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
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Commission file Number 0-21885
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Advance Financial Bancorp
-------------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0753533
- -------------- ----------
(State or 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
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 November 10, 2001: 932,285
Advance Financial Bancorp
Index
Page
Number
------
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet ( Unaudited) as of
September 30, 2001 and June 30, 2001 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended September 30, 2001 and 2000 4
Consolidated Statement of Cash Flows (Unaudited)
For the Three Months ended September 30, 2001 and 2000 5
Notes to the Unaudited Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis 9-13
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities 14
Item 3 - Default Upon Senior Securities 14
Item 4 - Submissions of Matters to a vote of Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
SIGNATURES 15
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, JUNE 30,
2001 2001
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Assets
Cash and cash equivalents:
Cash and amounts due from banks $ 1,353,533 $ 1,177,728
Interest bearing deposits with other institutions 4,024,098 7,375,450
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Total cash and cash equivalents 5,377,631 8,553,178
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Investment securities:
Securities held to maturity (fair value of $501,596 and $742,057) 500,000 749,934
Securities available for sale 11,174,128 11,147,919
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Total investment securities 11,674,128 11,897,853
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Mortgaged-backed securities:
Securities held to maturity (fair value of $1,868,470 and $1,601,960) 1,829,968 1,595,349
Securities available for sale 7,846,255 8,383,075
------------- -------------
Total mortgage-backed securities 9,676,223 9,978,424
------------- -------------
Loans held for sale 2,211,556 439,949
Loans receivable, (net of allowance for loan losses
of $965,910 and $779,170 ) 157,384,463 129,595,542
Office properties and equipment, net 3,797,782 3,828,367
Federal Home Loan Bank Stock, at cost 1,190,000 1,075,000
Accrued interest receivable 1,119,277 1,017,024
Other assets 1,374,235 1,101,725
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TOTAL ASSETS $ 193,805,295 $ 167,487,062
============= =============
Liabilities:
Deposits $ 155,615,925 $ 130,499,131
Advances from Federal Home Loan Bank 20,000,000 20,000,000
Advance payments by borrowers for taxes and insurance 255,534 146,095
Accrued interest payable and other liabilities 865,489 499,119
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TOTAL LIABILITIES 176,736,948 151,144,345
------------- -------------
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 10,347,266 10,339,790
Retained earnings - substantially restricted 9,220,820 8,806,639
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (402,464) (424,154)
Unallocated shares held by Restricted Stock Plan (RSP) (263,326) (316,480)
Treasury Stock (152,165 shares at cost) (2,233,265) (2,233,265)
Accumulated other comprehensive income 290,871 61,742
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TOTAL STOCKHOLDERS' EQUITY 17,068,347 16,342,717
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 193,805,295 $ 167,487,062
============= =============
See accompanying notes to the unaudited consolidated financial statements.
-3-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $2,847,990 $2,542,551
Investment securities 168,339 170,278
Interest-bearing deposits with other institutions 50,107 46,745
Mortgage-backed securities 154,264 59,395
Dividends on Federal Home Loan Bank Stock 21,154 14,579
---------- ----------
Total interest and dividend income 3,241,854 2,833,548
---------- ----------
INTEREST EXPENSE
Deposits 1,532,529 1,436,647
Advances from Federal Home Loan Bank 295,187 165,010
---------- ----------
Total interest expense 1,827,716 1,601,657
---------- ----------
NET INTEREST INCOME 1,414,138 1,231,891
Provision for loan losses 66,300 30,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,347,838 1,201,891
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 135,694 105,580
Gain on sale of loans 32,379 5,116
Other income 101,794 72,414
---------- ----------
Total noninterest income 269,867 183,110
---------- ----------
NONINTEREST EXPENSE
Compensation and employee benefits 524,730 499,490
Occupancy and equipment 196,675 179,432
Professional fees 31,702 29,517
Advertising 21,105 25,646
Data processing charges 64,305 55,554
Other expenses 278,500 236,993
---------- ----------
Total noninterest expenses 1,117,017 1,026,632
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Income before income taxes 500,688 358,369
Income taxes 197,852 141,697
---------- ----------
Income before extaordinary item 302,836 216,672
Extraordinary item- Excess over cost on net assets acquired in merger 201,206 -
---------- ----------
Net Income 504,042 216,672
========== ==========
EARNINGS PER SHARE - INCOME BEFORE EXTRAORDINARY ITEM
Basic $ .34 $ .25
Diluted $ .34 $ .25
EARNINGS PER SHARE - NET INCOME
Basic $ .57 $ .25
Diluted $ .57 $ .25
See accompanying notes to the unaudited consolidated financial statements.
-4-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net Income $ 504,042 $ 216,672
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 149,969 152,024
Provision for loan losses 66,300 30,000
Gain on sale of loans (32,379) (5,116)
Extraordinary gain on net assets acquired in merger (201,206) -
Origination of loans held for sale (4,693,270) (1,440,984)
Proceeds from the sale of loans 2,954,042 875,600
Increase in other assets and liabilities 134,093 (41,324)
----------- -----------
Net cash used in operating activities (1,118,409) (213,128)
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INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases - -
Maturities and repayments 250,000 -
Investment securities available for sale:
Purchases (256,808) -
Maturities and repayments 3,343,200 1,130
Mortgage-backed securities held to maturity:
Maturities and repayments 113,740 128,589
Mortgage-backed securities available for sale:
Maturities and repayments 683,653 42,457
Purchase of Federal Home Loan Bank Stock (115,000) -
Sale of Federal Home Loan Bank Stock 445,900 -
Net increase in loans (1,092,113) (2,346,873)
Purchases of premises and equipment (73,952) (78,562)
----------- -----------
Net cash provided by (used in) investing activities 3,298,620 (2,253,259)
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FINANCING ACTIVITIES
Net increase in deposits 768,242 1,492,482
Net increase in short term advances from FHLB - 1,000,000
Net change in advances for taxes and insurance 3,845 (60,534)
Net cash purchase of OSFS stock (6,041,007) -
Cash dividends paid (86,838) (85,305)
----------- -----------
Net cash (used in) provided by financing activities (5,355,758) 2,346,643
----------- -----------
Decrease in cash and cash equivalents (3,175,547) (119,744)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,553,178 5,751,624
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,377,631 $ 5,631,880
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 1,837,498 $ 1,716,612
Income taxes $ 160,230 $ 169,930
See accompanying notes to the unaudited consolidated financial statements.
-5-
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, 2002 or any other
interim period.
These statements should be read in conjunction with the consolidated statements
of and for the year ended June 30, 2001 and related notes which are included on
the Form 10-KSB (file no. 0-21885).
NOTE 2 - EARNINGS PER SHARE
There were no convertible securities, which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income will be used as the numerator.
The following table sets forth the composition of the weighted-average common
shares (denominator) used in the basic and diluted earnings per share
computation.
Three Months Ended
September 30
2001 2000
---------- ----------
Weighted-average common shares outstanding 1,084,450 1,084,450
Average treasury stock shares (152,165) (152,165)
Average unearned ESOP and RSP shares (49,712) (57,048)
---------- ----------
Weighted-average common shares and
common stock equivalents used to
calculate basic earnings per share 882,573 875,237
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share - -
---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 882,573 875,237
========== ==========
-6-
NOTE 3 - COMPREHENSIVE INCOME
Other accumulated comprehensive income consists solely of net unrealized gains
and losses on available for sale securities. For the three months ended
September 30, 2001, comprehensive income totaled $733,171. For the three months
ended September 30, 2000, comprehensive income totaled $295,175.
NOTE 4 - MERGER
As of the close of business September 7, 2001, the Company acquired all of the
outstanding stock of Ohio State Financial Services "OSFS". The total cost of the
acquisition by the Company was $7,861,147. The acquisition was a cash purchase
of all outstanding stock of OSFS and was accounted for under the purchase method
of accounting. The Consolidated Statement of Income for the three-month period
ended September 30, 2001, includes the results of operation of the acquired
institution from September 8, 2001.
OSFS was a bank holding company for Bridgeport Savings and Loan, which had
branch offices in Bridgeport and Shadyside, Ohio. The merger was entered into to
enhance the Company's return on equity by geographical diversification, more
profitable deployment of excess capital and market area expansion.
The following is a proforma Statement of Income of Income for the three-month
periods ended September 30, 2001 and 2000. The proforma statements are intended
to present the business combination's effect on earnings per share for the
comparable periods had both entities been combined a the start of each period.
PROFORMA
THREE-MONTHS ENDED
SEPTEMBER 30,
2001 2000
---------- ----------
Total Interest Income $3,661,336 $3,431,585
Total Interest Expense 2,007,200 1,859,729
---------- ----------
Net Interest Income 1,654,136 1,571,856
Provision for loan losses 97,215 30,000
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Net Interest Income after Provision for Loan Losses 1,556,921 1,541,856
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Noninterest Income 275,627 194,620
Noninterest Expense 1,317,624 1,274,127
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Income before income taxes 514,924 462,349
Income taxes 198,241 178,654
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Net Income $ 316,683 $ 283,695
========== ==========
Earnings per share:
Basic $ 0.36 $ 0.32
Diluted $ 0.36 $ 0.32
-7-
NOTE 5 - EXTRAORDINARY ITEM
As a result of the merger with OSFS, the fair market value of the net assets
acquired by the Company from OSFS exceeded the amount paid by approximately
$2,697,000. In accordance with FASB 141, the excess was allocated as a pro rata
reduction of the amounts assigned to all nonfinancial and noncurrent assets.
This pro rata allocation accounted for approximately $2,496,000 of the excess to
be reduced. The remaining portion of the excess, $201,206, was recognized as an
extraordinary gain for the period ended September 30, 2001.
NOTE 6 - PRESS RELEASE CORRECTION
On November 2, 2001, the Company issued a press release for the quarter ending
September 30, 2001. The amounts as previously reported in the press release are
corrected as set forth below:
AS PREVIOUSLY
REPORTED ON CORRECTED
NOVEMBER 2, 2001 AMOUNTS
-------------------------------
BALANCE SHEET
Investment Securities 22,520 22,540
Loans 156,763 157,384
Total Assets 193,515 193,805
Deposits 155,527 155,616
Shareholder Equity 16,867 17,068
STATEMENT OF INCOME
Extraordinary item - excess over cost on net
assets acquired in merger - 201
Net Income 303 504
Basic Earnings per share - net income .34 .57
Diluted Earnings per share - net income .34 .57
-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, and general economic conditions
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.
OVERVIEW
- --------
On September 7, 2001, the Company's growth was bolstered by the completion of
the acquisition of Ohio State Financial Services, Inc ("OSFS") and its wholly
owned subsidiary Bridgeport Savings and Loan Association. The acquisition was
accounted for under the purchase method of accounting in a cash transaction. As
a result of the completion of the acquisition, the Company paid $7.8 million to
the shareholders of OSFS. With the completion of the acquisition, the Company
added two additional branches located in Bridgeport and Shadyside, Ohio bringing
the total branch locations of the Company to five. The results of operations
from September 8, 2001 include the operations of OSFS.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,2001 AND JUNE 30, 2001
- ------------------------------------------------------------------------
The Company's total assets increased by approximately $26,318,000 to
$193,805,295 at September 30, 2001, from $167,487,062 at June 30, 2001 as a
result of the acquisition of OSFS which increased assets $24,935,000, net of
$7,861,000 of cash paid for the acquisition. .
Loans receivable, net and deposits grew to $157,384,463 and $155,615,925,
respectively at September 30, 2001 from $129,595,542 and $130,499,131,
respectively at June 30, 2001. The acquisition of OSFS contributed $26,763,000
to loans receivable, net consisting primarily of $25,300,000 in 1-4 family and
construction loans and $700,000 in automobile loans. Additionally, the OSFS
acquisition contributed approximately $24,349,000 to deposits, consisting
primarily of 12,630,000 in core savings and NOW accounts and $11,719,000 in
certificates of deposit.
Stockholders' Equity increased approximately $725,600 to $17,068,347 at
September 30, 2001 from $16,342,717 at June 30, 2001. This increase was the
result of net income of $504,000 for the period, of which $201,200 relates to an
extraordinary gain as a result of the merger, the recognition of shares in the
Employee Stock Ownership Plan and Restricted Stock Plan of $79,400, and an
increase in the net unrealized gain on securities of $229,000 were offset by the
payment of cash dividends of $86,800.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
2001 AND 2000
- -------------
Net interest income increased $182,000 or 14.79%, to $1,414,000 for the three
months ended September 30, 2001 from $1,232,000 for the comparable period ended
2000. 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
September 30, 2001 decreased to 2.93% from 3.04% for the comparable period ended
2000. See "Average Balance Sheet" for the three-month periods ended September
30, 2001 and 2000.
-9-
The provision for loan losses increased $36,300 to $66, 300 for the three months
ended September 30, 2001 from $30,000 for the comparable period ended 2000. The
increase is primarily the result of increasing delinquencies in the Company's
loan portfolio as nonperforming loans to total net loans have increased to 1.63%
at September 30, 2001 from .92% for the comparable period ended 2000. See "Risk
Elements".
Noninterest income increased $87,000 or 47.38%, to $270,000 for the three months
ended September 30, 2001 from $183,000 for the comparable period ended 2000. For
the three month period of 2001, miscellaneous fees and fees on deposit accounts
increased by $51,000 as a result of increased core customers and related
activity. Gains on sales of fixed rate loans and related servicing rights
increased $38,000 due to the current fixed rate mortgage loan environment in
comparison to the comparable period ended 2000.
Noninterest expense increased $90,000 or 8.80%, to $1,117,000 for the three
months ended September 30, 2001 from $1,027,000 for the comparable 2000 period.
For the three month period ended September 30, 2001, compensation and employee
benefits increased a net $25,000 or 5.05%. The increase in compensation and
employee benefits totalled $44,000 due to the hiring of employees to operate the
two branches created by the merger of OSFS and additional cost of living
increases for other full time employees. This increase was offset by an increase
of $19,000 in deferred labor costs as a result of increased loan production. For
the three period ended September 30, 2001, occupancy and equipment increased
$17,000. The increase is due in part to the operation of the two branches
created by the merger with OSFS, as well as, an increase in depreciation on
equipment and an increase on the property tax assessment of the Company's
Wintersville facility. Other Expenses have increased $42,000 for the three month
period ended September 30, 2001. The increase in other expense is due to an
increase in supplies, telephone and postage of $12,000, an increase in fees paid
for ATM and consumer card usage of $13,000 and increase in charges from the
Federal Reserve for item processing of $9,000. Each of these increases are
related to customer activity due to the increase in the Company's core
customers. In addition, state franchise taxes have increased $3,000 due to an
increase in the Company's capital. Board and committee fees have increased
$4,000 primarily as a result of the creation of the advisory board made up of
nonemployee directors of the former OSFS.
Net income was bolstered for the period ending September 30, 2001 by an
extraordinary gain as a result of the merger with OSFS. The gain of $201,206 was
the result of an excess over cost of the fair value of the net assets acquired
in the merger. See Note 5 to the financial statements for a complete discussion.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 2001, the Company had commitments to fund loans of
approximately $2,277,000. These loan commitments are expected to be funded by
October 31, 2001.
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 September 30, 2001, 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 13.75%, 13.00%, 8.66% and 11.85%, 11.10%, and 7.35%, respectively, at
September 30, 2001.
-10-
Average Balance Sheet for the Three-Month Period Ended September 30
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
Period Ended September 30,
-------------------------------------------------------------------------------
2001 2000
------------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------- ---------- ----------- -------- -------- -----------
Interest-earning assets:
Loans receivable (1) $136,211 $2,848 8.36% $120,805 $2,543 8.42%
Investment securities (2) 19,094 240 5.02% 14,123 232 6.56%
Mortgage-backed securities 9,663 154 6.39% 3,553 59 6.69%
-------- ------ ------ -------- ------ ------
Total interest-earning assets 164,968 3,242 7.86% 138,481 2,834 8.18%
------ ------ ------ ------
Non-interest-earning assets 7,152 7,177
-------- --------
Total assets $172,120 $145,658
======== ========
Interest-bearing liabilities:
Interest-bearing demand deposits $ 21,043 142 2.69% $ 19,622 173 3.53%
Certificates of deposit 86,604 1,247 5.76% 76,649 1,138 5.94%
Savings deposits 20,683 144 2.79% 17,629 126 2.85%
FHLB borrowings 20,000 295 5.90% 10,667 165 6.19%
-------- ------ ------ -------- ------ ------
Total interest-bearing liabilities 148,330 1,828 4.93% 124,567 1,602 5.14%
------ ------ ------ ------
Non-interest bearing liabilities 7,244 5,876
-------- --------
Total liabilities 155,574 130,443
Stockholders' equity 16,546 15,215
-------- --------
Total liabilities and stockholders'
equity $172,120 $145,658
======== ========
Net interest income $ 1,414 $1,232
======= ======
Interest rate spread (3) 2.93% 3.04%
====== ======
Net yield on interest-earning assets (4) 3.43% 3.56%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 111.22% 111.17%
====== ======
- -------------------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions and FHLB
stock.
(3) Interest-rate spread represents the difference between the average yield on
interest earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-11-
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.
September 30, June 30,
2001 2001
------------- --------
Loans on a nonaccrual basis $1,737 $ 535
Loans past due 90 days or more and still accruing 826 668
------ -------
Total nonperforming loans 2,563 1,203
------ -------
Other real estate 425 355
Repossessed assets 23 13
------ -------
Total nonperforming assets $3,011 $1,571
------ -------
Nonperforming loans as a percentage of total net loans 1.63% 0.92%
====== =======
Nonperforming assets as a percentage of total assets 1.56% 0.94%
====== =======
Allowance for loan losses to nonperforming loans 37.69% 64.77%
====== =======
As of September 30, 2001, the total investment in impaired loans was $513,509,
and such amount was subject to a specific allowance for loan losses of $131,527.
The average investment in impaired loans for the quarter ended September 30,
2001 was $513,509. The interest income potential based upon the original terms
of the contracts of these impaired loans was $11,920 for the quarter ended
September 30, 2001. No interest income on these impaired loans was recognized
during the quarter.
Nonaccrual loans , net of the impaired loans discussed above, consist of
$733,000 in one to four family residential mortgages, $42,000 in multi-family
mortgages and $448,000 in non-residential real estate mortgages at September 30,
2001. 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.
-12-
The following is a breakdown of the loan portfolio composition at September 30,
2001 and June 30, 2001:
September 30, June 30,
2001 2001
------------ -----------
Mortgage loans:
1-4 family $ 89,437,841 $64,696,315
Multi-family 6,129,596 6,002,553
Non-residential 27,626,371 27,956,885
Construction 3,058,400 2,455,751
------------ ------------
126,252,208 101,111,504
------------ ------------
Consumer Loans:
Home Improvement 1,103,551 1,208,279
Automobile 14,613,324 13,000,468
Share loans 1,384,068 1,594,755
Other 2,626,786 2,778,630
------------ ------------
19,727,729 18,582,132
------------ ------------
------------ ------------
Commercial Loans 14,678,540 12,651,451
------------ ------------
Less:
Loans in process 2,233,354 1,861,360
Net deferred loan fees 74,750 109,015
Allowance for loan losses 965,910 779,170
------------ ------------
3,274,014 2,749,545
------------ ------------
Total $157,384,463 $129,595,542
============ ============
-13-
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
NONE
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) 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 ****
(b) None
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* 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 28, 1999.
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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: November 13, 2001 By:/s/Stephen M. Gagliardi
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Stephen M. Gagliardi
President and Chief Executive Officer
Date: November 13, 2001 By:/s/Stephen M. Magnone
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Stephen M. Magnone
Vice President and CFO
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