The Company is a Delaware corporation organized in September 1996 at the
direction of the Bank to acquire all of the capital stock that the Bank will
issue upon its conversion from the mutual to stock form of ownership. The
Company has not engaged in any significant business to date. The OTS has
approved the Company's application to become a savings and loan holding company
and the Company will retain approximately 50% of the net proceeds from the
issuance of Common Stock as its initial capitalization (ranging from
approximately $6.54 million assuming the sale of 697,000 shares at the minimum
of the EVR to $8.96 million assuming the sale of 943,000 shares at the maximum
of the EVR). The Company will use the balance of the net proceeds to purchase
all of the common stock of the Bank to be issued upon Conversion. Part of the
proceeds retained by the Company will be used to fund the loan to the ESOP.
Prior to the Conversion, the Company will not transact any material business.
Upon consummation of the Conversion, the Company will have no significant
assets other than that portion of the net proceeds of the Offerings retained by
the Company (less the loan to the ESOP) and the shares of the Bank's capital
stock acquired in the Conversion, and will have no significant liabilities.
Cash flow to the Company will be dependent upon earnings from the investment of
the portion of net proceeds retained by it in the Conversion and any dividends
received from the Bank. See "Use of Proceeds."
ADVANCE FINANCIAL SAVINGS BANK, f.s.b.
The Bank is a federally chartered mutual savings bank headquartered in
Wellsburg, West Virginia. The Bank was chartered in 1935 under the name Advance
Federal Savings and Loan Association of West Virginia. The Bank obtained its
current name in 1989. The Bank's deposits have been federally insured since
1935 under the SAIF as administered by the FDIC and its predecessor, the
Federal Savings and Loan Insurance Corporation, and the Bank became a member of
the FHLB System in 1935. At June 30, 1996, the Bank had total assets of $91.9
million, deposits of $80.8 million, and equity of $6.2 million or 6.7% of total
The Bank is a community oriented savings institution offering financial
services to meet the needs of the communities it serves. The Bank conducts its
business from its main office located in Wellsburg, West Virginia, and one
branch office located in Follansbee, West Virginia. In addition, in September
1996, the Bank received approval from the OTS to open a new branch office in
The principal sources of funds for the Bank's lending activities are deposits
and the amortization and repayment of loans and sales, maturities, and calls of
securities. The principal source of income is interest on loans and the
principal expense is interest paid on deposits.
The main office of the Bank is located at 1015 Commerce Street, Wellsburg,
West Virginia 26070 and the telephone number of that office is (304) 737-3531.
The Company has only recently been formed and, accordingly, has no results of
operations at this time. As a result, the following discussion principally
reflects the operations of the Bank. The Bank's results of operations are
primarily dependent on its net interest income, which is the difference between
the interest income earned on its assets, primarily loans and investments, and
the interest expense on its liabilities, primarily deposits and borrowings. Net
interest income may be affected significantly by general economic and
competitive conditions and policies of regulatory agencies, particularly those
with respect to market interest rates. The results of operations are also
significantly influenced by the level of non-interest expenses, such as
employee salaries and benefits, non-interest income, such as fees on
deposit-related services, and the Bank's provision for loan losses.
The Bank has been, and intends to continue to be, a community-oriented financial
institution offering a variety of financial services. Management's strategy has
been to clarify its corporate focus, make certain that resources are in place
to achieve goals and objectives, and review progress toward these goals and
objectives. Management has sought to originate adjustable-rate mortgage loans
and has, more recently, sought to sell most of the fixed-rate mortgage loans it
originates into the secondary market. The Bank has also sought to increase its
origination of shorter term loans.
The Bank operates in accordance with the following strategy that is also
discussed under "-- General" and "-- Asset/Liability Management:"
o Originate Adjustable-rate Mortgage Loans. The Bank believes that it has thus
far been successful in originating adjustable-rate mortgage loans during
periods when fixed-rate loans are preferred by many consumers. The vast
majority of the Bank's one- to four-family mortgage loans are adjustable rate
loans and the Bank's one- to four-family mortgage loan portfolio has increased
from $38.1 million at June 30, 1992 to $56.0 million at June 30, 1996.
Adjustable-rate mortgage loans enable the Bank to better manage its interest
o Sell Fixed-rate Mortgage Loans. Although the Bank has been successful in
originating adjustable-rate, rather than fixed rate mortgage loans, it has
continued to originate fixed-rate mortgage loans for those consumers who desire
these loans. The Bank has recently begun selling into the secondary market the
vast majority of the fixed-rate loans that it originates as a means of reducing
its sensitivity to changes in interest rates.
o Originate Shorter Term Loans and Obtain Longer Term Deposits. During the past
several years, the Bank has increased its origination of shorter term loans
such as consumer loans, non-residential real estate loans, and commercial loans
and has also increased its portfolio of longer term certificates of deposit.
Increases in these types of loans and deposits have reduced the Bank's
sensitivity to changes in interest rates. Further, the increase in these types
of loans has enhanced the yield on a portion of the Bank's loan portfolio.
o Emphasize Personal Service. For more than 60 years, the Bank has met the
financial needs of the communities it serves. Management believes that the Bank
has been able to grow during the past five years in a competitive market
because it continues to provide highly personalized service to its customers.
In addition, the Bank intends to continue serving its market areas as a
community bank and believes that doing so will continue to differentiate it
from many of its competitors.
o Maintain Asset Quality. Management believes that asset quality is a key to
long-term financial success. During the past five fiscal years, total
non-performing assets as a percentage of total assets has remained between
0.41% and 0.69%. These percentages have remained within this range despite
increases in the Bank's portfolio of non-residential real estate loans,
automobile loans and commercial loans as well as growth in the overall loan
In the future, the Bank intends to continue its focus on the origination of
adjustable-rate mortgage loans, the sale of first mortgage primary residence
fixed-rate mortgage loans, and to increase the origination of shorter term
loans while decreasing deposit interest expense and limiting overhead expenses.
In this regard, the Bank has monitored current deposit interest rates in its
market area from competitive banks and has determined that a decrease in
interest rates offered for its NOW deposit accounts and Regular Savings deposit
accounts is warranted. The Bank plans to decrease deposit interest rates for
these accounts sometime during the second quarter of 1996. While the Board
anticipates a significant increase in non-interest expense in the future
resulting from operations from a public company and implementation of new
incentive plans, the Board believes that the additional income attributable to
the proceeds of the offering will more than offset such additional expenses.
See "Pro Forma Data". However, there can be no assurance that the Bank's
reliance on this focus will not adversely affect net income, particularly in
the event of changes in interest rates or other market conditions which impair
the Bank's ability to maintain an adequate spread between the yields and costs
of its assets and liabilities. See "-- Asset/Liability Management".