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 March 31, 2004
--------------
{ } 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
-----------------------------------------
(Address of principal executive offices)
(304) 737-3531
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(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 May 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
March 31, 2004 and June 30, 2003 3
Consolidated Statement of Income (Unaudited)
For the Three Months ended March 31, 2004 and 2003 4
Consolidated Statement of Income (Unaudited)
For the Nine Months ended March 31, 2004 and 2003 5
Consolidated Statement of Cash Flows (Unaudited)
For the Nine Months ended March 31, 2004 and 2003 6
Notes to the Unaudited Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis 11-19
Item 3 - Controls and Procedures 20
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 21
Item 3 - Default Upon Senior Securities 21
Item 4 - Submissions of Matters to a Vote of Security Holders 21
Item 5 - Other Information 21
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 22
ADVANCE FINANCIAL BANCORP
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, JUNE 30,
2004 2003
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Assets
Cash and cash equivalents:
Cash and amounts due from banks $ 2,513,608 $ 2,906,568
Interest bearing deposits with other institutions 6,905,261 13,163,753
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Total cash and cash equivalents 9,418,869 16,070,321
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Investment securities:
Securities held to maturity (fair value of $7,221,555 and $15,298,606) 7,090,146 15,086,475
Securities available for sale 12,938 11,394,701
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Total investment securities 7,103,084 26,481,176
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Mortgaged-backed securities:
Securities held to maturity (fair value of $13,744,749 and $18,751,018) 13,787,473 18,642,532
Securities available for sale 6,077,279 8,979,898
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Total mortgage-backed securities 19,864,752 27,622,430
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Loans held for sale 646,750 5,687,708
Loans receivable, (net of allowance for loan losses
of $1,604,768 and $1,095,822 ) 265,256,747 229,239,547
Office properties and equipment, net 4,841,703 5,069,073
Federal Home Loan Bank Stock, at cost 2,192,500 1,679,400
Accrued interest receivable 1,308,802 1,447,525
Goodwill 4,700,472 4,700,472
Other intangibles, net 1,575,633 1,709,413
Other assets 2,375,647 2,193,526
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TOTAL ASSETS $ 319,284,959 $ 321,900,591
============= =============
Liabilities:
Deposits $ 266,992,674 $ 272,828,932
Advances from Federal Home Loan Bank 22,300,000 20,000,000
Other Borrowings 7,200,000 7,200,000
Advance payments by borrowers for taxes and insurance 469,498 507,049
Accrued interest payable and other liabilities 919,115 1,276,657
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TOTAL LIABILITIES 297,881,287 301,812,638
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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 10,573,447 10,467,559
Retained earnings - substantially restricted 13,308,106 11,705,306
Unallocated shares held by Employee Stock Ownership Plan (ESOP) (185,536) (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 38,194 497,298
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TOTAL STOCKHOLDERS' EQUITY 21,403,672 20,087,953
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 319,284,959 $ 321,900,591
============= =============
See accompanying notes to the unaudited consolidated financial statements.
-3-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2004 2003
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INTEREST AND DIVIDEND INCOME
Loans $3,973,736 $3,372,413
Investment securities - taxable 61,222 94,708
Investment securities - nontaxable 34,998 111,984
Interest-bearing deposits with other institutions 2,762 104,729
Mortgage-backed securities 200,869 175,231
Dividends on Federal Home Loan Bank Stock 8,335 13,463
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Total interest and dividend income 4,281,922 3,872,528
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INTEREST EXPENSE
Deposits 1,448,446 1,577,652
Advances from Federal Home Loan Bank 305,868 287,629
Other Borrowings 80,374 94,034
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Total interest expense 1,834,688 1,959,315
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NET INTEREST INCOME 2,447,234 1,913,213
Provision for loan losses 233,100 121,800
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,214,134 1,791,413
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NONINTEREST INCOME
Service charges on deposit accounts 201,299 162,942
Income from loan servicing activity 29,288 43,255
Gain on sale of loans 31,164 85,342
Gain on sale of Investments 120 -
Other income 106,006 86,444
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Total noninterest income 367,877 377,983
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NONINTEREST EXPENSE
Compensation and employee benefits 859,134 740,487
Occupancy and equipment 275,531 280,623
Professional fees 40,652 44,395
Advertising 46,119 35,408
Data processing charges 137,741 147,835
Amortization of intangible asset 44,593 24,000
Other expenses 381,647 365,543
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Total noninterest expenses 1,785,417 1,638,291
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Income before income taxes 796,594 531,105
Income taxes 278,157 160,002
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Net Income $ 518,437 $ 371,103
========== ==========
EARNINGS PER SHARE - NET INCOME
Basic $ .39 $ .28
Diluted $ .38 $ .28
DECLARED DIVIDEND PER SHARE $ .10 $ .10
See accompanying notes to the unaudited consolidated financial statements.
-4-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2004 2003
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INTEREST AND DIVIDEND INCOME
Loans $11,925,171 $ 9,711,690
Investment securities - taxable 303,689 259,214
Investment securities - nontaxable 227,074 266,117
Interest-bearing deposits with other institutions 14,827 185,989
Mortgage-backed securities 616,092 416,181
Dividends on Federal Home Loan Bank Stock 25,592 31,329
----------- -----------
Total interest and dividend income 13,112,445 10,870,520
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INTEREST EXPENSE
Deposits 4,443,889 4,341,288
Advances from Federal Home Loan Bank 944,028 873,105
Other Borrowings 239,678 94,034
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Total interest expense 5,627,595 5,308,427
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NET INTEREST INCOME 7,484,850 5,562,093
Provision for loan losses 904,950 276,000
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,579,900 5,286,093
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NONINTEREST INCOME
Service charges on deposit accounts 633,877 467,521
Income from loan servicing activity 176,428 118,043
Gain on sale of loans 221,906 249,244
Gain on sale of Investments 446,497 --
Other income 284,145 247,504
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Total noninterest income 1,762,853 1,082,312
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NONINTEREST EXPENSE
Compensation and employee benefits 2,424,541 1,982,852
Occupancy and equipment 816,365 803,435
Professional fees 127,431 118,815
Advertising 145,080 119,695
Data processing charges 403,793 313,945
Amortization of intangible asset 133,780 24,000
Other expenses 1,231,140 1,045,981
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Total noninterest expenses 5,282,130 4,408,723
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Income before income taxes 3,060,623 1,959,682
Income taxes 1,054,543 701,620
----------- -----------
Net Income $ 2,006,080 $ 1,258,062
=========== ===========
EARNINGS PER SHARE - NET INCOME
Basic $ 1.49 $ .94
Diluted $ 1.46 $ .94
DECLARED DIVIDEND PER SHARE $ .30 $ .26
See accompanying notes to the unaudited consolidated financial statements.
-5-
ADVANCE FINANCIAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2004 2003
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OPERATING ACTIVITIES
Net Income $ 2,006,080 $ 1,258,062
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion, net 582,320 377,925
Provision for loan losses 904,950 276,000
Gain on sale of loans (221,906) (249,244)
Gain on sale of investments (446,497) -
Origination of loans held for sale (15,579,243) (18,472,904)
Proceeds from the sale of loans 20,842,107 19,300,795
(Increase) decrease in other assets and liabilities,net (345,355) 345,496
------------ ------------
Net cash provided by operating activities 7,742,456 2,836,130
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INVESTING ACTIVITIES
Investment securities held to maturity:
Purchases - (12,588,093)
Maturities and repayments 8,000,000 -
Investment securities available for sale:
Purchases - (4,007,886)
Maturities and repayments 1,000 6,036,342
Sales 11,211,377 -
Mortgage-backed securities held to maturity:
Purchases - (14,995,240)
Maturities and repayments 4,728,004 555,308
Mortgage-backed securities available for sale:
Purchases - (3,723,622)
Maturities and repayments 2,436,953 3,274,505
Sales 352,881 -
Purchase of Federal Home Loan Bank Stock, net (513,100) (694,800)
Net increase in loans (36,498,289) (33,944,678)
Purchases of premises and equipment (135,438) (1,255,119)
Branch Acquisition:
Loans purchased - (85,347)
Purchase of premises and equipment - (440,592)
Premium paid on deposits - (5,853,373)
Deposits assumed - 88,260,100
Other, net - (184,924)
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Net cash (used in) provided by investing activities (10,416,612) 20,352,581
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FINANCING ACTIVITIES
Net (decrease) increase in deposits (5,836,258) 12,162,219
Net increase in short term borrowings 2,300,000 -
Proceeds from long term borrowings - 7,200,000
Net change in advances for taxes and insurance (37,551) (35,330)
Cash dividends paid (403,487) (319,230)
------------ ------------
Net cash (used in) provided by financing activities (3,977,296) 19,007,659
------------ ------------
(Decrease) increase in cash and cash equivalents (6,651,452) 42,196,370
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,070,321 11,770,440
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,418,869 $ 53,966,810
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 5,648,679 $ 5,308,211
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
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.
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.
Three Months Ended March 31
(Unaudited)
2004 2003
---------- ----------
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 (44,288) (57,105)
---------- ----------
Weighted -average common shares and
common stock equivalents used to
calculate basic earnings per share 1,354,085 1,341,268
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 30,565 8,872
---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 1,384,650 1,350,140
========== ==========
-7-
NOTE 2 - EARNINGS PER SHARE (Continued)
Nine-Months Ended March 31
(Unaudited)
2004 2003
---------- ----------
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 (48,626) (61,409)
---------- ----------
Weighted -average common shares and
common stock equivalents used to
calculate basic earnings per share 1,349,747 1,336,964
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 27,844 621
---------- ----------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 1,377,591 1,337,585
========== ==========
NOTE 3 - STOCK OPTIONS
In December 1997, the Board of Directors adopted a Stock Option Plan for the
directors, officers, and employees, which was approved by stockholders at a
special meeting held on January 20, 1998. An aggregate of 162,667 shares of
authorized but unissued common stock of the Company were reserved for future
issuance under the plan. The stock options typically have expiration terms of
ten years subject to certain extensions and early terminations. The per share
exercise price of a stock option shall be, at a minimum, equal to the fair value
of a share of common stock on the date the option is granted. Proceeds from the
exercise of the stock options are credited to common stock for the aggregate par
value and the excess is credited to additional paid-in capital.
On January 20, 1998, qualified stock options were granted for the purchase of
97,591 shares exercisable at the market price of $12.50 per share at a rate of
one fourth per year beginning January 20, 1998. All options expire ten years
from the date of grant. At March 31, 2004, the initial stock options granted
remain outstanding with none being exercised.
On January 1, 2004, qualified stock options were granted for the purchase of
58,268 shares exercisable at the market price of $18.23 per share at a rate of
one fourth per year beginning January 2004. All options expire ten years from
the date of grant. At March 31, 2004, the stock options remain outstanding with
none being exercised.
The Company accounts for its stock option plan under provisions of APB Opinion
No. 25, " Accounting for Stock Issued to Employees," and related
interpretations. Under this opinion, no compensation expense has been recognized
with respect to the plan because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the grant date.
The options issued would have had no dilutive effect on net income for the three
and nine month periods ended March 31, 2004. Had the options been dilutive,
compensation expense for the stock option plan would have been recognized in
accordance with the fair value accounting provisions of Statement of Financial
Accounting Standards No. 123, " Accounting for Stock-based Compensation".
-8-
NOTE 4 - COMPREHENSIVE INCOME
Other accumulated comprehensive income consists solely of net unrealized gains
and losses on available for sale securities. For the three and nine months ended
March 31, 2004, comprehensive income totaled $526,149 and $1,546,976,
respectively. For the three and nine months ended March 31, 2003, comprehensive
income totaled $373,924 and $1,341,035, respectively. For the nine months ended
March 31, 2004, net income included a reclassification of net unrealized gains
of $446,497, primarily 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 Benefits. 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.
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.
-9-
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
-10-
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 was 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 March 31, 2003 have been restated to reflect
the stock split.
During the 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
nine-month period ended March 31, 2004.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND JUNE 30, 2003
- ---------------------------------------------------------------------
The Company's total assets decreased by approximately $2,616,000 to $319,284,959
at March 31, 2004, from $321,900,591 at June 30, 2003. Net loans increased by
approximately $36,017,000. The increase in net loans was funded by a decrease in
interest bearing deposits with other financial institutions of $6,258,000, sales
and repayments of investment securities and mortgage-backed securities of
$27,136,000 and a decrease in loans available for sale of $5,041,000. Short-term
advances from the Federal Home Loan Bank "FHLB" increased $2,300,000 during the
period to partially replace the loss of approximately $5,836,000 in deposits.
Interest-bearing deposits with other financial institutions decreased $6,258,000
to $6,905,261 at March 31, 2004 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 $19,378,000 to $7,103,084 at March 31, 2004 from
$26,481,176 at June 30, 2003. This decrease was due primarily to sales of
available for sale securities of $11,765,000 and the call of approximately
$9,000,000, of which $7,000,000 was during the months of February and March
2004. The proceeds from the sales and calls were used to fund the Company's loan
demand. Mortgage-backed securities decreased $7,758,000 to $19,864,752 at March
31, 2004 from $27,622,430 at June 30, 2003. The decrease was due primarily to
accelerated principal repayments on higher yielding securities due to the low
interest rate environment during the period ended March 31, 2004.
Loans held for sale decreased $5,041,000 to $646,750 at March 31, 2004 from
$5,687,708 at June 30, 2003. The decrease is indicative of 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 $36,017,000 to $265,256,747 at March 31, 2004
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 $11,645,000
which includes approximately $4,982,000 in fixed rate loans that were added to
the Bank's portfolio during the period and $6,663,000 in adjustable rate loans
as these products became attractive as a result of the Bank's competitive
pricing. Nonresidential mortgages increased approximately $2,540,000 as a result
of continued demand from existing customers and municipalities within the local
trade area. The increase in construction loans for the period was $6,832,000.
This increase was split $3,399,000 and $3,434,000 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
$2,751,000 and indirect automobile loans have increased $11,249,000 during the
period primarily as a result of new relationships the Company has developed over
the past year 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.
-11-
FHLB stock increased $513,100 to $2,192,500 at March 31, 2004 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
nine month period ended March 31, 2004, the Company increased its advance total
by $2,300,000.
Deposits decreased $5,836,000 to $266,992,674 at March 31, 2004 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
$3,591,000 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 $1,195,000
during the period due to similar customer sentiments. These types of
certificates are generally the highest costing deposits offered by 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. 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 $2,300,000 to $22,300,000 at March 31, 2004
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 March 31,
2004, the average rate paid on the line was approximately 1.2%. 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 $1,316,000 to $21,403,672 at March
31, 2004 from $20,087,953 at June 30, 2003. This increase was the result of net
income of $2,006,000 for the period and the recognition of shares in the
Employee Stock Ownership Plan and Restricted Stock Plan of $172,000. These
increases were offset by a decrease in the net unrealized gain on securities of
$459,000 and by the payment of cash dividends of $403,000.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
- --------------------------------------------------------------------------------
MARCH 31, 2004 AND 2003
- -----------------------
Net interest income increased $534,000 or 27.91%, to $2,447,000 for the three
months ended March 31, 2004 from $1,913,000 for the comparable period ended
2003. 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 interest-bearing liabilities. The net interest spread for the three
months ended March 31, 2004 increased to 3.08% from 2.67% for the comparable
period ended 2003. The 41 basis point increase in the net interest rate spread
for the current three month period was primarily due to a 58 basis point decline
in average cost of funds which was offset by a 17 basis point decline in average
yields on assets. See "Average Balance Sheet" for the three-month periods ended
March 31, 2004 and 2003.
Net interest income increased $1,923,000 or 34.57%, to $7,485,000 for the nine
months ended March 31, 2004 from $5,562,000 for the comparable period ended
2003. 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 interest-bearing liabilities. The net interest spread for the nine
months ended March 31, 2004 increased to 3.12% from 2.96% for the comparable
period ended 2003. The 16 basis point increase in the net interest rate spread
for the current nine month period was primarily the result of a 73 basis point
decline in cost of funds which was offset by a 57 basis point decline in average
yields on assets. See "Average Balance Sheet" for the nine-month periods ended
March 31, 2004 and 2003.
The provision for loan losses increased $111,000 to $233,100 for the three
months ended March 31, 2004 from $121,800 for the comparable period ended 2003.
The provision increased $629,000 to $904,950 for the nine-months ended March 31,
2004 from $276,000 for the comparable period ended 2003. 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. 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 affect the local economy and
more specifically the individual businesses.
-12-
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 decreased $10,000 or 2.67%, to $368,000 for the three months
ended March 31, 2004 from $378,000 for the comparable period ended 2003.
Noninterest income increased $681,000 or 62.88% to $1,763,000 for the nine
months ended March 31, 2004 from $1,082,000 for the comparable period ended
2003. The nine month period of 2004 includes gains on the sales of investment
securities of approximately $446,000, as previously discussed. Also, for the
three and nine month period ended March 31, 2004, miscellaneous fees and fees on
deposit accounts increased by $38,000 and $166,000, respectively, as a result of
an increase in core customers and related activity. For the three month period
ended March 31, 2004, gains on sales of fixed rate loans and income from loan
servicing activity decreased by $68,000 while increasing over the nine-month
period ended March 31, 2004, by $31,000. The decrease over the three month
period is due to decreasing customer demand for fixed rate 1-4 family mortgage
loans in comparison to the same period ended in 2003.
Noninterest expense increased $147,000 or 8.98%, to $1,785,000 for the three
months ended March 31, 2004, from $1,638,000 for the comparable 2003 period.
Noninterest expense increased $873,000 or 19.81%, to $5,282,000 for the nine
months ended March 31, 2004 from $4,409,000 for the comparable period ended
2003. For the three and nine month periods ended March 31, 2004, compensation
and employee benefits increased $119,000 and $442,000, respectively. The
increase in compensation and employee benefits for the three and nine month
periods ended March 31, 2004 is due in part to the acquisition of the branch in
Ohio in February 2003 and the de novo branch opening in September 2002. The new
branches account for $20,000 and $154,000 of the increase for the three and nine
month periods, respectively. Occupancy and equipment, professional fees,
marketing and data processing expenses have remained stable for the three month
period while they have increased by $137,000 for the nine month period ended
March 31, 2004. Such increases are primarily due to the operation of the new
branches acquired and opened since September 2002. For the three and nine month
periods ended March 31, 2004, other expenses, including the amortization of the
core deposit intangible "CDI" have increased $37,000 and $295,000, respectively.
The increase in other expense for the three month period is due to increases in
expenses related to other real estate and repossessed assets of $19,000 and the
amortization of the CDI of $21,000. The increase in other expense for the nine
month period is due to increases in supplies and communications of $9,000, in
fees paid for ATM and consumer card usage of $50,000 and in fees paid to the
Federal Reserve for item processing of $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 purchase and the de
novo branch opening. Also, other expense increased for the nine month period
ended March 31, 2004 due to an increase in state franchise tax expense of
$32,000 and CDI amortization of $134,000 as a result of the branch acquisition
during February 2003. Costs relating to other real estate and repossessed assets
increased for the nine month period ended March 31, 2004 by $47,000.
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 March 31, 2004, liquid assets totalled
$15.5 million or 4.9% 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.
-13-
Operating activities provided net cash of $7.7 million and $2.8 million for the
nine-month periods ended March 31, 2004 and 2003, respectively, and were
generated principally from net income and net sales of fixed rate 1-4 family
mortgages.
Investing activities used $10.4 million and provided $20.3 million in funds
during the nine-month periods ended March 31, 2004 and 2003, respectively.
During the period ended March 31, 2004, the Company used cash to originate a net
$36.5 million in loans. This usage was offset by net proceeds from the sale,
repayment and maturity of investment and mortgage-backed securities of $26.7
million. During the period ended March 31, 2003, the Company used cash to
originate a net $33.9 million in loans and to purchase $25.5 million in
investment and mortgage-backed securities. Offsetting the uses of funds for the
period ended March 31, 2003 was $81.3 million received from the branch purchase
in February 2003.
Financing activities consist of the solicitation and repayment of customer
deposits and borrowings. Financing activities used $4.0 million and provided
$19.0 million during the nine months ended March 31, 2004 and 2003,
respectively. For the period ending 2004, deposits had decreased $5.8 million.
This decrease had been partially offset by an increase in short-term borrowings
of $2.3 million. For 2003, deposits increased $12.2 million and the Company
received $7.2 million as part of a Pooled 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
$144 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 March 31, 2004, 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
4.84% and 10.87%, 10.12% and 6.87%, respectively, at March 31, 2004.
-14-
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 March 31,
----------------------------------------------
2004 Vs 2003
----------------------------------------------
Increase (Decrease)
Due to
----------------------------------------------
Volume Rate Net
----------------------------------------------
Interest Income:
Loans $1,140,220 $(538,897) $601,323
Investments (216,688) 24,759 (191,929)
----------------------------------------------
Total interest-earning assets 923,532 (514,138) 409,394
----------------------------------------------
Interest Expense
Core Deposits 62,127 (127,759) (65,632)
Certificates of Deposit 159,506 (223,080) (63,574)
FHLB Borrowings 53,680 (35,441) 18,239
Other Borrowings - (13,660) (13,660)
----------------------------------------------
Total interest-bearing liabilities 275,313 (399,940) (124,627)
==============================================
Change in net interest income $ 648,219 $(114,198) $ 534,021
==============================================
Nine Months Ended March 31,
----------------------------------------------
2004 Vs 2003
----------------------------------------------
Increase (Decrease)
Due to
----------------------------------------------
Volume Rate Net
----------------------------------------------
Interest Income:
Loans $3,899,444 $(1,685,963) $2,213,481
Investments 61,997 (33,553) 28,444
----------------------------------------------
Total interest-earning assets 3,961,441 (1,719,516) 2,241,925
----------------------------------------------
Interest Expense
Core Deposits 384,521 (544,077) (159,556)
Certificates of Deposit 1,032,679 (770,522) 262,157
FHLB Borrowings 234,600 (163,677) 70,923
Other Borrowings 230,433 (84,789) 145,644
----------------------------------------------
Total interest-bearing liabilities 1,882,233 (1,563,065) 319,168
==============================================
Change in net interest income $2,079,208 $ (156, 451) $1,922,757
==============================================
-15-
Average Balance Sheet for the Three-Month Period ended March 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 March 31,
--------------------------------------------------------------------------------------
2004 2003
------------------------------------------ ------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ ------------ ------------ ------------- ------------ -----------
Interest-earning assets:
Loans receivable (1) $265,520 $3,974 5.99% $198,431 $3,372 6.80%
Investment securities (2) 18,201 107 2.36% 53,000 325 2.45%
Mortgage-backed securities 20,675 201 3.89% 15,597 175 4.49%
------------ ------------ ----------- ------------- ------------ -----------
Total interest-earning assets 304,396 4,282 5.63% 267,028 3,873 5.80%
------------ ----------- ------------ -----------
Non-interest-earning assets 17,630 13,449
------------ -------------
Total assets $322,026 $280,477
============ =============
Interest-bearing liabilities:
Interest-bearing demand deposits $ 52,377 134 1.02% $ 43,285 168 1.55%
Certificates of deposit 153,667 1,184 3.08% 136,232 1,246 3.66%
Savings deposits 49,610 131 1.06% 42,607 163 1.53%
FHLB Borrowings 25,117 306 4.87% 21,167 288 5.44%
Other Borrowings 7,200 80 4.47% 7,200 94 5.22%
------------ ------------ ----------- ------------- ------------ -----------
Total interest-bearing liabilities 287,971 1,835 2.55% 250,491 1,959 3.13%
------------ ----------- ------------ -----------
Non-interest bearing liabilities 12,840 10,730
------------ -------------
Total liabilities 300,811 261,221
Stockholders' equity 21,215 19,256
------------ -------------
Total liabilities and stockholders'
equity $322,026 $280,477
============ =============
Net interest income $2,447 $1,913
============ ============
Interest rate spread (3) 3.08% 2.67%
===========
===========
Net yield on interest-earning assets (4) 3.22% 2.87%
=========== ===========
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.70% 106.60%
=========== ===========
- --------------------------------------------------------------------------------
(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-
Average Balance Sheet for the Nine-Month Period ended March 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.
Nine-Month Period Ended March 31,
--------------------------------------------------------------------------------------
2004 2003
----------------------------------------- -------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------ ------------ ----------- ------------- ------------ ------------
Interest-earning assets:
Loans receivable (1) $257,790 $11,925 6.17% $184,904 $9,712 7.00%
Investment securities (2) 25,381 571 3.00% 34,837 743 2.84%
Mortgage-backed securities 23,011 616 3.57% 11,097 416 5.00%
------------ ------------ ----------- ------------- ------------ -----------
Total interest-earning assets 306,182 13,112 5.71% 230,838 10,871 6.28%
------------ ----------- ------------ -----------
Non-interest-earning assets 17,653 10,638
------------ -------------
Total assets $323,835 $241,476
============ =============
Interest-bearing liabilities:
Interest-bearing demand deposits $ 52,948 418 1.06% $ 34,171 449 1.75%
Certificates of deposit 153,400 3,629 3.15% 117,430 3,367 3.82%
Savings deposits 49,553 396 1.07% 38,496 526 1.82%
FHLB Borrowings 27,139 944 4.64% 20,789 873 5.60%
Other Borrowings 7,200 240 4.44% 2,400 94 5.22%
------------ ------------ ----------- ------------- ------------ -----------
Total interest-bearing liabilities 290,040 5,627 2.59% 213,286 5,309 3.32%
------------ ----------- ------------ -----------
Non-interest bearing liabilities 12,962 9,270
------------ -------------
Total liabilities 303,002 222,556
Stockholders' equity 20,833 18,920
------------ -------------
Total liabilities and stockholders'
equity $323,835 $241,476
============ =============
Net interest income $7,485 $5,562
============ ============
Interest rate spread (3) 3.12% 2.96%
===========
===========
Net Yield on interest-earning assets (4) 3.26% 3.21%
=========== ===========
Ratio of average interest-earning assets to
average interest-bearing liabilities 105.57% 108.23%
=========== ===========
- --------------------------------------------------------------------------------
(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.
-17-
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.
March 31, June 30,
2004 2003
------ ------
Loans on a nonaccrual basis $ 568 $1,398
Loans past due 90 days or more and still accruing 1,046 1,681
------ ------
Total nonperforming loans 1,614 3,079
------ ------
Other real estate 328 802
Repossessed assets 7 28
------ ------
Total nonperforming assets $1,949 $3,909
------ ------
Nonperforming loans as a percentage of total net loans 0.61% 1.34%
====== ======
Nonperforming assets as a percentage of total assets 0.61% 1.21%
====== ======
Allowance for loan losses to nonperforming loans 99.44% 35.60%
====== ======
Nonaccrual loans at March 31, 2004,consisted of $369,900 in one-to-four family
residential mortgages and $198,480 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 March 31, 2004,
the Company had no loans that were classified as impaired.
-18-
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. The Company's
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 recent loss experience.
Similarly, by basing the past graded loss factors on historical loss experience,
the methodology is further designed to take the Company's recent loss experience
into account. In addition to historical and recent loss trends, the Company's
methodology incorporates the current volume and trend in delinquencies, as well
as, a self-assessment of the status of the local economy. The Company's
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,
actual 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, the
Company's methodology includes its 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, the Company is 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 March 31, 2004
and June 30, 2003:
March 31, June 30,
2004 2003
------------ ------------
Mortgage loans:
1-4 family $137,751,868 $126,106,815
Multi-family 9,214,970 8,227,328
Non-residential 41,639,174 39,099,195
Construction 16,906,946 10,074,633
------------ ------------
205,512,958 183,507,971
------------ ------------
Consumer Loans:
Home Improvement 762,219 900,060
Automobile-Direct 9,488,828 8,761,516
Automobile-Indirect 33,390,186 22,140,818
Share loans 2,163,369 1,914,628
Other 2,204,969 2,687,302
------------ ------------
48,009,571 36,404,324
------------ ------------
Commercial Loans 18,323,338 17,383,993
Less:
Loans in process 4,875,368 6,844,741
Net deferred loan fees 108,983 116,178
Allowance for loan losses 1,604,768 1,095,822
------------ ------------
6,589,119 8,056,741
------------ ------------
Total $265,256,748 $229,239,547
============ ============
-19-
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.
-20-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
NONE
Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
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 ****
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
(b) Form 8-Ks filed during the quarter:
The Registrant filed a report on Form 8-K dated January 23, 2004
to report earnings for the quarter ended December 31, 2003.
(Items 7 and 12)
- --------------------------------------------------------------------------------
* 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 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: May 12, 2004 By: /s/Stephen M. Gagliardi
-------------------------------------
Stephen M. Gagliardi
President and Chief Executive Officer
Date: May 12, 2004 By: /s/Stephen M. Magnone
-------------------------------------
Stephen M. Magnone
Treasurer (Chief Financial Officer)
-22-