<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-18993
--------
WINTON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Ohio 31-1303854
- ----------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road
Cincinnati, Ohio 45247
- ---------------------------- ----------
(Address of principal (Zip Code)
executive office)
</TABLE>
Registrant's telephone number, including area code: (513) 385-3880
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
As of May 9, 1997, the latest practicable date, 1,986,152 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 19 pages
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WINTON FINANCIAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
<PAGE> 3
WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 1,276 $ 1,504
Interest-bearing deposits in other financial institutions 840 -
---------- ----------
Cash and cash equivalents 2,116 1,504
Investment securities available for sale - at market 1,012 2,581
Investment securities held to maturity- at cost (approximate
market value of $11,540 and $9,623 at March 31, 1997 and
September 30, 1996) 11,599 9,593
Mortgage-backed securities available for sale - at market 2,445 2,942
Mortgage-backed securities - at cost (approximate
market value of $15,340 and $15,983 at March 31, 1997
and September 30, 1996) 15,684 16,414
Loans receivable - net 265,040 247,755
Loans held for sale - at lower of cost or market - 2,735
Office premises and equipment - net 2,555 2,667
Real estate acquired through foreclosure 523 561
Federal Home Loan Bank stock - at cost 2,686 2,359
Accrued interest receivable on loans 2,013 1,908
Accrued interest receivable on mortgage-backed securities 120 126
Accrued interest receivable on investments and interest
bearing deposits 197 163
Prepaid expenses and other assets 529 409
Prepaid federal income taxes 162 -
Intangible assets - net 493 524
---------- ----------
Total assets $ 307,174 $ 292,241
========== ==========
</TABLE>
3
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<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Deposits $229,687 $221,533
Advances from Federal Home Loan Bank 52,848 46,376
Accounts payable on mortgage loans serviced for others 734 686
Advance payments by borrowers for taxes and insurance 334 312
Other liabilities 809 2,273
Accrued federal income taxes - 116
Deferred federal income taxes 800 114
-------- --------
Total liabilities 285,212 271,410
Shareholders' equity
Preferred stock - 2,000,000 shares without par
value authorized; no shares issued - -
Common stock - 5,000,000 shares of no par value
authorized; 1,986,152 shares outstanding at
March 31, 1997 and September 30, 1996 - -
Additional paid-in capital 6,501 6,501
Retained earnings - substantially restricted 15,256 14,142
Unrealized gains on securities designated as
available for sale, net of related tax effects 205 188
-------- --------
Total shareholders' equity 21,962 20,831
-------- --------
Total liabilities and shareholders' equity $307,174 $292,241
======== ========
</TABLE>
4
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WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans $10,798 $ 8,980 $5,502 $4,482
Mortgage-backed securities 562 596 280 309
Investments and interest-bearing deposits 485 528 246 261
------- -------- ------ ------
Total interest income 11,845 10,104 6,028 5,052
Interest expense
Deposits 5,785 5,177 2,901 2,581
Borrowings 1,398 851 725 408
------- -------- ------ ------
Total interest expense 7,183 6,028 3,626 2,989
------- -------- ------ ------
Net interest income 4,662 4,076 2,402 2,063
Provision for losses on loans - 253 - 5
------- -------- ------ ------
Net interest income after provision for losses on loans 4,662 3,823 2,402 2,058
Other income
Gain on sale of mortgage loans 272 489 57 248
Gain on sale of investments and mortgage-backed securities
designated as available for sale 36 9 - -
Gain on sale of real estate acquired through foreclosure 32 - 36 -
Other 181 181 91 90
------- -------- ------ ------
Total other income 521 679 184 338
General, administrative and other expense
Employee compensation and benefits 1,361 1,315 701 653
Occupancy and equipment 593 583 302 298
Federal deposit insurance premiums 134 233 9 116
Franchise taxes 131 124 67 70
Amortization of intangible assets 31 31 15 15
Advertising 78 70 39 41
Other 505 442 250 230
Merger related expenses - 615 - 132
------- -------- ------ ------
Total general, administrative and other expense 2,833 3,413 1,383 1,555
------- -------- ------ ------
Earnings before income taxes 2,350 1,089 1,203 841
Federal income taxes
Current 123 426 353 155
Deferred 676 (3) 56 131
------- -------- ------ ------
Total federal income taxes 799 423 409 286
------- -------- ------ ------
NET EARNINGS $ 1,551 $ 666 $ 794 $ 555
======= ======== ====== ======
Earnings per share $ .78 $ .34 $ .40 $ .28
======= ======== ====== ======
Dividends per share $ .220 $ .205 $ .115 $ .105
======= ======== ====== ======
</TABLE>
5
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WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,551 $ 666
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments
and mortgage-backed securities 5 3
Amortization of deferred loan origination fees (118) (133)
Depreciation 191 177
Amortization of intangible assets 31 31
Gain on sale of investment and mortgage-backed securities
designated as available for sale (36) (9)
Gain on sale of mortgage loans (140) (257)
Gain on sale of real estate acquired through foreclosure (32) -
Loans disbursed for sale in secondary market (13,051) (20,952)
Proceeds from sale of mortgage loans 15,794 22,288
Provision for losses on loans - 253
Federal Home Loan Bank stock dividends (85) (76)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (105) (116)
Accrued interest receivable on mortgage-backed securities 6 (4)
Accrued interest receivable on investments (34) 12
Prepaid expenses and other assets (120) (249)
Accounts payable on mortgage loans serviced for others 48 648
Other liabilities (1,464) (11)
Federal income taxes
Current (278) (120)
Deferred 676 (3)
-------- ---------
Net cash provided by operating activities 2,839 2,148
Cash flows from investing activities:
Proceeds from maturity of investment securities 3,000 1,922
Proceeds from sale of investment securities designated as available for sale 122 -
Purchase of investment securities designated as held to maturity (3,499) (1,302)
Principal repayments on mortgage-backed securities 1,225 672
Purchase of mortgage-backed securities designated as available for sale - (3,077)
Purchase of mortgage-backed securities designated as held to maturity - (293)
Proceeds from sale of mortgage-backed securities designated as
available for sale - 1,406
Loan principal repayments 32,758 23,046
Loan disbursements (53,448) (35,083)
Sale of loan participations 3,635 -
Proceeds from sale of real estate acquired through foreclosure 94 -
Additions to real estate acquired through foreclosure (13) (176)
Purchase and renovation of office premises and equipment (70) (100)
Purchase of Federal Home Loan Bank stock (242) -
-------- ---------
Net cash used in investing activities (16,438) (12,985)
-------- ---------
Net cash used in operating and investing activities
(balance carried forward) (13,599) (10,837)
-------- ---------
</TABLE>
6
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WINTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended March 31,
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(13,599) $(10,837)
Cash flows from financing activities:
Net increase in deposit accounts 8,154 10,716
Proceeds from Federal Home Loan Bank advances 14,000 16,250
Repayment of Federal Home Loan Bank advances (7,528) (15,676)
Advances by borrowers for taxes and insurance 22 (39)
Proceeds from exercise of stock options - 8
Dividends paid on common stock (437) (396)
-------- --------
Net cash provided by financing activities 14,211 10,863
-------- --------
Net increase in cash and cash equivalents 612 26
Cash and cash equivalents at beginning of period 1,504 3,518
-------- --------
Cash and cash equivalents at end of period $ 2,116 $ 3,544
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 400 $ 428
======== ========
Interest on deposits and borrowings $ 7,110 $ 6,037
======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ 200 $ -
======== ========
Unrealized gains on securities designated as available for sale,
net of related tax effects $ 17 $ 23
======== ========
Recognition of mortgage servicing rights in accordance with
SFAS No. 122 $ 132 $ 232
======== ========
</TABLE>
7
<PAGE> 8
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six month periods ended March 31, 1997 and 1996
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Winton
Financial Corporation (the "Corporation" or "Winton") included in
Winton's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996. However, all adjustments (consisting of only normal
recurring accruals) which in the opinion of management are necessary
for a fair presentation of the consolidated financial statements have
been included. The results of operations for the three and six month
periods ended March 31, 1997 and 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year.
2. PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying consolidated financial statements include the accounts
of Winton and The Winton Savings and Loan Co. ("Winton Savings"). All
significant intercompany items have been eliminated.
3. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
-------------------------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
In performing the review for recoverability, the entity should estimate
the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of
an impairment loss for long-lived assets and identifiable intangibles
that an entity expects to hold and use should be based on the fair
value of the asset. SFAS No. 121 is effective for financial statements
for fiscal years beginning after December 15, 1995 (fiscal 1997 as to
the Corporation). Earlier application is encouraged. Management adopted
SFAS No. 121 on October 1, 1996, as required, without material effect
on the Corporation's consolidated financial position or results of
operations.
8
<PAGE> 9
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended March 31, 1997 and 1996
3. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS (continued)
-------------------------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and
reporting standards for stock-based compensation plans. SFAS No. 123
encourages all entities to adopt a new method of accounting to measure
compensation cost of all stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies
are, however, allowed to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most
plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro
forma net earnings and, if presented, earnings per share, as if SFAS
No. 123 had been adopted. The accounting requirements of SFAS No. 123
are effective for transactions entered into during fiscal years that
begin after December 15, 1995; however, companies are required to
disclose information for awards granted in their first fiscal year
beginning after December 15, 1994. Management has determined that the
Corporation will continue to account for stock-based compensation
pursuant to Accounting Principles Board Opinion No. 25, and therefore
the provisions of SFAS No. 123 will have no effect on its consolidated
financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
of Financial Assets, Servicing Rights, and Extinguishment of
Liabilities," that provides accounting guidance on transfers of
financial assets, servicing of financial assets, and extinguishment of
liabilities. SFAS No. 125 introduces an approach to accounting for
transfers of financial assets that provides a means of dealing with
more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes
use of special purpose entities in the transaction, or otherwise has
continuing involvement with the transferred assets. The new accounting
method, referred to as the financial components approach, provides that
the carrying amount of the financial assets transferred be allocated to
components of the transaction based on their relative fair values. SFAS
No. 125 provides criteria for determining whether control of assets has
been relinquished and whether a sale has occurred. If the transfer does
not qualify as a sale, it is accounted for as a secured borrowing.
Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of
financial assets, loan participations, factoring arrangements, and
transfers of receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing
contract (unless related to a securitization of assets, and all the
securitized assets are retained and classified as held-to-maturity). A
servicing asset or liability that is purchased or assumed is initially
recognized at its fair value. Servicing assets and liabilities are
amortized in proportion to and over the period of estimated net
servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
9
<PAGE> 10
WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended March 31, 1997 and 1996
3. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS (continued)
-------------------------------------------
SFAS No. 125 provides that a liability is removed from the balance
sheet only if the debtor either pays the creditor and is relieved of
its obligation for the liability or is legally released from being the
primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31,
1997, and is to be applied prospectively. Earlier or retroactive
application is not permitted. Management does not believe that adoption
of SFAS No. 125 will have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which requires companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share, respectively. Basic earnings per share is
computed without including potential common shares, i.e., no dilutive
effect. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common
shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods
ending after December 15, 1997. Early application is not permitted.
Based upon the provisions of SFAS No. 128, the Corporation's basic and
diluted earnings per share for the three months ended March 31, 1997,
would have been $.40 and $.39, respectively. Basic and dilutive
earnings per share for the six months ended March 31, 1997, would have
been $.78 and $.77, respectively.
4. CHARTER UNIFICATION LEGISLATION
-------------------------------
The deposit accounts of Winton Savings and other savings associations
are insured up to applicable limits by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF"). Legislation to recapitalize the SAIF was enacted on September
30, 1996. Such legislation provided that the SAIF will be merged into
the Bank Insurance Fund in 1998 if there are no more savings
associations. Such legislation also requires the Department of Treasury
to submit a report to Congress on the development of a common charter
for all financial institutions. In addition, in January 1997, two bills
were introduced to address this charter unification by eliminating the
federal thrift charter and the separate federal regulation of savings
and loan associations.
Pursuant to such legislation, Congress may eliminate the Office of
Thrift Supervision ("OTS"), and Winton Savings may be regulated under
federal law as a bank or may be required to change its charter. Such
change in regulation or charter would likely change the range of
activities in which Winton Savings may engage and would probably
subject Winton Savings to more regulation by the FDIC. In addition,
Winton might become
10
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WINTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended March 31, 1997 and 1996
4. CHARTER UNIFICATION LEGISLATION (continued)
-------------------------------
subject to a different form of holding company regulation, which may
limit the activities in which Winton may engage, and subject Winton to
other additional regulatory requirements, including separate capital
requirements. At this time, Winton cannot predict when or whether
Congress may actually pass legislation regarding Winton's and Winton
Savings' regulatory requirements or charter. Although such legislation
may change the activities in which either Winton and Winton Savings may
engage, it is not anticipated that the current activities of both
Winton and Winton Savings will be materially affected by those activity
limits.
5. EARNINGS PER SHARE
------------------
Earnings per share for the three and six month periods ended March 31,
1997 and 1996 is computed based on 1,986,152 weighted-average shares
outstanding during the respective periods. Fully diluted earnings per
share has not been presented as there is no dilutive effect attendant
to Winton's Stock Option Plan during the respective periods.
11
<PAGE> 12
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
In the following pages, management presents an analysis of Winton's financial
condition as of March 31, 1997, and the results of operations for the three and
six month periods ended March 31, 1997, as compared to the same periods in 1996.
In addition to this historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties. Economic
circumstances, Winton's operations and Winton's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and in Winton's general market area.
Without limiting the foregoing, some of the forward-looking statements included
herein include the following:
- Management's belief that adoption of SFAS No. 125 will not have a
material adverse effect on the Corporation.
- Legislative changes that may change the regulatory requirements of
Winton and Winton Savings.
- Management's establishment of an allowance for loan losses, and its
statements regarding the adequacy of such allowance for loan losses.
- Management's belief that Winton's and Winton Savings' activities will
not be materially affected by proposed changes in the regulation of
all savings associations and their holding companies.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1996 TO MARCH 31,
- ------------------------------------------------------------------------------
1997
- ----
At March 31, 1997, the Corporation had total assets of $307.2 million, an
increase of approximately $14.9 million, or 5.1%, over September 30, 1996. The
growth in assets was funded primarily by an increase in deposits of $8.2 million
and an increase in advances from the Federal Home Loan Bank of $6.5 million.
Cash and due from banks, interest-bearing deposits and investment securities
totaled approximately $14.7 million, an increase of approximately $1.0 million,
or 7.7%, over September 30, 1996 levels. During the six months ended March 31,
1997, investment securities totaling $3.5 million were purchased, which were
partially offset by maturities of $3.0 million and sales of $122,000.
Loans receivable, loans held for sale, and mortgage-backed securities increased
by approximately $13.3 million, or 4.9%, during the period to a total of $283.2
million. This increase resulted primarily from loan originations totaling $66.5
million, which exceeded loan sales of $15.7 million and principal repayments of
approximately $32.8 million. The Corporation's loan
12
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WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1996 TO MARCH 31,
- ------------------------------------------------------------------------------
1997
- ----
(continued)
origination volume increased during the current six month period by
approximately $10.5 million over the same period in fiscal 1996. Sales volume
decreased during the current period by $6.4 million. Mortgage-backed securities
decreased by approximately $1.2 million, or 6.3%, from September 30, 1996, due
to normal principal repayments.
At March 31, 1997, the allowance for loan losses of Winton Savings totaled
$872,000, an increase of $15,000 over the level maintained at September 30,
1996. At March 31, 1997, the allowance represented approximately .33% of the
total loan portfolio and 285.0% of total nonperforming loans. At March 31, 1997,
the ratio of total nonperforming loans to total loans amounted to .12% as
compared to .35% at September 30, 1996. Although management believes that its
allowance for loan losses at March 31, 1997, was adequate based on the available
facts and circumstances, there can be no assurances that additions to such
allowance will not be necessary in future periods, which could negatively affect
Winton's results of operations.
Deposits increased by $8.2 million, or 3.7%, over September 30, 1996 levels, as
management has elected to increase deposits to fund the growth in the loan
portfolio through advertising and pricing strategies.
Federal Home Loan Bank advances increased by $6.5 million, or 14.0%, over
September 30, 1996 levels, to fund the growth in the loan portfolio.
Winton Savings is subject to capital standards which generally require the
maintenance of regulatory capital sufficient to meet each of three tests,
hereinafter described as the tangible capital requirement, the core capital
requirement and the risk-based capital requirement. At March 31, 1997, Winton
Savings' tangible capital of $21.0 million, or 6.9%, exceeded the minimum
requirement of $4.6 million by $16.4 million; Winton Savings' core capital of
$21.0 million, or 6.9%, exceeded the minimum requirement of $9.2 million by
$11.8 million; and Winton Savings' risk-based capital of $21.8 million, or
11.2%, exceeded the fully phased-in amount of 8% of risk-weighted assets by
approximately $6.2 million.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIODS ENDED MARCH 31, 1997
- ------------------------------------------------------------------------------
AND 1996
- --------
GENERAL
- -------
Net earnings totaled $1.6 million for the six months ended March 31, 1997, as
compared to $666,000 for the same period in 1996, an increase of $885,000, or
132.9%. The increase in earnings resulted primarily from a $586,000 increase in
net interest income, a $253,000 decrease in the provision for losses on loans
and a $580,000 decrease in general, administrative and other expense, which were
partially offset by a $158,000 decrease in other income and a $376,000 increase
in the provision for federal income taxes.
13
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WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIODS ENDED MARCH 31, 1997
- ------------------------------------------------------------------------------
AND 1996
- --------
(continued)
NET INTEREST INCOME AND PROVISION FOR LOAN LOSSES
- -------------------------------------------------
Interest income on loans and mortgage-backed securities increased by $1.8
million, or 18.6%, for the six months ended March 31, 1997, as compared to the
same period in 1996. The increase resulted primarily from a $43.8 million
increase in the weighted-average portfolio balance outstanding year to year,
which was partially offset by a decline in weighted-average yield year to year,
from 8.32% in fiscal 1996, to 8.29% in fiscal 1997. Interest income on
investments and interest-bearing deposits decreased by $43,000, or 8.1%, for the
six months ended March 31, 1997. The decrease resulted primarily from a $1.5
million decrease in the weighted-average portfolio balance outstanding year to
year, which was partially offset by an increase in the yield to 6.47%, generally
reflecting the increase in interest rates in the economy.
Interest expense on deposits increased by $608,000, or 11.7%, for the six months
ended March 31, 1997, compared to 1996. The increase was primarily due to a
$22.1 million increase in weighted-average deposits outstanding year to year.
Interest expense on borrowings increased by $547,000, or 64.3%, for the six
months ended March 31, 1997. The increase was primarily due to a $19.1 million
increase in weighted-average Federal Home Loan Bank advances outstanding year to
year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $586,000, or 14.4%, for the six months ended
March 31, 1997, compared to 1996. This interest rate spread amounted to 2.93% in
the 1997 period, compared to 2.99% in 1996, while the net interest margin was
3.23% in 1997, compared to 3.30%, in 1996.
PROVISION FOR LOSSES ON LOANS
- -----------------------------
A provision for losses on loans is charged to earnings to bring the total
allowance for losses on loans to a level considered appropriate by management
based on historical experience, the volume and type of lending conducted by the
Corporation, and the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Corporation's
loan portfolio. As a result of such analysis, management concluded that the
allowance for losses on loans was adequate, and therefore did not provide a
provision for losses on loans during the six-month period ended March 31, 1997.
The Corporation recognized a $253,000 provision for losses on loans during the
six-month period ended March 31, 1996. Such provision was heavily influenced by
management's desire to increase the allowance of Blue Chip Savings Bank ("Blue
Chip"), which had been acquired by the Corporation, to a level commensurate with
Winton Savings. There can be no assurance that the allowance for loan losses of
the Corporation will be adequate to cover losses on nonperforming assets in the
future.
14
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WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTH PERIODS ENDED MARCH 31, 1997
- ------------------------------------------------------------------------------
AND 1996
- --------
(continued)
OTHER INCOME
- ------------
Other income decreased by $158,000 for the six months ended March 31, 1997,
compared to the 1996 period, primarily due to a decrease of $217,000, or 44.4%,
in gain on sale of mortgage loans, which was partially offset by an increase in
gain on sale of investments and mortgage-backed securities of $27,000, or
300.0%, and a gain on sale of real estate acquired through foreclosure of
$32,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
- -----------------------------------------
General, administrative and other expense decreased by $580,000, or 17.0%, for
the six months ended March 31, 1997, compared to 1996. The decrease resulted
primarily from a nonrecurring $615,000 charge for merger-related expenses
incurred in the 1996 period in connection with the Blue Chip merger, coupled
with a decrease of $99,000, or 42.5%, for federal deposit insurance premiums as
a result of lower premium rates following the SAIF recapitalization. These
decreases were partially offset by a $46,000, or 3.5%, increase in employee
compensation and benefits, a $10,000, or 1.7%, increase in occupancy and
equipment, a $7,000, or 5.6%, increase in franchise taxes, an $8,000, or 11.4%,
increase in advertising and a $63,000, or 14.3%, increase in other expenses.
These increases resulted primarily from increased costs associated with Winton's
overall growth year to year.
FEDERAL INCOME TAXES
- --------------------
The provision for federal income taxes increased by $376,000, or 88.9%, for the
six months ended March 31, 1997, compared to the same period in 1996, due
primarily to a $1.3 million, or 115.8%, increase in pretax earnings. The
effective tax rates were 34.0% and 38.8% for the six months ended March 31, 1997
and 1996, respectively.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
AND 1996
- --------
GENERAL
- -------
Net earnings totaled $794,000 for the three months ended March 31, 1997,
compared to $555,000 for the same period in 1996, an increase of $239,000, or
43.1%. The increase in earnings resulted primarily from a $344,000 increase in
net interest income after provision for losses on loans and a $172,000 decrease
in general, administrative and other expense, which were partially offset by a
$154,000 decrease in other income and a $123,000 increase in the provision for
federal income taxes.
NET INTEREST INCOME AND PROVISION FOR LOAN LOSSES
- -------------------------------------------------
Interest income on loans and mortgage-backed securities increased by $991,000,
or 20.7 %, for the three months ended March 31, 1997, compared to the 1996
quarter. The increase resulted primarily from an increase in portfolio balances
outstanding year to year.
15
<PAGE> 16
WINTON FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
AND 1996
- --------
(continued)
Interest income on investments and interest-bearing deposits decreased by
$15,000, or 5.7%, for the three months ended March 31, 1997. The decrease
resulted primarily from a decrease in portfolio balances outstanding.
Interest expense on deposits increased by $320,000, or 12.4%, for the three
months ended March 31, 1997. The increase was primarily attributable to an
increase in the weighted-average cost of deposits and an increase in the average
balance of deposits outstanding.
Interest expense on borrowings increased by $317,000, or 77.7%, during the three
months ended March 31, 1997. The increase was primarily attributable to an
increase in the weighted-average cost of advances and an increase in the average
balance of borrowings outstanding.
As a result of the foregoing changes in interest income and interest expense,
the Corporation's net interest income increased by $339,000, or 16.4%, for the
three months ended March 31, 1997, compared to the three months ended March 31,
1996.
The provision for losses on loans decreased by $5,000 for the three months ended
March 31, 1997.
OTHER INCOME
- ------------
Other income decreased by $154,000, or 45.6%, for the 1997 quarter primarily due
to a decrease of $191,000 in gain on sale of mortgage loans, offset by a $36,000
gain on sale of real estate acquired through foreclosure.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
- -----------------------------------------
General, administrative and other expense decreased by $172,000, or 11.1%, for
the quarter ended March 31, 1997. The decrease was comprised primarily of a
$132,000 decrease in merger related expenses, and a $107,000, or 92.2%, decrease
in federal deposit insurance premiums, which were partially offset by an
increase of $48,000, or 7.4%, in employee compensation and benefits and a
$20,000, or 8.7%, increase in other operating expense. These increases resulted
primarily from an increase in operating costs due to Winton's overall growth
year to year.
FEDERAL INCOME TAXES
- --------------------
The provision for federal income taxes totaled $409,000 for the three months
ended March 31, 1997, an increase of $123,000, or 43.0%, over the comparable
quarter in 1996. The increase resulted primarily from a $362,000, or 43.0%,
increase in pretax earnings. The Corporation's effective tax rates amounted to
34.0% for each of the three month periods ended March 31, 1997 and 1996.
16
<PAGE> 17
Winton Financial Corporation
PART II
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES
---------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
---------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 99 - Financial Data Schedule
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: _______________________ By:________________________
Robert L. Bollin
President
Date: ______________________ By:________________________
Jill M. Burke
Chief Financial Officer
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: _______________________ By: /S/ROBERT L. BOLLIN
-----------------------
Robert L. Bollin
President
Date: ______________________ By: /S/JILL M. BURKE
-----------------------
Jill M. Burke
Chief Financial Officer
19
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
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