayments)from advances 1,982,250 3,388,179 from Federal Home Loan Bank Dividends paid (161,016) - Net change in advances for taxes and insurance (4,621) (11,395) ------------ ------------ Net cash provided by financing activities 2,974,826 8,207,747 ------------ ------------ Decrease in cash and cash equivalents (1,812,419) 5,433,844 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,792,420 4,016,583 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,980,001 $ 9,450,427 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest on deposits and borrowings $ 2,108,190 $ 1,985,409 Income taxes 192,000 87,500
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 the 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, 1998. These statements should be read in conjunction with the consolidated statements as of and for the year ended June 30, 1997 and related notes which are included on the Form 10-KSB (file no. 0-21885). NOTE 2 - EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share." This statement redefines the standards for computing earnings per share (EPS) previously found in Accounting Principles Board opinion No. 15, Earnings Per Share. Statement 128 establishes new standards for computing and presenting EPS and requires dual presentation of "basic" and "diluted" EPS on the face of income statement for all entities with complex capital structures. Under Statement 128, basic EPS is to be computed based upon income available to common shareholders and the weighted average number of common shares outstanding for the period. Diluted EPS is to reflect the potential dilution exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Statement 128 also requires the restatement of all prior-period EPS data presented. The Company currently maintains a simple capital structure, thus there are no dilutive effects on earnings per share. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE 30, 1997 - ------------------------------------------------------------------------- Total assets increased by approximately $3,469,000 to $108,032,000 at December 31, 1997 from $104,563,000 at June 30, 1997. Interest-bearing deposits with other institutions decreased $2,064,000 to $3,825,000 at December 31, 1997 from $5,888,000 at June 30, 1997. This decrease was used primarily to supplement the growing loan demand within the bank's market area. Investment securities decreased $3,355,000 or 42.5% from $7,899,000 at June 30, 1997 to $4,545,000 at December 31, 1997. This decrease in the U.S. Government securities held to maturity classification was the result of approximately $3.6 million in securities being called during the six month period. Management replaced only $1 million of these type investment securities with similar instruments with maturities ranging from three to six years and used the remaining proceeds to satisfy loan demand. Net loan receivables increased $8,282,000 or 9.6% from $86,068,000 at June 30, 1997 to $94,350,000 at December 31, 1997. There were increases in residential mortgages of $4,428,000, non-residential mortgages of $2,140,000 and $986,000 in participation loans. Such increases primarily reflected the economic health of the Bank's market area and the competitive pricing of the Bank's loan product. The funding of the loan growth was mainly provided by the means discussed above, specifically the usage of interest-bearing deposits with other institutions and the maturity of investment securities. To a lesser extent, increased borrowings with the Federal Home Loan Bank of $1,982,000 also contributed to this funding. Net office properties and equipment increased 14.5% or $297,000 from $$2,056,000 at June 30, 1997 to $2,353,000 at December 31, 1997. This is directly related to preparation for the new branch opening in Wintersville, Ohio. Deposits increased slightly by $1,158,000 to $81,227,000 at December 31, 1997 from $80,069,000 at June 30, 1997. This increase primarily represents deposits accumulated via a new money market product for balances greater than $10,000 offered at a preferential rate which has grown to $6,459,000. Customer preference to this new product is exhibited by a decline in savings accounts which has offset the growth of this new product. Equity capital increased by $318,000 for the six months ended December 31, 1997, as a result of net income of $420,000 and recognition of shares in the Employee Stock Ownership Plan amounting to $72,000. Cash dividends paid of approximately $161,000 reduced the impact of these other events. Future dividend policies will be determined by the Board of Directors in light of the earnings and financial condition of the Company, including applicable governmental regulations and policies. 8 COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED - ------------------------------------------------------------------ DECEMBER 31, 1997 AND 1996 - --------------------------- Net interest income increased $441,000 or 28.1%, to $2,009,000 for the six months ended December 31, 1997 compared to $1,568,000 for the six months ended December 30, 1996. The increase in interest income resulted primarily from an increase in earnings on loans of $459,000 or 13.9% and investment securities of $71,000 or 47.3%. These increases, which were due to an increase in the average principal balances of $9,472,000 for loans and $1,890,000 for investment securities were funded by proceeds from the sale of common stock in December 1996 and advances from FHLB. The yield on investments increased from 6.7% for the six months ended December 31, 1996 to 7.1% for the same period ended December 31, 1997. This increase was the result of a combination of a slight increase in rates coupled with the maturing of $3.6 million of lower yielding U.S. Government obligations. Interest expense increased $95,000 or 4.7% from $2,021,000 for the six months ended December 31, 1996 to $2,116,000 for the same period ended 1997. The increase was primarily due to the average volume of interest-bearing liabilities of $6,252,000 due to the marketing of a new money market deposit product amounting to $6,460,000 coupled of with an increase in the average balance of advances from the FHLB of $1,501,000. This was offset by a decline in the average balance of savings deposits of $1,968,000, as customers preferred the advantages of the new deposit product, as well as a decline the cost of funds from 4.7% for the six months ended December 31, 1996 to 4.6% for the same period ended December 31, 1997. 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 for loan losses increased by $29,000 for the six months ended December 31, 1997 compared to the same period ended 1996. See "Risk Elements". Noninterest income which is comprised principally of service charges on deposit accounts increased $41,000 or 24.1% to $213,000 as of December 31, 1997 from $172,000 as of December 31, 1996. Service charges on deposit accounts increased from $114,000 as of December 31, 1996 to $125,000 as of December 31, 1997 driven by an increase in volume. In addition, during the second half of 1996, the Bank began a new program to sell fixed rate mortgage loans which resulted in an increase on gains on the sale of loans of $30,000. Noninterest expense decreased $114,000 or 7.0% to $1,509,000 as of December 31, 1997 from $1,624,000 as of December 31, 1996. This decrease is largely attributed to a one time charge of $470,000 in federal insurance premiums in the first quarter of 1996. On September 30, 1996, the President signed into law legislation which included the recapitalization of the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation by a one time charge to SAIF-insured institutions of 65.7 basis points per one hundred dollars of insurable deposits. A reduced level of insurance premiums is anticipated in future periods as a result of this one- time charge. Compensation and benefits increased $173,000 or 36.8%, due to the hiring of new employees to further diversify the Bank's operations to meet continually changing customer demands, as well as an increase of $75,000 attributable to Employee Stock Ownership Plan. Professional fees increased by $68,000 to $115,000 as of December 31, 1997 compared to $47,000 for December 31, 1996 due to an increase in services for compliance with regulatory requirements and employee benefit plans. Occupancy and equipment increased $55,000 from $126,000 as of December 31, 1996 to $181,000 as of December 31, 1997 due primarily to an increase in depreciation expense for equipment. Other noninterest expense increased by $87,000 due to the addition of franchise taxes for the six months ended December 31, 1997 coupled with general overall increases in all expenses. A great deal of information has been disseminated about the global computer crash that may occur in the year 2000. Many computer programs that can only distinguish the final two digits of the year entered ( common programming practice in earlier years) are expected to read entries for the year 2000 as the year 1900 and compute payment, interest, or delinquency based on the wrong date or are expected to unable the compute payment, interest, or delinquency. Rapid and accurate data processing is essential to our operations. Data processing is also essential to most other financial institutions and many other companies. All of our material data processing that could be affected by this problem is provided by a third party service bureau. Our service bureaus has advised us that it expects to resolve this potential problem before the year 2000. However, if this potential problem is not resolved before the year 2000, we would likely experience significant data processing delays, mistakes, or failures. The delays, mistakes, or failures could have a significant adverse impact on our financial condition and our results of operations. Income tax expense increased $203,000 to $247,000 for the six months ended December 31, 1997 compared to $44,000 for the same period ended December 31, 1996 due to the higher level of pre-tax income. 9 COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED - ------------------------------------------------------------------ DECEMBER 31, 1997 AND 1996 - --------------------------- Net interest income increased $237,000 or 29.5%, over 1996. This increase is due to an increase in average interest earning assets over interest bearing liabilities of $6,249,000 due to an increase in loan demand within the Bank's market area. Furthermore, the interest rate spread increased from 3.2% as of December 31, 1996 to 3.6% as of December 31, 1997 which resulted primarily from an increase in rates on loans coupled with a decline in rates on interest bearing demand deposits. Interest expense increased slightly as a result of average interest bearing demand deposits increasing while being offset by a $1,695,000 decline in average savings deposits and a 17 basis point in the cost of funds. These fluctuations were primarily due to the marketing of a new deposit product and the competitive interest rate environment within the Bank's market area. Provision for loan losses increased $16,000 to $30,694 for the three months ended December 31, 1997 compared to $14,000 for the same period ended December 31, 1996. This increase is derived from management's continual monitoring of the quality of its loan portfolio and its determination of the adequacy of the allowance for loan losses. Noninterest income increased $29,000 to $118,000 for the six months ended December 31, 1997 from $89,000 for the same period ended December 31, 1997. This increase is primarily due to gains on sale of fixed rate mortgage loans of $17,000 and an increase in volume of service charges on deposit accounts of $11,000. Noninterest expense increased $233,000 or 41.3% to $797,000 for the six months ended December 31, 1997 compared to $564,000 for the same period ended December 31, 1996. There were increases of $96,000 to compensation and employee benefits $29,000 to professional fees and $94,000 to other noninterest expense for those same reasons as discussed previously. 10 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Bank's primary sources of funds are deposits, amortization and prepayment of loans, maturities of investment securities, and funds provided from operations. While scheduled loan repayments are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Savings Bank invests excess funds in overnight deposits which provide liquidity to meet lending requirements. The Bank has other sources of liquidity if a need for additional funds arises. Additional sources of funds include a flex line of credit and a RepoPlus line of credit with the Federal Home Loan Bank ("FHLB") of Pittsburgh amounting to $4.8 million and $10 million, respectively. In addition, as of December 31, 1997, the Bank had outstanding advances from the FHLB of $9,730,000. As of December 31, 1997, the Company has commitments to fund loans of approximately $2,152,000 as a direct result of the economic health of the Bank's market area and the competitive pricing of the Bank's loan products. Management monitors both the Company's and the Bank's total risk-based, Tier I risk-based and Tier I leverage capital ratios in order to assess compliance with regulatory guidelines. At December 31, 1997, both the Company and the Bank exceeded the minimum risk-based and leverage capital ratios requirements. The Company's and Bank's total risk-based, Tier I risk-based and Tier I leverage ratios are 23.6%, 23.2%, 15.5%, and 17.9%, 17.5%, and 11.7% respectively at December 31, 1997. 11 RISK ELEMENT - ------------ The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more 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, 1997 1997 --------- --------- (dollars in thousands) Loans on nonaccrual basis $ 850 $ 155 Loans past due 90 days or more and still accruing 338 453 --------- --------- Total nonperforming loans 1,188 608 --------- --------- Nonperforming loans as a percent of total loans 1.26% 0.70% ====== ====== Nonperforming assets as a percent of total assets 1.10% 0.58% ====== ====== Allowance for loan losses to nonperforming loans 27.69% 60.53% ====== ====== At December 31, 1997 and 1996, no real estate or other assets were held as foreclosed or repossessed property. Management monitors impaired loans on a continual basis. As of December 31, 1997, impaired loans had no material effect on the company's financial position or results of operations. During the six month period ended December 31, 1997, loans increased $8,282,000 and nonperforming loans increased $580,000 while the allowance for loan losses decreased $39,000 for the same period. The percentage of allowance for loan losses to loans outstanding declined slightly to .3% as of December 31, 1997 compared to .4% as of December 31, 1996. Nonperforming loans are primarily made up of one to four family residential mortgages. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management's opinion. Management believes the level of the allowance for loan losses at December 31, 1997 is sufficient; however, there can be no assurance that the current allowance for loan losses will be adequate to absorb all future loan losses. The relationship between the allowance for loan losses and outstanding loans is a function of the credit quality and known risk attributed to the loan portfolio. The on-going loan review program and credit approval process is used to determine the adequacy of the allowance for loan losses. 12 PART II - OTHER INFORMATION Item 1 - Legal proceedings From time to time, the Company and its subsidiary may be a party to various legal in the ordinary course of business. At December 31, 1997 there were no legal proceedings of a material nature. Item 2 - Changes in securities NONE Item 3 - Defaults upon senior securities N/A Item 4 - Submission of matters to a vote of security holders On October 28, 1997, at its Annual Meeting of Stockholders, the Compar announced that the following proposals were ratified: Election of Directors Directors elected to the Board: Stephen M. Gagliardi for a term of three years, expiring in 2000. There were 906,560 affirmative votes and 1,400 votes withheld. James R. Murphy for a term of three years, expiring in 2000. There were 904,560 affirmative votes and 3,400 votes withheld. William B. Chesson for a term of three years, expiring in 2000. There were 901,460 affirmative votes and 6,500 votes withheld. Other directors of the Company consist of Gary Young (term expiring in 1998), George H. Hohnson (term expiring in 1998), William E. Watson (term expiring in 1998), and John R. Sperlazza (term expiring in 1999). Ratification of Selection of Independent Public Accountants The ratification of the appointment of S.R. Snodgrass, A.C. as the Company's independent public accountants for the year ending June 30, 1998. There were 846,560 affirmative votes and 61,400 negative votes. The number of votes abstaining were 1,000. Item 5 - Other information NONE Item 6 - Exhibits and reports on Form 8-K (a) List of exhibits: 3(i) Certificate of Incorporation of Advance Financial Bancorp* 3(ii) Bylaws of Advance Financial Bancorp* 4(i) Specimen Stock Certificate* 4(ii) Shareholders Right Plan** 10 Employment Agreement between the Bank and Stephen M. Gagliardi*** 27 Financial Data Schedule (electronic filing only) - ----------------------- * 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 10-KSB (File No. 0-21885) filed September 23, 1997. 13 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 12, 1998 By:\s\ Stephen M. Gagliardi -------------------------------------- Stephen M. Gagliardi President and Chief Executive Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 1,000 6-MOS JUN-30-1998 DEC-31-1997 1,155 3,825 0 0 50 4,495 4,508 94,350 329 108,032 91,589 1,000 632 8,730 0 0 108 16,355 108,032 3,752 256 117 4,126 1,881 2,116 2,009 46 0 1,509 667 0 0 0 420 .42 0 3.96 850 338 0 0 368 100 15 329 329 0 0
-----END PRIVACY-ENHANCED MESSAGE-----