United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10QSB
{x} QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2003
-----------------
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from ________________to__________________
Commission file Number 0-21885
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Advance Financial Bancorp
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0753533
- ------------------------- ---------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1015 Commerce Street, Wellsburg, WV 26070
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(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 $.0667 per share
Outstanding at February 10, 2004: 1,398,373
Transitional Small Business Disclosure Format ( check one):
Yes No x
--- ---
Advance Financial Bancorp
Index
Page
Number
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Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet (Unaudited) as of
December 31, 2003 and June 30, 2003 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended December 31, 2003 and 2002 4
Consolidated Statement of Income (Unaudited)
For the Six Months ended December 31, 2003 and 2002 5
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months ended December 31, 2003 and 2002 6
Notes to the Unaudited Consolidated Financial Statements 7-9
Item 2 - Management's Discussion and Analysis 10-18
Item 3 - Controls and Procedures 19
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 2 - Changes in Securities and Use of Proceeds 20
Item 3 - Default Upon Senior Securities 20
Item 4 - Submissions of Matters to a Vote of Security Holders 20
Item 5 - Other Information 20
Item 6 - Exhibits and Reports on Form 8-K 20-21
SIGNATURES 22
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, JUNE 30,
2003 2003
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Assets
Cash and cash equivalents:
Cash and amounts due from banks $ 2,474,602 $ 2,906,568
Interest bearing deposits with other institutions 3,089,777 13,163,753
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Total cash and cash equivalents 5,564,379 16,070,321
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Investment securities:
Securities held to maturity (fair value of $14,218,014 and $15,298,606) 14,090,244 15,086,475
Securities available for sale 13,722 11,394,701
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Total investment securities 14,103,966 26,481,176
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Mortgaged-backed securities:
Securities held to maturity (fair value of $14,729,811 and $18,751,018) 14,877,727 18,642,532
Securities available for sale 6,779,983 8,979,898
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Total mortgage-backed securities 21,657,710 27,622,430
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Loans held for sale 309,000 5,687,708
Loans receivable, (net of allowance for loan losses
of $1,495,738 and $1,095,822 ) 263,333,201 229,239,547
Office properties and equipment, net 4,938,041 5,069,073
Federal Home Loan Bank Stock, at cost 2,345,200 1,679,400
Accrued interest receivable 1,351,111 1,447,525
Goodwill 4,700,472 4,700,472
Other intangibles, net 1,620,226 1,709,413
Other assets 2,915,485 2,193,526
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TOTAL ASSETS $ 322,838,791 $ 321,900,591
============= =============
Liabilities:
Deposits $ 266,386,970 $ 272,828,932
Advances from Federal Home Loan Bank 26,800,000 20,000,000
Other Borrowings 7,200,000 7,200,000
Advance payments by borrowers for taxes and insurance 626,170 507,049
Accrued interest payable and other liabilities 872,307 1,276,657
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TOTAL LIABILITIES 301,885,447 301,812,638
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Stockholders' Equity:
Preferred stock, $.10 par value; 500,000 shares
authorized, none issued - -
Common stock, $.0667 par value; 3,000,000 shares
authorized 1,626,621 shares issued 108,445 108,445
Additional paid in capital 10,535,754 10,467,559
Retained earnings - substantially restricted 12,924,894 11,705,306
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (207,247) (250,634)
Unallocated shares held by Restricted Stock Plan (RSP) (205,719) (206,756)
Treasury Stock (228,248 shares at cost) (2,233,265) (2,233,265)
Accumulated other comprehensive income 30,482 497,298
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TOTAL STOCKHOLDERS' EQUITY 20,953,344 20,087,953
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 322,838,791 $ 321,900,591
============= =============
See accompanying notes to the unaudited consolidated financial statements.
-3-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2003 2002
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INTEREST AND DIVIDEND INCOME
Loans $4,043,135 $3,160,482
Investment securities - taxable 102,119 84,592
Investment securities - nontaxable 80,092 77,146
Interest-bearing deposits with other institutions 3,094 39,002
Mortgage-backed securities 211,917 117,386
Dividends on Federal Home Loan Bank Stock 6,412 9,198
---------- ----------
Total interest and dividend income 4,446,769 3,487,806
---------- ----------
INTEREST EXPENSE
Deposits 1,490,193 1,379,767
Advances from Federal Home Loan Bank 327,990 292,738
Other Borrowings 80,811 -
---------- ----------
Total interest expense 1,898,994 1,672,505
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NET INTEREST INCOME 2,547,775 1,815,301
Provision for loan losses 350,850 105,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,196,925 1,710,301
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NONINTEREST INCOME
Service charges on deposit accounts 226,654 151,989
Income from loan servicing activity 66,038 8,553
Gain on sale of loans 57,925 68,976
Gain on sale of Investments 446,377 -
Other income 93,494 72,020
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Total noninterest income 890,488 301,538
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NONINTEREST EXPENSE
Compensation and employee benefits 819,520 627,639
Occupancy and equipment 268,395 271,001
Professional fees 45,336 38,404
Advertising 48,255 57,492
Data processing charges 135,814 87,093
Amortization of intangible asset 44,594 -
Other expenses 442,286 333,912
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Total noninterest expenses 1,804,200 1,415,541
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Income before income taxes 1,283,213 596,298
Income taxes 449,941 234,719
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Net Income $ 833,272 $ 361,579
========== ==========
EARNINGS PER SHARE - NET INCOME
Basic $ .61 $ .27
Diluted $ .60 $ .27
DECLARED DIVIDEND PER SHARE $ .10 $ .08
See accompanying notes to the unaudited consolidated financial statements.
-4-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
2003 2002
---------- ----------
INTEREST AND DIVIDEND INCOME
Loans $7,951,435 $6,339,277
Investment securities - taxable 242,467 164,506
Investment securities - nontaxable 192,076 154,133
Interest-bearing deposits with other institutions 12,065 81,260
Mortgage-backed securities 415,223 240,950
Dividends on Federal Home Loan Bank Stock 17,257 17,866
---------- ----------
Total interest and dividend income 8,830,523 6,997,992
---------- ----------
INTEREST EXPENSE
Deposits 2,995,443 2,763,636
Advances from Federal Home Loan Bank 638,160 585,476
Other Borrowings 159,304 -
---------- ----------
Total interest expense 3,792,907 3,349,112
---------- ----------
NET INTEREST INCOME 5,037,616 3,648,880
Provision for loan losses 671,850 154,200
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,365,766 3,494,680
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 432,578 304,579
Income from loan servicing activity 147,140 74,788
Gain on sale of loans 190,742 163,902
Gain on sale of Investments 446,377 -
Other income 192,864 174,549
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Total noninterest income 1,409,701 717,818
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NONINTEREST EXPENSE
Compensation and employee benefits 1,565,407 1,242,365
Occupancy and equipment 540,834 522,812
Professional fees 86,779 74,420
Advertising 98,961 84,287
Data processing charges 266,052 166,110
Amortization of intangible asset 89,187 -
Other expenses 864,218 693,927
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Total noninterest expenses 3,511,438 2,783,921
---------- ----------
Income before income taxes 2,264,029 1,428,577
Income taxes 776,386 541,618
---------- ----------
Net Income $1,487,643 $ 886,959
========== ==========
EARNINGS PER SHARE - NET INCOME
Basic $ 1.10 $ .66
Diluted $ 1.08 $ .66
DECLARED DIVIDEND PER SHARE $ .20 $ .16
See accompanying notes to the unaudited consolidated financial statements.
-5-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
2003 2002
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OPERATING ACTIVITIES
Net Income $ 1,487,643 $ 886,959
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 372,121 248,523
Provision for loan losses 671,850 154,200
Gain on sale of loans (190,742) (163,902)
Gain on sale of investments (446,377) -
Origination of loans held for sale (12,472,405) (12,432,512)
Proceeds from the sale of loans 18,041,855 12,326,736
Increase in other assets and liabilities,net (585,951) (509,721)
------------ ------------
Net cash provided by operating activities 6,877,994 510,283
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INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases - (4,588,093)
Maturities and repayments 1,000,000 -
Investment securities available for sale:
Purchases - (3,507,886)
Maturities and repayments 1,000 4,304,400
Sales 11,211,377 -
Mortgage-backed securities held to maturity:
Maturities and repayments 3,661,895 294,720
Mortgage-backed securities available for sale:
Purchases - (3,723,622)
Maturities and repayments 2,077,633 2,226,008
Purchase of Federal Home Loan Bank Stock,net (665,800) (372,200)
Net increase in loans (34,765,504) (16,697,299)
Purchases of premises and equipment (113,436) (1,089,957)
------------ ------------
Net cash used in investing activities (17,592,835) (23,153,929)
------------ ------------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (6,441,962) 11,383,801
Net increase in short term borrowings 6,800,000 -
Net increase in long term borrowings - 7,200,000
Net change in advances for taxes and insurance 119,121 34,953
Cash dividends paid (268,260) (212,088)
------------ ------------
Net cash provided by financing activities 208,899 18,406,666
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Decrease in cash and cash equivalents (10,505,942) (4,236,980)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,070,321 11,770,440
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,564,379 $ 7,533,460
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 3,797,500 $ 3,366,719
Income taxes $ 1,110,000 $ 640,000
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 subsidiaries, Advance Financial Savings
Bank (the "Bank") and the Bank's wholly-owned service corporation 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, 2004 or any other
period.
These statements should be read in conjunction with the consolidated statements
of and for the year ended June 30, 2003 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 that 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. For the periods ended 2002, stock options had no dilutive effect on
the denominator due to the fact they were not in the "money".
Effective for shareholders of record as of November 10, 2003, the Company issued
a three for two stock split. The stock split was done in the form of a stock
dividend. The effects on EPS have been included for the comparative periods in
the accompanying financial statements.
Three Months Ended
December 31
(Unaudited)
2003 2002
---------- ----------
Weighted-average common shares outstanding 1,626,621 1,626,621
Average treasury stock shares (228,248) (228,248)
Average unearned ESOP and RSP shares (47,542) (60,319)
--------- ---------
Weighted -average common shares and
common stock equivalents used to
calculate basic earnings per share 1,350,831 1,338,054
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 29,857 -
--------- ---------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 1,380,688 1,338,054
========= =========
-7-
NOTE 2 - EARNINGS PER SHARE (Continued)
Six-Months Ended
December 31
(Unaudited)
2003 2002
---------- ----------
Weighted-average common shares outstanding 1,626,621 1,626,621
Average treasury stock shares (228,248) (228,248)
Average unearned ESOP and RSP shares (49,711) (62,488)
---------- ----------
Weighted -average common shares and
common stock equivalents used to
calculate basic earnings per share 1,348,662 1,335,885
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 26,376 -
---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 1,375,038 1,335,885
========= =========
NOTE 3 - COMPREHENSIVE INCOME
Other accumulated comprehensive income consists solely of net unrealized gains
and losses on available for sale securities. For the three and six months ended
December 31, 2003, comprehensive income totaled $489,207 and $1,020,827. For the
three and six months ended December 31, 2002, comprehensive income totaled
$302,156 and $967,111, respectively. For the three and six months ended December
31, 2003, net income included a reclassification of net unrealized gains of
$344,065 and $466,816, respectively as a result of the sale of available for
sale securities in November 2003.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") revised
Statement of Financial Accounting Standards ("FAS") No. 132, Employers'
Disclosures about Pension and Other Postretirement Benefit. This statement
retains the disclosures required by FAS No. 132, which standardized the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable and requires additional information on changes in the benefit
obligations and fair value of plan assets. Additional disclosures include
information describing the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and components of net
periodic benefit cost recognized during interim periods. This statement retains
reduced disclosure requirements for nonpublic entities from FAS No. 132, and it
includes reduced disclosure for certain of the new requirements. This statement
is effective for financial statements with fiscal years ending after December
15, 2003. The interim disclosures required by this statement are effective for
interim periods beginning after December 15, 2003. The adoption of this
statement did not have a material effect on the Company's disclosure
requirements.
-8-
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In April, 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under FAS
No. 133. The amendments set forth in FAS No. 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. In particular, this statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as discussed in FAS No. 133. In addition, it clarifies when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. FAS No.149 amends certain other existing pronouncements. Those
changes will result in more consistent reporting of contracts that are
derivatives in their entirety or that contain embedded derivatives that warrant
separate accounting. This statement is effective for contracts entered into or
modified after September 30, 2003, except as stated below and for hedging
relationships designated after September 30, 2003. The guidance should be
applied prospectively. The provisions of this statement that relate to FAS No.
133 Implementation Issues that have been effective for fiscal quarters that
began prior to September 15, 2003, should continue to be applied in accordance
with their respective effective dates. In addition, certain provisions relating
to forward purchases or sales of when-issued securities or other securities that
do not yet exist, should be applied to existing contracts as well as new
contracts entered into after September 30, 2003. The adoption of this statement
did not have a material effect on the Company's financial position or results of
operations.
In May 2003, the FASB issued FAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Such instruments may have
been previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after September
15, 2003. The adoption of this statement did not have a material effect on the
Company's reported equity.
In January, 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, in an effort to expand upon and strengthen existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The objective of this interpretation is not to restrict the use of variable
interest entities but to improve financial reporting by companies involved with
variable interest entities. Until now, one company generally has included
another entity in its consolidated financial statements only if it controlled
the entity through voting interests. This interpretation changes that by
requiring a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. The consolidation requirements of this interpretation apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The adoption of
this interpretation has not and is not expected to have a material effect on the
Company's financial position or results of operations. In October, 2003, the
FASB decided to defer to the fourth quarter from the third quarter the
implementation date for Interpretation No. 46. This deferral only applies to
variable interest entities that existed prior to February 1, 2003.
-9-
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 October 21, 2003, the Company's Board of Directors approved a three for two
(50%) stock split in the form of a stock dividend. The stock split is effective
for holders of record as of November 10, 2003. After the stock split, the
outstanding shares of the company increased 466,088 shares to 1,398,373. The
earnings per share calculations for December 31, 2002 have been restated to
reflect the stock split.
During the three month period ended December 31, 2003, the Company sold
approximately $11,765,000 in available for sale investment securities. The
amounts consisted of $2 million in commercial bonds, $5.8 million in long term
municipal bonds and $3 million in FHLB callable bonds. The Company realized a
gain on the sales of approximately $446,000 that is included in the Statement of
Income for the three and six month periods ended December 31, 2003.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2003 AND JUNE 30, 2003
- ------------------------------------------------------------------------
The Company's total assets increased by approximately $938,000 to $322,838,791
at December 31, 2003, from $321,900,591 at June 30, 2003. Net loans increased by
approximately $34,094,000. The increase in net loans was funded by a decrease in
interest bearing deposits with other financial institutions of $10,074,000,
sales and repayments of investment securities and mortgage-backed securities of
$18,342,000 and a decrease in loans available for sale of $5,379,000. Short-term
advances from the Federal Home Loan Bank "FHLB" increased $6,800,000 during the
period to replace the loss of approximately $6,442,000 in deposits.
Interest-bearing deposits with other financial institutions decreased
$10,074,000 to $3,089,777 at December 31, 2003 from $13,163,753 at June 30,
2003. The decrease in funds was used to fund the Company's increased loan
demand. Investment securities decreased $12,377,000 to $14,103,966 at December
31, 2003 from $26,481,176 at June 30, 2003. This decrease was due primarily to
the sale of Available for Sale Securities of $11,765,000. The company realized a
net gain on the sales of approximately $446,000. The proceeds of the sales were
used to fund the Company's loan demand. Mortgage-backed securities decreased
$5,965,000 to $21,657,710 at December 31, 2003 from $27,622,430 at June 30,
2003. The decrease was due to accelerated principal repayments on higher
yielding securities due to the low interest rate environment during the period
ended December 31, 2003.
Loans held for sale decreased $5,379,000 to $309,000 at December 31, 2003 from
$5,687,708 at June 30, 2003. The decrease is indicative to an increase in
interest rates on fixed rate 1-4 family mortgages and the related decrease in
customer demand for these mortgages.
Loans receivable, net increased $34,094,000 to $263,333,201 at December 31, 2003
from $229,239,547 at June 30, 2003. The increase in net loans is spread over the
Company's entire portfolio. One-four family mortgages increased $12,881,000
which includes approximately $5,239,000 in fixed rate loans that were added to
the Bank's portfolio during the period and $7,642,000 in adjustable rate loans
as these products became attractive as a result the Bank's competitive pricing,
and as a result of the favorable interest rate changes during the period.
Nonresidential mortgages increased approximately $1,525,000 primarily as a
result of a municipal land loan originated during the period. The increase in
construction loans for the period was $3,997,000. This increase was split
$2,758,000 and $1,240,000 for 1-4 family and nonresidential mortgages,
respectively. The increase in construction loans is due to the demand created by
the anticipation of near future interest rate increases in mortgage products.
Dealer Floor Plan loans have increased $4,193,000 and indirect automobile loans
have increased $11,318,000 during the period primarily as a result of new
relationships the Company has developed over the last nine months with the
creation of an Indirect Loan Department within the Business Division of the
Bank. The success of the department is indicated by the substantial growth in
both floor plan and indirect auto lending. Future growth in these areas will
depend upon the local economy, competition from other institutions and the
manufacturers' incentive programs, as well as, the Company's evaluation of the
risk level involved.
-10-
FHLB stock increased $665,800 to $2,345,200 at December 31, 2003 from
$1,679,400,at June 30, 2003. The increase is primarily due to the required
purchases of stock as a result of the corresponding increase in outstanding
advances. During the six month period ended December 31, 2003, the Company
increased its advance total by $6,800,000.
Deposits decreased $6,442,000 to $266,386,970 at December 31, 2003 from
$272,828,932 at June 30, 2003. The decrease is primarily in money market demand
deposits and Jumbo and "special term" term certificate of deposit products.
Money market accounts with balances in excess of $10,000 have decreased
$2,421,000 during the period as customers continue to search for higher yields
on their investments in equities or other investment vehicles. The money market
accounts had been utilized by some customers as a "parking" mechanism as they
wait for an increase in the interest rate cycle and stability in the equity
markets. Jumbo and "special term" certificates of deposit decreased $5,368,000
during the period due to similar customer sentiments. These types of
certificates are generally the highest cost of funds of the Company, and as
such, the need for this deposit funding is evaluated based upon the availability
of alternative funding sources and other factors. At this time, the Company's
strategy is to not offer the higher yields on these certificates, but instead to
borrow on a short-term basis from the FHLB at a significantly reduced rate. This
funding approach could change in future periods depending upon the local demand
for loans, the local deposit market or other factors such as management's
consideration of interest rate risk.
Advances from the FHLB increased $6,800,000 to $26,800,000 at December 31, 2003
from $20,000,000 at June 30, 2003. This increase is currently applied to the
Bank's Open Repo Line of Credit with the FHLB. For the period ended December 31,
2003, the average rate paid on the line was 1.28%. It is the Company's intent to
continue to use the short term advances offered by the FHLB until such time as
local market conditions, the interest rate market and other management factors
dictate.
Stockholders' equity increased approximately $865,000 to $20,953,344 at December
31, 2003 from $20,087,953 at June 30, 2003. This increase was the result of net
income of $1,488,000 for the period and the recognition of shares in the
Employee Stock Ownership Plan and Restricted Stock Plan of $112,000. These
increases were offset by a decrease in the net unrealized gain on securities of
$467,000 and by the payment of cash dividends of $268,000.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED
- --------------------------------------------------------------------------------
DECEMBER 31, 2003 AND 2002
- --------------------------
Net interest income increased $733,000 or 40.35%, to $2,548,000 for the three
months ended December 31, 2003 from $1,815,000 for the comparable period ended
2002. The increase in net interest income resulted primarily from an increase in
the average volume of the underlying principal balances in interest earning
assets and liabilities. The net interest spread for the three months ended
December 31, 2003 increased to 3.17% from 3.07% for the comparable period ended
2002. The 10 basis point increase in the net interest rate spread for the
current three month period was primarily due to a 76 basis point decline in
average cost of funds which was offset by a 66 basis point decline in average
yields on assets. See "Average Balance Sheet" for the three-month periods ended
December 31, 2003 and 2002.
Net interest income increased $1,389,000 or 38.06%, to $5,038,000 for the
six-months December 31, 2003 from $3,649,000 for the comparable period ended
2002. The increase in net interest income resulted primarily from an increase in
the average volume of the underlying principal balances in interest earning
assets and liabilities. The net interest spread for the six months ended
December 31, 2003 increased to 3.15% from 3.14% for the comparable period ended
2002. The basis point increase in the net interest rate spread for the current
six month period was primarily the result of a 83 basis point decline in cost of
funds which was offset by a 82 basis point decline in average yields on assets.
See "Average Balance Sheet" for the six-month periods ended December 31, 2003
and 2002.
The provision for loan losses increased $246,000 to $350,850 for the three
months ended December 31, 2003 from $105,000 for the comparable period ended
2002. The provision increased $518,000 to $671,850 for the six months ended
December 31, 2003 from $154,200 for the comparable period ended 2002. The
increase in the provision for loan losses was precipitated by an increase in
loan volume. In determining the adequacy of the allowance for loan losses,
management reviews and evaluates on a quarterly basis the potential risk in the
loan portfolio. This evaluation process is documented by management and approved
by the Company's Board of Directors. The evaluation is performed by senior
members of management with years of lending and review experience. Management
evaluates homogenous consumer-oriented loans, such as 1-4 family mortgage loans
and retail consumer loans, based upon all or a combination of delinquencies,
loan concentrations and charge-off experience. Management supplements this
analysis by reviewing the local economy, trends affecting local industry and
business development and other known factors which may impact future credit
losses. Nonhomogenous loans, generally defined as commercial business and real
estate loans, are selected by management to be reviewed on a quarterly basis
upon the combination of delinquencies, concentrations and other known factors
that may effect the local economy and more specifically the individual
businesses.
-11-
- -During this evaluation, the individual loans are evaluated quarterly by senior
members of management for impairment as prescribed under SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". Impairment losses are
assumed when, based upon current information, it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impairment is measured by a loan's observable market value,
the present value of future cash flows discounted at the loan's effective
interest rate, or the fair value of the collateral. This data on impairment is
combined with the other data used for homogenous loans and is used by the
classified asset committee in determining the adequacy of the allowance for loan
losses.
The allowance for loan losses is maintained at a level that represents
management's best estimates of losses in the loan portfolio at the balance sheet
date. However, there can be no assurance that the allowance for loan losses will
be adequate to cover losses which, may be realized in the future and that
additional provision for loan losses will not be required. See "Risk Elements".
Noninterest income increased $586,000 or 195.09%, to $887,000 for the three
months ended December 31, 2003 from $301,000 for the comparable period ended
2002. Noninterest income increased $689,000 or 97.76% to $1,393,000 for the
six-months ended December 31, 2003 from $704,000 for the comparable period ended
2002. The three and six month periods include gains on the sales of investment
securities of approximately $446,000 that was previously discussed. Also, for
the three and six month periods of 2003, miscellaneous fees and fees on deposit
accounts increased by $75,000 and $128,000, respectively, as a result of an
increase in core customers and related activity. For the three and six month
periods of 2003, gains on sales of fixed rate loans and income from loan
servicing activity increased by $46,000 and $99,000, respectively, as a result
of the customer demand for fixed rate 1-4 family mortgage loans during the
period.
Noninterest expense increased $386,000 or 27.30%, to $1,801,000 for the three
months ended December 31, 2003, from $1,415,000 for the comparable 2002 period.
Noninterest expense increased $724,000 or 26.14%, to $3,495,000 for the six
months ended December 31, 2003 from $2,770,000 for the comparable period ended
2002. For the three and six month periods ended December 31, 2003, compensation
and employee benefits increased $192,000 and $323,000, respectively. The
increase in compensation and employee benefits for the three and six month
period ended December 31, 2003 is due in part to the acquisition in February
2003 of a branch and the de novo branch opening in September 2003. The new
branches account for $42,000 and $134,000 of the increase for the three and six
month periods, respectively. Occupancy and equipment, professional fees,
marketing and data processing expenses have increased by $44,000 and $145,000
for the three and six-month period ended December 31, 2003. Such increases are
primarily due to the operation of the new branches acquired and opened since
September 2002. For the three and six month period ended December 31, 2003,
other expenses have increased $106,000 and $167,000, respectively. The increase
in other expense is due to increases in supplies and communications of $11,000
and $24,000, in fees paid for ATM and consumer card usage of $13,000 and $22,000
and in fees paid to the Federal Reserve for item processing of $6,000 and
$13,000, respectively. Each of these increases are primarily related to customer
activity due to the increase in the Company's core customers created primarily
by the branch purchases and the de novo branch opening. Also, other expense
increased for the three and six-month period ended December 31 2003 due to an
increase in state franchise tax expense as a result of the branch acquisitions
in Ohio during February 2003 of $18,000 and $35,000 respectively. Costs relating
to other real estate and repossessed assets increased for the three and
six-month period ended December 31, 2003 by $7,000 and $18,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
LIQUIDITY
- ---------
Liquidity management for the Company is measured and monitored on both a short
and long-term basis, thereby allowing management to better understand and react
to emerging balance sheet trends. After assessing actual and projected cash flow
needs, management seeks to obtain funding at the most economical cost to the
Company. Both short and long-term liquidity needs are addressed by maturities
and sales of investment securities, loan payments and maturities, and
liquidating overnight deposit accounts. The use of these resources, in
conjunction with access to credit, provide the core ingredients to meet
depositor, borrower, and creditor needs.
The Company's liquid assets consist of cash and cash equivalents and investment
and mortgage-backed securities classified as available for sale. The level of
these assets is dependent on the Company's operating, investing, and financing
activities during any given period. At December 31, 2003, liquid assets totalled
$12.4 million or 3.8% of total assets. Management believes that the liquidity
needs of the Company are satisfied by the current balance of cash and cash
equivalents, readily available access to traditional funding sources, FHLB
advances, and the portion of the investment and loan portfolios that mature
within one year. These sources of funds will enable the Company to meet cash
obligations and off-balance sheet commitments as they come due.
-12-
Operating activities provided net cash of $6.9 million and $500,000 thousand for
the six-month periods ended December 31, 2003 and 2002, respectively, and were
generated principally from net income and net sales of fixed rate 1-4 family
mortgages.
Investing activities used $17.6 million and $23.2 million in funds during the
six-month periods ended December 31, 2003 and 2002, respectively. These cash
usages primarily consisted of loan originations of $34.8 million and $16.7
million for 2003 and 2002, respectively. Offsetting these usages for the period
ended December 31, 2003 were proceeds from sales, repayments and maturities of
investment and mortgage-backed securities of $18.0 million.
Financing activities consist of the solicitation and repayment of customer
deposits and borrowings. During the six months ended December 31, 2003 and 2002,
net cash provided by financing activities was $200,000 and $18.4 million,
respectively. For the period ended 2003, short term borrowings increased in a
similar amount to the decrease in deposits. For 2003, deposits increased $11.4
million and the Company received $7.2 million as part of a Trust Preferred
Offering.
Liquidity may be adversely affected by unexpected deposit outflows, excessive
interest rates paid by competitors, and similar matters. Management monitors
projected liquidity needs and determines the level desirable based in part on
the bank's commitment to make loans, as well as management's assessment of the
Company's ability to generate funds. The Company currently has approximately
$145 million in unused borrowing capacity at the FHLB of Pittsburgh. As a result
of this unused borrowing capacity, the Company anticipates it will have
sufficient liquidity available to meet estimated short-term and long-term
funding needs.
CAPITAL
- -------
Management monitors both the Company's equity capital ratio 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, 2003, both the
Company and the Bank exceeded the minimum capital requirements, including
risk-based and leveraged capital ratios. The Company's equity capital ratio and
the Bank's total risk-based, Tier I risk-based and Tier I leverage ratios are
4.64% and 10.61%, 9.90% and 6.60%, respectively, at December 31, 2003.
-13-
RATE/VOLUME ANALYSIS
- --------------------
The table below sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume and
(ii) changes in rate. Changes not solely attributable to rate or volume, are
allocated to changes in rate due to rate sensitivity of interest-earning assets
and interest-bearing liabilities.
Three Months Ended December 31,
-----------------------------------------------
2003 Vs 2002
-----------------------------------------------
Increase (Decrease)
Due to
-----------------------------------------------
Volume Rate Net
-----------------------------------------------
Interest Income:
Loans $1,406,070 $(523,417) $882,653
Investments 98,450 ( 22,140) 76,310
-----------------------------------------------
Total interest-earning assets 1,504,520 (545,557) 958,963
-----------------------------------------------
Interest Expense
Core Deposits 154,352 (193,316) (38,964)
Certificates of Deposit 399,985 (250,595) 149,390
FHLB Borrowings 153,731 (118,479) 35,252
Other Borrowings 80,811 - 80,811
-----------------------------------------------
Total interest-bearing liabilities 788,879 (562,390) 226,489
===============================================
Change in net interest income $715,641 $ 16,833 $732,474
===============================================
Six Months Ended December 31,
-----------------------------------------------
2003 Vs 2002
-----------------------------------------------
Increase (Decrease)
Due to
-----------------------------------------------
Volume Rate Net
-----------------------------------------------
Interest Income:
Loans $2,724,078 $(1,111,920) $1,612,158
Investments 353,067 (132,694) 220,373
-----------------------------------------------
Total interest-earning assets 3,077,145 (1,244,614) 1,832,531
-----------------------------------------------
Interest Expense
Core Deposits 336,697 (430,621) (93,924)
Certificates of Deposit 889,657 (563,924) 325,733
FHLB Borrowings 259,908 (207,224) 52,684
Other Borrowings 159,304 - 159,304
-----------------------------------------------
Total interest-bearing liabilities 1,645,566 (1,201,769) 443,797
===============================================
Change in net interest income $1,431,579 $(42,845) $1,388,734
===============================================
-14-
Average Balance Sheet for the Three-Month Period ended December 31
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.
Three-Month Period Ended Decemberr 31,
-----------------------------------------------------------------------------------------
2003 2002
------------------------------------------ ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------- ------------ ----------- ------------- ------------ -----------
Interest-earning assets:
Loans receivable (1) $261,807 $4,043 6.18% $181,527 $3,161 6.96%
Investment securities (2) 23,995 192 3.20% 26,721 210 3.14%
Mortgage-backed securities 22,561 212 3.76% 8,699 117 5.40%
------------- ------------ ----------- ------------- ------------ -----------
Total interest-earning assets 308,363 4,447 5.77% 216,947 3,488 6.43%
------------ ----------- ------------ -----------
Non-interest-earning assets 17,690 9,522
------------- -------------
Total assets $326,053 $226,469
============= =============
Interest-bearing liabilities:
Interest-bearing demand deposits $ 52,421 141 1.08% $ 29,889 135 1.80%
Certificates of deposit 152,234 1,218 3.20% 110,704 1,068 3.86%
Savings deposits 49,681 132 1.06% 37,153 177 1.91%
FHLB Borrowings 30,883 327 4.25% 21,200 293 5.52%
Other Borrowings 7,200 81 4.50% - - -
------------- ------------ ----------- ------------- ------------ -----------
Total interest-bearing liabilities 292,419 1,899 2.60% 198,946 1,673 3.36%
------------ ----------- ------------ -----------
Non-interest bearing liabilities 12,798 8,525
------------- -------------
Total liabilities 305,217 207,471
Stockholders' equity 20,836 18,998
------------- -------------
Total liabilities and stockholders'
equity $326,053 $226,469
============= =============
Net interest income $ 2,548 $ 1,815
============ ============
Interest rate spread (3) 3.17% 3.07%
=========== ===========
Net Yield on interest-earning assets (4) 3.30% 3.35%
=========== ===========
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.45% 109.05%
=========== ===========
- --------------------------------------------------------------------------------
(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.
-15-
Average Balance Sheet for the Six-Month Period ended December 31
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.
Six-Month Period Ended Decemberr 31,
-----------------------------------------------------------------------------------------
2003 2002
------------------------------------------ ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------- ------------ ----------- ------------- ------------ -----------
Interest-earning assets:
Loans receivable (1) $253,925 $7,951 6.26% $178,141 $6,339 7.12%
Investment securities (2) 28,971 464 3.20% 25,756 418 3.24%
Mortgage-backed securities 24,179 415 3.43% 8,847 241 5.45%
------------- ------------ ----------- ------------- ------------ -----------
Total interest-earning assets 307,075 8,830 5.75% 212,744 6,998 6.58%
------------ ----------- ------------ -----------
Non-interest-earning assets 17,665 9,231
------------- -------------
Total assets $324,740 $221,975
============= =============
Interest-bearing liabilities:
Interest-bearing demand deposits $ 52,933 284 1.07% $ 29,615 280 1.89%
Certificates of deposit 153,267 2,446 3.19% 108,028 2,121 3.93%
Savings deposits 49,525 265 1.07% 36,440 363 1.99%
FHLB Borrowings 28,150 638 4.53% 20,600 585 5.68%
Other Borrowings 7,200 159 4.42% - - -
------------- ------------ ----------- ------------- ------------ -----------
Total interest-bearing liabilities 291,075 3,792 2.60% 194,683 3,349 3.44%
------------ ----------- ------------ -----------
Non-interest bearing liabilities 13,023 8,540
------------- -------------
Total liabilities 304,098 203,223
Stockholders' equity 20,642 18,752
------------- -------------
Total liabilities and stockholders'
equity $324,740 $221,975
============= =============
Net interest income $ 5,038 $ 3,649
============ ============
Interest rate spread (3) 3.15% 3.14%
=========== ===========
Net Yield on interest-earning assets (4) 3.28% 3.43%
=========== ===========
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.50% 109.28%
=========== ===========
- --------------------------------------------------------------------------------
(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.
-16-
RISK ELEMENTS
The table below presents information concerning nonperforming assets including
nonaccrual 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,
2003 2003
------ ------
Loans on a nonaccrual basis $ 583 $1,398
Loans past due 90 days or more and still accruing 1,040 1,681
------ ------
Total nonperforming loans 1,623 3,079
------ ------
Other real estate 752 802
Repossessed assets 39 28
------ ------
Total nonperforming assets $2,414 $3,909
------ ------
Nonperforming loans as a percentage of total net loans .62% 1.34%
====== ======
Nonperforming assets as a percentage of total assets .75% 1.21%
====== ======
Allowance for loan losses to nonperforming loans 92.13% 35.60%
====== ======
Nonaccrual loans at December 31, 2003, consisted of $316,484 in one-to-four
family residential mortgages and $266,498 in non-residential real estate
mortgages.
The Company considers a loan impaired when it is probable that the borrower will
not repay the loan according to the original contractual terms of the loan
agreement. Management has determined that first mortgage loans on one-to-four
family properties and all consumer loans represent large groups of
smaller-balance, homogenous loans that are to be collectively evaluated.
Management considers an insignificant delay, which is defined as less than 90
days by the Company, will not cause a loan to be classified as impaired. A loan
is not impaired during the period of delay in payment if the Company expects to
collect all amounts due including interest accrued at the contractual interest
rate during the period of delay. All loans identified as impaired are evaluated
independently by management. The Company estimates credit losses on impaired
loans through the allowance for loan losses by evaluating the recorded
investment in the impaired loan to the estimated present value of the underlying
collateral or the present value of expected cash flows.
As of December, 31, 2003, the total investment in impaired loans was $481,410,
and such amount was subject to a specific allowance for loan losses of $37,174.
The average investment in the impaired loans for the six-month period ended
December 31, 2003 was $510,317. The interest income potential based upon the
original terms of the contracts of these impaired loans was $20,720 for the
six-month period ended December 31, 2003. A total of $20,720 of interest income
has been recognized for the six-month period ended December 31, 2003.
-17-
The allowance for loan losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually observed in respect to the
losses can vary significantly from the estimated amounts. Our methodology
includes several features that are intended to reduce the differences between
estimated and actual losses. The historical loss experience model that is used
to established the loan loss factors for problem graded loans is designed to be
self-correcting by taking into account our recent loss experience. Similarly, by
basing the past graded loss factors on historical loss experience, the
methodology is further designed to take our recent loss experience into account.
In addition to historical and recent loss trends, our methodology incorporates
the current volume and trend in delinquencies, as well as, a self-assessment of
the status of the local economy. Our methodology requires the monitoring of the
changing loan portfolio mix and the effect that the changing mix has on the
trend in delinquencies, as well as, actually loss factors.
The combination of the historical loss factors, recent loss experience, current
trend in delinquencies, the local economic environment, and the assessment of
the changing loan portfolio mix are used in conjunction with the internal loan
grading system to adjust our allowance on a quarterly basis. Furthermore, our
methodology includes our impaired loan assessment and permits adjustments to any
loss factor used in determining the allowance in the event that, in management's
judgement, significant conditions which effect the collectibility of the
portfolio as of the evaluation date are not reflected in the loss factors. By
assessing the probable estimated losses inherent in the loan portfolio on a
quarterly basis, we are able to adjust specific and inherent loss estimates
based upon recent information, as it becomes available.
The following is a breakdown of the loan portfolio composition at December 31,
2003 and June 30, 2003:
December 31, June 30,
2003 2003
------------ ------------
Mortgage loans:
1-4 family $138,988,014 $126,106,815
Multi-family 8,754,271 8,227,328
Non-residential 40,624,484 39,099,195
Construction 14,072,023 10,074,633
------------ ------------
202,438,792 183,507,971
------------ ------------
Consumer Loans:
Home Improvement 822,016 900,060
Automobile-Direct 9,118,024 8,761,516
Automobile-Indirect 33,458,492 22,140,818
Share loans 2,185,769 1,914,628
Other 2,374,976 2,687,302
------------ ------------
47,959,277 36,404,324
------------ ------------
Commercial Loans 20,224,507 17,383,993
Less:
Loans in process 5,823,679 6,844,741
Net deferred loan fees 120,375 116,178
Allowance for loan losses 1,495,738 1,095,822
------------ ------------
7,439,792 8,056,741
------------ ------------
Total $263,182,784 $229,239,547
============ ============
-18-
ITEM 3 - CONTROLS AND PROCEDURES
(1) Evaluation of disclosure controls and procedures Based on their evaluation
-------------------------------------------------
of the Company's disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the
Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-QSB such disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(2) Changes in internal control over financial reporting During the quarter
--------------------------------------------------------
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
-19-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
NONE
Item 2 - Changes in Securities and Use of Proceeds
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 21,
2003 and the following matters were voted upon:
PROPOSAL I - Election of Directors with term to expire in 2006.
FOR WITHHELD
--- --------
William B. Chesson 813,117 4,170
Stephen M. Gagliardi 815,617 1,670
Directors continuing in office are Kelly M. Bethel, William E. Watson, Frank
Gary Young, John R Sperlazza, Walker Peterson Holloway, and Dominic J. Teramana,
Jr..
PROPOSAL II - Ratification of the appointment of S.R. Snodgrass, AC., as
independent auditors for the Company, for the fiscal year ending
June 30, 2004.
FOR AGAINST ABSTAIN
--- ------- -------
815,717 470 1,100
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 *****
31 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-20-
(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 March 31, 2003 10-Q.
(File No. 0-021885) filed May 13, 2003.
*** 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.
-21-
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, 2004 By: /s/Stephen M. Gagliardi
-------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
Date: February 12, 2004 By: /s/Stephen M. Magnone
-------------------------------------
Stephen M. Magnone
Treasurer (Chief Financial Officer)
-22-