U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year September 30, 1998
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 Number: 0-18993
WINTON FINANCIAL CORPORATION
(Name of small business issuer in its charter)
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 executive offices) (Zip Code)
Issuer's telephone number: (513) 385-3880
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the issuer's revenues for its most recent fiscal year: $29.3 million
Based upon the last sale price quoted by The American Stock Exchange as of
December 10, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant, on that date was $35.3 million.
At December 3, 1998, there were 4,015,304 of the Registrant's Common Shares
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I of Form 10-KSB: Safe Harbor Under the Private Securities Litigation
Reform Act of 1995 in Exhibit 99.1.
Part II of Form 10-KSB: Portions of the Annual Report to Shareholders for
the fiscal year ended September 30, 1998, in
Exhibit 13.
Part III of Form 10-KSB: Proxy Statement for 1999 Annual Meeting of
Shareholders in Exhibit 20.
<PAGE>
PART I
Item 1. Description of Business
General
Winton Financial Corporation ("WFC") was incorporated as an Ohio
corporation in 1989 and, in 1990, acquired all of the issued and outstanding
common shares of The Winton Savings and Loan Co. ("Winton"), a savings and loan
association incorporated under the laws of the State of Ohio, in connection with
the holding company reorganization of Winton. As a unitary savings and loan
holding company, WFC, through Winton, is engaged in the savings and loan
business.
On January 5, 1996, Blue Chip Savings Bank ("Blue Chip") merged with and
into Winton (the "Merger"). As a result of the Merger, Winton acquired $33.9
million in assets, $27.3 million in deposits and a downtown Cincinnati branch.
The Merger was accounted for as a pooling of interests.
WFC's activities have been limited primarily to holding the common shares
of Winton. Consequently, the following discussion focuses primarily on the
business of Winton.
Winton is principally engaged in the business of making first mortgage
loans to finance the purchase, construction or improvement of one- to
four-family residential real estate or other real property located in Winton's
primary market area. Loan funds are obtained primarily from savings deposits,
which are insured up to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC") in the Savings Association Insurance Fund ("SAIF"),
loan repayments, Federal Home Loan Bank ("FHLB") advances and the sale of loans.
Interest earned on loans is Winton's primary source of revenue. In addition to
originating loans, Winton invests in U.S. Government and agency obligations,
interest-bearing deposits in other financial institutions and mortgage-backed
securities.
Winton conducts business from its five full-service offices in Hamilton
County, Ohio, and serves a market area which includes the Ohio counties of
Hamilton, Butler, Clinton, Clermont, Montgomery, Brown, Adams, Franklin and
Warren, the Indiana counties of Ripley, Franklin, Union and Dearborn and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. In August 1998,
Winton opened its first loan production office, located in Western Hills.
As a savings and loan holding company, WFC is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings and loan association
incorporated under the laws of the State of Ohio, Winton is subject to
regulation, supervision and examination by the OTS, the FDIC and the Ohio
Division of Financial Institutions (the "Division"). Winton is also a member of
the FHLB of Cincinnati.
Forward-Looking Statements
When used in this Form 10-K, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimated," "projected,"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including changes in
economic conditions in Winton's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Winton's market
area and competition. Such risks and uncertainties could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect WFC's financial performance and
could cause WFC's actual results for future periods to differ materially from
any statements expressed with respect to future periods. See Exhibit 99 hereto,
"Safe Harbor Under the Private Securities Litigation Reform Act of 1995," which
is incorporated herein by reference.
WFC does not undertake, and specifically disclaims any obligation, to
publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
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Lending Activities
General. Winton's principal lending activity is the origination of
conventional fixed-rate and variable-rate mortgage loans for the acquisition or
construction of one- to four-family residences located in Winton's primary
market area, as well as loans secured by nonresidential properties and loans
secured by multifamily properties, including construction and permanent mortgage
loans on condominiums and multi-unit properties. Winton also originates loans
insured by the Federal Housing Administration and guaranteed by the Veterans
Administration, both of which Winton sells into the secondary market. Loans
secured by nonresidential properties, including retail, office and other types
of business facilities, are also originated by Winton. In addition to
residential and nonresidential real estate lending, Winton originates consumer
loans, including passbook, automobile, secured, unsecured, home improvement and
home equity line of credit loans.
Winton maintains a portfolio of mortgage-backed pass-through securities in
the form of Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National
Mortgage Association ("FNMA") and Government National Mortgage Association
("GNMA") participation certificates. Mortgage-backed pass-through securities
generally entitle Winton to receive a portion of the cash flows from an
identified pool of mortgages and gives Winton an interest in the pool of
mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by their
respective agencies as to principal and interest. See "Mortgage-Backed
Securities."
Winton's portfolio of loans, loans held for sale and mortgage-backed
securities totaled approximately $318.3 million, in the aggregate, at September
30, 1998, and represented 90% of total assets.
Loan and Mortgage-Backed Securities Maturity Schedule. The following table
sets forth certain information, as of September 30, 1998, regarding the dollar
amount of loans and mortgage-backed securities maturing in Winton's portfolio
based on their contractual terms to maturity, before giving effect to net items.
Demand loans, loans having no stated schedule of repayments or without stated
maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Due over Due over
3 years to 5 years to
Due in Due in Due in 5 years after 10 years after Due over
1999 2000 2001 9/30/98 9/30/98 10 years Totals
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans (1):
One- to-four family
residential (2)(3) $13,806 $ 456 $ 703 $1,979 $10,690 $114,154 $141,788
Multifamily residential 1,357 3 595 3,505 10,889 59,093 75,442
Land and lot 3,495 122 1,170 681 197 276 5,941
Nonresidential 329 166 502 1,259 14,274 38,251 54,781
Construction 27,187 2,100 - - - - 29,287
Mortgage-backed securities -
held to maturity - - 2 7 12 12,397 12,418
Mortgage-backed securities -
available for sale - - - - - 565 565
Nonmortgage loans:
Consumer and other
loans (4) 5,170 358 767 1,616 214 51 8,176
------ ----- ----- ----- ------ -------- -------
Total loans and
mortgage-backed securities $51,344 $3,205 $3,739 $9,047 $36,276 $224,787 $333,278
====== ===== ===== ===== ====== ======= =======
</TABLE>
- -----------------------------
(1) Includes second mortgages.
(2) Includes home equity line of credit loans underwritten on the same basis as
first mortgage loans.
(3) Includes loans held for sale, which are recorded at the lower of cost or
market value.
(4) Includes lines of credit made to businesses which are secured by assets
other than real estate.
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<PAGE>
The following table sets forth, at September 30, 1998, the dollar amount of
all loans and mortgage-backed securities, before net items, which have
predetermined interest rates and floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates adjustable rates
(In thousands)
<S> <C> <C>
Real estate mortgage loans $173,768 $130,172
Loans held for sale 8,253 -
Consumer and other loans (1) 8,102 -
Mortgage-backed securities - held to maturity 26 12,392
Mortgage-backed securities - held for sale - 565
------- -------
Total $190,149 $143,129
======= =======
</TABLE>
- -----------------------------
(1) Includes lines of credit in the aggregate amount of $3.6 million made to
businesses which are secured by assets other than real estate.
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<PAGE>
Loan and Mortgage-Backed Securities Portfolio Composition. The following
table sets forth certain information concerning the composition of Winton's loan
and mortgage-backed securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of loan or investment:
Conventional real estate loans:
One- to four-family
Interim construction $ 17,790 5.6% $ 13,536 4.6% $ 15,049 5.6%
Loans on existing properties (1) 138,415 43.5 145,039 49.0 144,306 53.5
Loans held for sale 8,253 2.6 4,210 1.4 2,735 1.0
Multifamily
Interim construction 1,715 .5 1,500 .5 2,475 .9
Loans on existing properties 75,442 23.7 71,798 24.3 55,507 20.6
Land and lot 5,941 1.9 5,024 1.7 2,326 .9
Nonresidential real estate
Interim construction 9,782 3.1 1,401 .5 450 .1
Loans on existing properties 54,781 17.2 42,950 14.5 37,001 13.7
Mobile home loans 74 - 17 - 3 -
Consumer and other loans (2) 8,102 2.5 4,986 1.7 2,405 .9
Mortgage-backed securities - held
to maturity 12,418 3.9 14,614 4.9 16,414 6.1
Mortgage-backed securities - available
for sale 565 .2 799 .3 2,942 1.1
------- ----- -------- ----- ------- -----
333,278 104.7 305,874 103.4 281,613 104.4
Less:
Loans in process (13,616) (4.2) (8,364) (2.8) (10,150) (3.8)
Deferred loan origination fees (529) (.2) (726) (.3) (760) (.3)
Allowance for loan losses (842) (.3) (827) (.3) (857) (.3)
------- ----- ------- ----- ------- -----
Total loans and mortgage-backed
securities $318,291 100.0% $295,957 100.0% $269,846 100.0%
======= ===== ======= ===== ======= =====
Type of security:
Residential
One- to four-family $156,205 49.1% $158,575 53.6% $159,355 59.1%
Multifamily residential 77,157 24.2 73,298 24.8 57,982 21.5
Loans held for sale 8,253 2.6 4,210 1.4 2,735 1.0
Nonresidential real estate 64,563 20.3 44,351 15.0 37,451 13.9
Land and lot 5,941 1.9 5,024 1.7 2,326 .9
Mortgage-backed securities 12,983 4.1 15,413 5.2 19,356 7.2
Deposit accounts 299 .1 467 .2 389 .1
Other 7,877 2.4 4,536 1.5 2,019 .7
------- ----- ------- ----- ------- -----
333,278 104.7 305,874 103.4 281,613 104.4
Less:
Loans in process (13,616) (4.2) (8,364) (2.8) (10,150) (3.8)
Deferred loan origination fees (529) (.2) (726) (.3) (760) (.3)
Allowance for loan losses (842) (.3) (827) (.3) (857) (.3)
------- ----- ------- ----- ------- -----
Total loans and mortgage-backed securities $318,291 100.0% $295,957 100.0% $269,846 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- -----------------------------
(1) Includes first and second mortgage loans and home equity lines of credit.
(2) Includes lines of credit in the aggregate amount of $3.6 million made to
businesses which are secured by assets other than real estate.
5
<PAGE>
One- to Four-Family Residential Real Estate Loans. The primary lending
activity of Winton has been the origination of conventional loans for the
acquisition or construction of one- to four-family residential properties
located within Winton's primary market area. Each of such loans is secured by a
mortgage on the underlying real estate and improvements thereon. At September
30, 1998, $146.7 million, or 46.1% of Winton's total outstanding loans and
mortgage-backed securities (excluding construction loans) consisted of loans
secured by first and second mortgage loans and home equity lines of credit
secured by one- to four-family residential real estate, including loans held for
sale. Second mortgages and home equity lines of credit are subject to a higher
degree of risk than first mortgage loans, because, in the event of default or
foreclosure, amounts due on first mortgages have a prior claim to available
funds. Most of the second mortgages and home equity lines of credit made by
Winton are secured by property on which Winton holds the first mortgage.
OTS regulations and Ohio law limit the amount which Winton may lend in
relationship to the appraised value of the real estate and improvements thereon
at the time of loan origination. In accordance with such regulations, Winton
makes loans on single-family residences up to 95% of the value of the real
estate and improvements (the "Loan-to-Value Ratio" or "LTV"). Winton also makes
loans over the 95% LTV, though most of those loans are sold in the secondary
market with recourse. Generally, Winton requires private mortgage insurance
and/or charges premium interest rates for loans over 80% LTV.
Winton offers adjustable-rate mortgage loans ("ARMs") with interest rate
adjustment periods of generally one or three years. The interest rates initially
charged on ARMs and the new rate at each adjustment date are determined by
adding a stated margin to the one-year or three-year United States Treasury bill
rate at the time the loan is originated. The initial interest rate for a
three-year ARM is set slightly higher than for the one-year ARM to compensate
Winton for the increased exposure to risk resulting from interest-rate
fluctuations during the adjustment period. The maximum adjustment at each
adjustment date for one-year ARMs is usually 2%, with a maximum adjustment of 6%
over the term of the loan. The maximum adjustment on three-year ARMs presently
originated by Winton is 2% at each adjustment date, with a maximum adjustment of
6% over the life of the loan. None of Winton's ARMs have negative amortization
features. Of the total mortgage loans originated by Winton during the fiscal
year ended September 30, 1998, 12.7% were ARMs and 87.3% were fixed-rate.
Residential mortgage loans offered by Winton are usually for terms of 10 to
30 years. Due to the general long-term nature of an investment in mortgage
loans, such loans could have an adverse effect upon the earnings spread of an
association if such loans do not reprice as quickly as the association's cost of
funds. To minimize such effect, Winton emphasizes the origination of ARMs.
Furthermore, experience during recent years reveals that, as a result of
prepayments in connection with refinancings and sales of the underlying
properties, residential loans generally remain outstanding for periods which are
substantially shorter than the maturity of such loans.
At September 30, 1998, Winton had nonperforming loans totaling $204,000 in
its one- to four-family portfolio. Winton considers a loan nonperforming when,
in the opinion of management, the collection of additional interest on the loan
is unlikely, the loan meets non-accrual criteria as established by regulatory
authorities, or the loan is accruing interest but is more than 90 days past due.
One- to four-family loans constituted $129.3 million, or 56.8%, of the $227.8
million of loans originated in fiscal 1998.
Multifamily Residential Real Estate Loans. In addition to loans on one- to
four-family properties, Winton makes adjustable- and fixed-rate loans secured by
multifamily properties containing over four units. At September 30, 1998, loans
secured by multifamily properties (excluding construction loans) totaled
approximately $75.4 million, or 23.7% of total loans and mortgage-backed
securities.
Multifamily lending is generally considered to involve a higher degree of
risk because the loan amounts are larger and the borrower typically depends upon
income generated by the project to cover operating expenses and debt service.
The profitability of a project can be affected by economic conditions,
government policies and other factors beyond the control of the borrower. Winton
attempts to reduce the risk associated with multifamily lending by evaluating
the credit-worthiness of the borrower and the projected income from the project
and by obtaining personal guarantees on loans made to corporations and
partnerships. Winton requires that the borrower agrees to submit rent rolls and
financial statements annually to enable Winton to monitor the loan.
Multifamily loans generally have terms of up to 25 years and a maximum LTV
of 75%, although a higher LTV occasionally is approved for an established
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<PAGE>
borrower. Adjustable-rate multifamily residential loans are currently made with
the same adjustment schedules, indexes and caps as for one- to four-family
residential ARMs, with a margin of 3% over the index.
Winton had $495,000 in nonperforming loans secured by multifamily
properties at September 30, 1998, which were classified as real estate owned.
Multifamily loans constituted $29.3 million, or 12.9%, of the $227.8 million of
loans originated in fiscal 1998.
Land and Lot Loans. Winton originates loans to individuals and to builders
secured by mortgages on unimproved developed real estate upon which residential
properties will be constructed. The $5.9 million in land loans outstanding at
September 30, 1998, consisted of loans to a large residential subdivision
developer, and loans to individuals and builders used for the acquisition of
residential building lots. Such land and lot loans comprised approximately 1.9%
of the total loans and mortgage-backed securities portfolio at September 30,
1998. The largest land and lot loan outstanding at September 30, 1998, was a
$3.2 million loan secured by property to be developed for multifamily,
condominium and single-family dwellings.
Loans on unimproved developed real estate are generally considered to be
subject to a higher degree of risk because the borrower typically depends on a
sale of the property or the later improvement of the property to cover debt
service. The ability to sell or develop unimproved real estate is affected by
economic conditions, government policies and other factors beyond the control of
the borrower. These risks are increased if the unimproved real estate is for an
entire subdivision rather than a single residential lot. Winton reviews the
viability of the unimproved real estate for improvement and sale and evaluates
the credit-worthiness of the borrowers for these loans.
A developed building lot loan is generally made for a 20-year term with a
five-year balloon payment of principal due upon expiration of the loan term and
generally a maximum LTV of 75%.
Winton had no nonperforming loans secured by unimproved developed real
estate at September 30, 1998. Land and lot loans constituted $5.2 million, or
2.3%, of the $227.8 million of loans originated in fiscal 1998.
Nonresidential Real Estate Loans. At September 30, 1998, Winton has
nonresidential real estate loans in its portfolio, all in its primary market
area, including loans secured by retail, office and other types of business
facilities. The largest nonresidential real estate loan outstanding at September
30, 1998, was a $1.8 million loan secured by a warehouse. Nonresidential
permanent loans (excluding construction loans) comprised $54.8 million, or 17.2%
of total loans and mortgage-backed securities at September 30, 1998.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. If the cash flow on the property is
reduced, for example, as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. Winton has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals supporting the property's
valuation.
In recent years, nonresidential real estate loans have been made primarily
on an adjustable-rate basis, with loan terms generally up to a maximum of 25
years, although Winton has made a limited number of fixed-rate nonresidential
real estate loans during that period. These loans are typically made at a
maximum 75% LTV, although a higher Loan-to-Value Ratio is occasionally approved
for established borrowers. Adjustable-rate nonresidential real estate loans have
the same adjustment schedules, index and caps as the residential ARMs described
above in "One- to Four-Family Residential Real Estate Loans."
Winton had no nonperforming loans in its nonresidential loan portfolio at
September 30, 1998. Nonresidential loans constituted $16.8 million, or 7.4%, of
the $227.8 million of loans originated in fiscal 1998.
Federal regulations limit the amount of nonresidential mortgage loans which
an association may make to 400% of its capital. At September 30, 1998, Winton's
nonresidential permanent mortgage loans totaled 207.3% of Winton's capital.
Construction Loans. Winton offers residential construction loans both to
owner-occupants and to builders for loans being built under contract with
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<PAGE>
owner-occupants. To a very limited extent, Winton also makes construction loans
to persons constructing projects for investment purposes. At September 30, 1998,
a total of $29.3 million, or approximately 9.2%, of Winton's total loans and
mortgage-backed securities, consisted of construction loans.
Construction loans generally involve greater underwriting and default risks
than do loans secured by mortgages on existing properties due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developments, developers,
managers and builders. In addition, such loans are more difficult to evaluate
and monitor. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTVs
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Winton would have to take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Almost all of Winton's
construction loans are secured by properties in Hamilton County; the other Ohio
counties of Clinton, Clermont, Warren, Butler, Montgomery, Brown, Adams and
Franklin; the Indiana counties of Ripley, Franklin, Union and Dearborn; and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. The economy of such
lending area has been relatively stable over the three years ended September 30,
1998.
Generally, construction loans have terms ranging from 6 to 12 months at
fixed rates of interest over the construction period. Residential construction
loans and nonresidential construction loans are interim loans which are replaced
by permanent fixed- or adjustable-rate loans at the end of the construction
period. Such permanent loans may or may not be obtained from Winton.
At September 30, 1998, Winton had nonperforming loans totaling $859,000 in
construction loans. Construction loans constituted $30.5 million, or 13.4%, of
the $227.8 million of loans originated in fiscal 1998.
Mobile Home Loans. To a very limited extent, Winton originates loans on
both new and used mobile homes. At September 30, 1998, the aggregate outstanding
principal balance of mobile home loans in Winton's portfolio was approximately
$74,000, or less than .1% of total loans and mortgage-backed securities. Such
loans are generally made at fixed rates of interest, with the rate charged on
loans for used mobile homes generally set higher than for new mobile homes. The
maximum term of mobile home loans is 10 years for new homes and seven years for
used homes. Winton usually obtains a security interest in the mobile home to
which the loan pertains.
Loans that are secured by rapidly depreciating assets such as mobile homes
may entail greater risk than residential loans. The repossessed collateral may
not provide an adequate source of repayment of the outstanding loan balance. The
risk of default on such loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Federal regulations permit an association to invest without limitation in
mobile home loans.
Consumer and Other Loans. Winton makes various types of consumer loans,
including loans made to depositors on the security of their savings deposits,
automobile loans, commercial loans, loans secured by stock of entities other
than WFC, lines of credit to businesses secured by non-real estate assets and
unsecured personal loans. At September 30, 1998, consumer and other loans
constituted 2.5% of Winton's total loans and mortgage-backed securities and 2.3%
of total assets.
Consumer loans are generally made at fixed rates of interest tied to the
prime rate, generally for terms of from 90 days to five years. Consumer loans,
particularly consumer loans that are unsecured or are secured by rapidly
depreciating assets such as automobiles, may entail greater risk than
residential loans. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Although Winton has not had significant delinquencies on consumer loans, no
assurance can be provided that delinquencies will not increase. At September 30,
1998, Winton had nonperforming loans totaling $4,000 in its consumer loan
portfolio. Consumer loans constituted $16.7 million, or 7.2%, of the $227.8
million of loans originated in fiscal 1998.
Mortgage-Backed Securities. In the recent past, Winton has purchased
mortgage-backed securities insured or guaranteed by government agencies in order
to improve Winton's asset portfolio yield by profitably investing excess funds.
Winton intends to continue to purchase such mortgage-backed securities when
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<PAGE>
conditions favor such a portfolio investment. At September 30, 1998,
mortgage-backed securities totaled approximately $13.0 million, or 4.1% of total
loans and mortgage-backed securities. All but $565,000 of Winton's
mortgage-backed securities at September 30, 1998, were designated as being held
to maturity. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, those mortgage-backed securities designated as being held to
maturity are carried on Winton's balance sheet at cost. The market value of the
$12.4 million in mortgage-backed securities held to maturity at September 30,
1998, was $12.3 million. The remaining $565,000 in mortgage-backed securities at
September 30, 1998, was designated as available for sale. In accordance with
SFAS No. 115, the mortgage-backed securities available for sale are carried on
Winton's balance sheet at market value, with unrealized gains or losses carried
as an adjustment to shareholders' equity, net of applicable taxes.
Winton maintains a portfolio of mortgage-backed pass-through securities in
the form of FHLMC, FNMA and GNMA participation certificates. Mortgage-backed
pass-through securities generally entitle Winton to receive a portion of the
cash flows from an identified pool of mortgages and gives Winton an interest in
the pool of mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by
their respective agencies as to principal and interest.
Winton has also invested in collateralized mortgage obligations ("CMOs").
CMOs are mortgage derivative products, secured by an underlying pool of
mortgages. Winton has no ownership interest in the mortgages, except to the
extent they serve as collateral. Payment streams from the mortgages serving as
collateral are reconfigured with varying terms and timing of payment to the CMO
investor. Though they can be used for hedging and investment, CMOs can expose
investors to higher risk of loss than direct investments in mortgage-backed
pass-through securities, particularly with respect to price volatility and the
lack of a broad secondary market in such securities. The OTS has deemed certain
CMOs and other mortgage derivative products to be "high-risk." None of Winton's
CMOs are in such "high-risk" category.
Although mortgage-backed securities and CMOs generally yield less than
individual loans originated by Winton, they present less credit risk, because
mortgage-backed securities are guaranteed as to principal repayment by the
issuing agency and CMOs are secured by the underlying collateral. Because CMOs
and other mortgage-backed securities have a lower yield relative to current
market rates, retention of such investments could adversely affect Winton's
earnings, particularly in a rising interest rate environment. Although CMOs and
other mortgage-backed securities designated as available for sale are a
potential source of liquid funds for loan originations and deposit withdrawals,
the prospect of a loss on the sale of such investments limits the usefulness of
these investments for liquidity purposes.
In addition, Winton has purchased adjustable-rate mortgage-backed
securities and CMOs as part of its effort to reduce its interest rate risk. In a
period of declining interest rates, Winton is subject to prepayment risk on such
adjustable-rate mortgage-backed securities and CMOs. Winton attempts to mitigate
this prepayment risk by purchasing mortgage-backed securities at or near par. If
interest rates rise in general, the interest rates on the loans backing the
mortgage-backed securities and CMOs will also adjust upward, subject to the
interest rate caps in the underlying adjustable-rate mortgage loans. However,
Winton is still subject to interest rate risk on such securities if interest
rates rise faster than the 1% to 2% maximum annual interest rate adjustments on
the underlying loans.
At September 30, 1998, $13.0 million, or 99.8%, of Winton's mortgage-backed
securities and CMOs had adjustable rates. Although adjustable-rate securities
generally have a lower yield at the time of origination than fixed-rate
securities, the interest rate risk associated with adjustable-rate securities is
lower. See "Asset/Liability Management." The following table sets forth certain
information regarding Winton's investment in mortgage-backed securities at the
dates indicated:
<TABLE>
<CAPTION>
At September 30, At September 30,
1998 1997
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealizedunrealized Estimated
cost gains losses fair value losses fair value
cost gains
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgaged-backed securities
held to maturity:
FHLMC participation $ 4,402 $11 $ (68) $ 4,345 $ 5,371 $34 $ (92) $ 5,313
certificates
FNMA participation 2,912 1 (65) 2,848 3,449 5 (63) 3,391
certificates
GNMA participation 598 9 - 607 811 25 - 836
certificates
CMOs 4,506 - (40) 4,466 4,983 - (178) 4,805
------ -- ---- ------ ------ -- ---- ------
12,418 21 (173) 12,266 14,614 64 (333) 14,345
Mortgage-backed securities
available for sale:
GNMA participation
certificates 561 4 - 565 782 17 - 799
------ -- ---- ------ ------ -- ---- ------
$12,979 $25 $(173) $12,831 $15,396 $81 $(333) $15,144
====== == ==== ====== ====== == ==== ======
</TABLE>
9
<PAGE>
The combined amortized cost of mortgage-backed and related securities
designated as held to maturity or available for sale at September 30, 1998 and
1997, by contractual terms to maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers generally may prepay
obligations without prepayment penalties. Also, the timing of cash flows will be
affected by management's intent to sell securities designated as available for
sale under certain economic conditions.
<TABLE>
<CAPTION>
Amortized cost at Amortized cost at
September 30, 1998 September 30, 1997
(In thousands)
<S> <C> <C>
Due after one through three years $ 2 $ -
Due after three years through five years 7 3
Due after five years through ten years 12 26
Due after ten years through twenty years 2,943 1,841
Due after twenty years 10,015 13,526
------ ------
$12,979 $15,396
====== ======
</TABLE>
Loan Solicitation and Processing. Loan originations are developed from a
number of sources, including commissioned loan originators, loan brokers,
continuing business with depositors, other borrowers and real estate developers,
solicitations by Winton's directors, officers and lending staff and walk-in
customers.
Loan applications for permanent mortgage loans are taken by loan personnel.
Winton obtains a credit report, verification of employment and other
documentation concerning the credit-worthiness of the borrower. An appraisal of
the fair market value of the real estate which will be given as security for the
loan is generally prepared by an independent fee appraiser approved by the Board
of Directors. An environmental study is conducted only if the appraiser or
management has reason to believe that an environmental problem may exist. For
multifamily and nonresidential mortgage loans, a personal guarantee is generally
required. Winton also obtains information with respect to prior projects
completed by the borrower. Upon the completion of the appraisal and the receipt
of information on the borrower, the application for a loan is submitted either
to the Loan Committee and/or the Board of Directors or to the secondary market
for approval or rejection. Any loan applications which are not accepted by the
secondary market are reviewed and accepted or rejected by Winton's Loan
Committee.
If a mortgage loan application is approved, an attorney's opinion of title
or a title insurance policy is obtained on the real estate which will secure the
mortgage loan. Borrowers are required to carry fire and casualty insurance and
flood insurance, if applicable, and to name Winton as an insured mortgagee.
The procedure for approval of construction loans is the same as for
permanent mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. Winton also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Winton's loans carry provisions that the entire balance of the loan is due
upon sale of the property securing the loan.
Loan Originations, Purchases and Sales. Winton has been actively
originating new 30-year, 20-year and 15-year fixed-rate and adjustable-rate
loans. Virtually all residential fixed-rate loans made by Winton are originated
on documentation which will permit a possible sale of such loans to FHLMC or
other secondary mortgage market participants. When mortgage loans are sold to
FHLMC or other secondary mortgage market participants, Winton generally retains
the servicing on such loans by collecting monthly payments of principal and
interest and forwarding such payments to the FHLMC or other secondary mortgage
market participants, net of a servicing fee; though certain loans originated
with the assistance of loan brokers are sold with the servicing rights released.
Fixed-rate loans not sold in the secondary market and generally all of the ARMs
originated by Winton are held in Winton's loan portfolio.
10
<PAGE>
Management sold $104.1 million of fixed-rate loans during fiscal 1998, as
compared to sales of $42.4 million and $34.6 million of fixed- and
adjustable-rate loans in fiscal 1997 and fiscal 1996, respectively. Management
believes secondary market activities will continue to increase if interest rates
decline.
From time to time, Winton sells participation interests in mortgage loans
originated by Winton or purchases participation interests in loans originated by
other lenders. During the fiscal years ended September 30, 1998, 1997 and 1996,
Winton sold participation interests in loans totaling $6.3 million, $11.4
million and $1.7 million, respectively. Winton held participations in loans
originated by other lenders of approximately $1.7 million at September 30, 1998.
Loans in which Winton purchases participation interests must meet or exceed the
underwriting standards for the loans which Winton originates.
The following table presents Winton's mortgage loan origination, purchase,
sale and principal repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans originated:
Conventional real estate loans:
One- to four-family
Construction (1) $ 24,336 10.7% $ 22,877 15.5% $ 21,013 17.3%
Fixed-rate loans on existing property 116,103 51.0 38,268 25.9 50,975 41.9
Adjustable-rate loans on existing
property 9,761 4.3 12,645 8.6 15,127 12.5
FHA/VA 3,478 1.5 - - - -
Multifamily
Construction 1,000 0.4 1,500 1.0 1,075 0.9
Fixed-rate loans on existing property 15,455 6.8 11,564 7.8 1,252 1.0
Adjustable-rate loans on existing
property 13,886 6.1 23,957 16.2 14,637 12.0
Nonresidential real estate, land and
lot loans
Construction 5,161 2.3 1,367 0.9 330 0.3
Fixed-rate loans on existing property 16,879 7.4 9,801 6.7 5,021 4.1
Adjustable-rate loans on existing
property 5,128 2.3 7,682 5.2 8,524 7.0
Consumer and other loans (2) 16,653 7.2 18,003 12.2 3,589 3.0
------- ----- ------- ----- ------- -----
Total loans originated $227,840 100.0% $147,664 100.0% $121,543 100.0%
======= ===== ======= ===== ======= =====
Loans and mortgage-backed securities
purchased
Mortgage-backed securities $ - -% $ - -% $ 3,380 100.0%
======= ====== ======== ===== ======= =====
Loans and mortgage-backed securities sold:
Loans $104,144 94.3% $ 42,413 78.8% $ 34,645 91.7%
Participations 6,329 5.7 11,385 21.2% 1,732 4.6
Mortgage-backed securities - - - - 1,397 3.7
------- ----- ------- ----- ------- -----
Total $110,473 100.0% $ 53,798 100.0% $ 37,774 100.0%
======= ===== ======= ===== ======= =====
Principal Repayments:
Loans $ 92,741 97.5% $ 63,990 94.2% $ 40,475 95.2%
Mortgage-backed securities 2.5 3,950 5.8 2,040 4.8
------ ----- ------- ----- ------- -----
2,389
Total $ 95,130 100.0% $ 67,940 100.0% $ 42,515 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- ----------------------------
(1) Includes construction loans for which Winton has committed to a permanent
end-loan.
(2) Consists primarily of auto and line of credit disbursements and change in
loans in process.
11
<PAGE>
Federal Lending Limit. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000. In addition,
the OTS, under certain circumstances, may permit exceptions to the lending limit
on a case-by-case basis.
Based on the 15% limit, Winton was able to lend approximately $4.1 million
to one borrower at September 30, 1998. Winton had no outstanding loans in excess
of such limit at September 30, 1998.
Loan Origination and Other Fees. Winton realizes loan origination fee and
other fee income from its lending activities and also realizes income from late
payment charges, application fees, and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91, as
an adjustment to yield over the life of the related loan.
Delinquent Loans, Nonperforming Assets and Classified Assets. When a
borrower fails to make a required payment on a loan, Winton attempts to cause
the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
Winton attempts to minimize loan delinquencies through the assessment of
late charges and adherence to its established collection procedures. After a
mortgage loan payment is 15 days delinquent, a late charge of 5% of the amount
of the payment is assessed and Winton will contact the borrower by mail or phone
to request payment. In certain limited instances, Winton may modify the loan or
grant a limited moratorium on loan payments to enable the borrower to reorganize
his financial affairs. If the loan continues in a delinquent status for 90 days
or more, Winton generally will initiate foreclosure proceedings.
Real estate acquired by Winton as a result of foreclosure or by deed in
lieu of foreclosure is classified as "real estate owned" until it is sold. When
property is so acquired, it is recorded at the lower of the loan's unpaid
principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value is not less than carrying value, and any allowance resulting
therefrom is charged to earnings as a provision for losses on real estate
acquired through foreclosure. All costs incurred from the date of acquisition
are expensed in the period paid.
The following table reflects the amount of loans in delinquent status as of
the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans delinquent
30 to 59 days $6,925 $1,909 $3,186 $2,350 $1,905
60 to 89 days 629 672 692 337 348
90 or more days 1,067 472 923 602 432
----- ----- ----- ----- -----
Total delinquent loans $8,621 $3,053 $4,801 $3,289 $2,685
===== ===== ===== ===== =====
Ratio of total delinquent loans to total
loans (1) 2.69% 1.05% 1.83% 1.52% 1.29%
==== ==== ==== ==== ====
</TABLE>
- -----------------------------
(1) Includes loans held for sale.
12
<PAGE>
All delinquent loans are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is considered
uncollectible. Consumer loans generally are charged off when the loan becomes
over 120 days delinquent. Nonresidential real estate loans are evaluated for
non-accrual status when the loan is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. The amount of interest which would have
been earned on nonaccruing loans, had such loans been current, for the year
ended September 30, 1998, is approximately $31,000.
The following table sets forth information with respect to Winton's
nonperforming assets for the periods indicated. During the periods shown, Winton
had no restructured loans within the meaning of SFAS No. 15. In addition, as of
September 30, 1998, Winton had no loans which were not reflected in the table as
non-accrual, 90 days past due or restructured, which may become so in the near
future because management has concerns as to the ability of the borrowers to
comply with repayment terms.
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual
basis:(1)
Real estate:
Construction $ 859 $ - $ - $ - $ -
Residential 77 214 548 130 311
Nonresidential and land - 179 57 448 -
Consumer and other - - - - -
----- --- --- --- ---
Total 936 393 605 578 311
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Construction - - - - -
Residential 127 77 132 - 114
Nonresidential - - 182 24 -
Consumer and other 4 2 4 - 7
----- --- --- --- ---
Total 131 79 318 24 121
----- --- --- --- ---
Total of non-accrual and 90 days past
due loans $1,067 $472 $923 $602 $432
===== === === === ===
Percentage of total loans 0.35% 0.16% 0.35% 0.28% 0.21%
==== ==== ==== ==== ====
Other nonperforming assets(2) $495 $513 $561 $343 $206
=== === === === ===
</TABLE>
- ----------------------------
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely, or loans that meet
non-accrual criteria as established by regulatory authorities. Payments
received on a non-accrual loan are either applied to the outstanding
principal balance or recorded as interest income, depending on management's
assessment of the collectibility of the loan.
(2) Consists of real estate acquired through foreclosure which is carried at
the lower of cost or fair value less estimated selling expenses.
The 39% increase in nonperforming assets to $602,000 at the end of fiscal 1995
was primarily attributable to one delinquent commercial loan of approximately
$448,000 which was paid current in October 1995. The 53% increase in
13
<PAGE>
nonperforming loans at the end of fiscal 1996 resulted from the increased size
of the loan portfolio and increased loan delinquencies. The 49% decline in
nonperforming loans during fiscal 1997 resulted primarily from collections on
loan accounts acquired through the Blue Chip merger. The 126% increase in
nonperforming loans at the end of fiscal 1998 resulted primarily from
construction loans to one borrower of approximately $859,000.
OTS regulations require that each thrift institution classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. "Doubtful" assets
have the same weaknesses as "substandard" assets, with the additional
characteristics that (i) the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable and
(ii) there is a high possibility of loss. An asset classified "loss" is
considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. The regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an institution to a sufficient degree of risk to warrant classification but
which possess credit deficiencies or potential weaknesses deserving management's
close attention.
Generally, Winton classifies as "substandard" all loans that are delinquent
more than 60 days, unless management believes the delinquency status is
short-term due to unusual circumstances. Loans delinquent fewer than 60 days may
also be classified if the loans have the characteristics described above
rendering classification appropriate.
The aggregate amount of Winton's classified assets at September 30, 1998
was as follows:
<TABLE>
<CAPTION>
At September 30, 1998
(In thousands)
<S> <C>
Substandard $2,102
Doubtful 174
Loss -
-----
Total classified assets $2,276
=====
</TABLE>
Federal examiners are authorized to classify an association's assets. If an
association does not agree with an examiner's classification of an asset, it may
appeal this determination to the appropriate Regional Director of the OTS.
Winton had no disagreements with the examiners regarding the classification of
assets at the time of the last examination.
OTS regulations require that Winton establish prudent general allowances
for loan losses for any loan classified as substandard or doubtful. If an asset,
or portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.
Allowance for Loan Losses. The Board of Directors reviews on a quarterly
basis the allowance for loan losses as it relates to a number of relevant
factors, including, but not limited to, trends in the level of nonperforming
assets and classified loans, current and anticipated economic conditions in the
primary lending area, past loss experience and possible losses arising from
specific problem assets. To a lesser extent, management also considers loan
concentrations to single borrowers and changes in the composition of the loan
portfolio. While the Board of Directors believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments, and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. At September 30, 1998,
Winton's allowance for loan losses totaled $842,000.
14
<PAGE>
The following table sets forth an analysis of Winton's allowance for losses
on loans for the periods indicated.
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $827 $857 $654 $582 $742
Charge-offs:
One- to four-family (36) (47) (28) (18) (84)
Multifamily and nonresidential
real estate - - (12) (104) (36)
Construction (4) - - - -
Consumer (7) (4) (10) - (143)
--- --- --- --- ---
Total (47) (51) (50) (122) (263)
Total recoveries 2 21 - 106 58
--- --- --- --- ---
Net charge-offs (45) (30) (50) (16) (205)
Provision for loan losses 60 - 253 88 45
--- --- --- --- ---
Balance at end of period $842 $827 $857 $654 $582
=== === === === ===
Ratio of net charge-offs during the
period to average loans
outstanding during the period (1) .02% .01% .02% .01% .11%
=== === === === ===
</TABLE>
--------------------------
(1) During the respective periods there were $299.6 million, $263.3 million,
$225.2 million, $202.8 million and $184.8 million in average loans
outstanding.
15
<PAGE>
The following table provides an allocation of Winton's allowance for loan
losses as of each of the following dates:
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996 1995 1994
(In thousands)
<S> <C> <C> <C> <C> <C>
Specific allowances
One- to four-family $ 53 $ 40 $ 80 $ - $ -
Multifamily and nonresidential
real estate - - - - -
Construction and development
- - - - -
Consumer - - - - -
Commercial business - 24 25 - -
--- --- --- --- ---
Total specific allowances 53 64 105 - -
General allowances
One- to four-family 321 310 308 268 204
Multifamily and nonresidential
real estate 350 346 339 308 276
Construction and development
10 - - - -
Consumer 100 100 100 75 100
Commercial business 8 7 5 3 2
--- --- --- --- ---
Total general allowances 789 763 752 654 582
--- --- --- --- ---
Total allowance for
possible loan losses $842 $827 $857 $654 $582
=== === === === ===
</TABLE>
Investment Activities
The OTS requires minimum levels of liquid assets. OTS regulations presently
require Winton to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of Winton's average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which Winton may rely if necessary to fund deposit
withdrawals and other short-term funding need.
The liquidity of Winton, as measured by the ratio of cash, cash equivalents
(not committed, pledged or required to liquidate specific liabilities) and
qualifying investments, mortgage-backed securities and loans to the sum of net
withdrawable savings plus borrowings payable within one year was 19.3% at
September 30, 1998. At September 30, 1998, Winton's "liquid" assets totaled
approximately $37.4 million, which was approximately $29.5 million in excess of
the current OTS minimum requirement. Winton believes that its liquidity posture
at September 30, 1998, was adequate to meet outstanding loan commitments and
other cash requirements.
16
<PAGE>
The following table presents the amortized cost and market values of
Winton's investment securities, including those designated as available for
sale, at the dates indicated:
<TABLE>
<CAPTION>
September 30,
1998 1997 1996
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. government and agency
obligations $14,858 $15,185 $12,585 $12,679 $ 9,593 $ 9,623
Available for sale:
U.S. government and agency
obligations 4,587 4,855 3,088 3,149 2,098 2,120
Corporate equity securities 103 724 103 482 189 461
------ ------ ------ ------ ------ ------
4,690 5,579 3,191 3,631 2,287 2,581
------ ------ ------ ------ ------ ------
Total $19,548 $20,764 $15,776 $16,310 $11,880 $12,204
====== ====== ====== ====== ====== ======
</TABLE>
The following table presents the contractual maturities or terms to
repricing of U.S. Government and agency obligations at carrying value and the
weighted-average yields at September 30, 1998:
<TABLE>
<CAPTION>
Maturing within Maturing within
one year after one to five years
September 30, 1998 after September 30, 1998 Total
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity $6,049 6.21% $ 8,809 5.89% $14,858 6.02%
Available for sale 100 5.13 4,487 6.24 4,587 6.22
----- ---- ------ ---- ------ ----
Total $6,149 6.20% $13,296 6.01 $19,445 6.07%
===== ==== ====== ==== ====== ====
</TABLE>
Deposits and Borrowings
General. Deposits have traditionally been the primary source of Winton's
funds for use in lending and other investment activities. In addition to
deposits, Winton derives funds from interest payments and principal repayments
on loans and mortgage-backed securities, advances from the FHLB, income on
earning assets, service charges and gains on the sale of assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions. FHLB advances are used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a longer term
basis for general business purposes.
Deposits. Historically, deposits have been attracted principally from
within Winton's primary market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW") accounts,
regular passbook savings accounts, Christmas Club accounts, term certificate
accounts and individual retirement accounts. In the recent past Winton has
utilized the services of deposit brokers to market certificates of deposit. At
September 30, 1998, the total amount of brokered deposits equaled approximately
$28.5 million, or 10.7% of total deposits.
Interest rates paid, maturity terms, service fees and withdrawal penalties
for the various types of accounts are established periodically by management of
Winton based on Winton's liquidity requirements, growth goals and interest rates
paid by competitors. In a rising interest rate environment, Winton attempts to
manage its interest rate risk by lengthening the term to maturity or repricing
of more of its deposit liabilities.
17
<PAGE>
At September 30, 1998, Winton's certificates of deposit totaled $199.3
million, or 74.9% of total deposits. Of such amount, approximately $118.1
million in certificates of deposit mature within one year. Based on past
experience and Winton's prevailing pricing strategies, management believes that
a substantial percentage of such certificates will renew with Winton at
maturity, although brokered deposits are less likely to renew than other
certificates of deposit. If there is a significant deviation from historical
experience, Winton can, to a limited extent, utilize additional borrowings from
the FHLB as an alternative to this source of funds. See "Borrowings" and
"REGULATION - Federal Home Loan Banks."
During fiscal 1998, 1997 and 1996, Winton offered certificates of deposit
with terms from 18 months to five years at rates which adjust monthly with
designated market indices, which were the prime rate or the three-year Treasury
rate. Approximately $13.3 million of these certificates of deposit were
outstanding at September 30, 1998. Because these certificates of deposit are
market rate sensitive, they increase Winton's interest rate risk. See
"Asset/Liability Management."
The following table sets forth the dollar amount of deposits in the various
types of savings programs offered by Winton at September 30, 1998:
<TABLE>
<CAPTION>
Percent
of total
Amount deposits
(In thousands)
<S> <C> <C>
Transaction accounts:
Passbook accounts (1) $ 48,175 18.1%
Christmas Club accounts (2) 187 .1
NOW accounts (3) 18,338 6.9
------- -----
Total transaction accounts 66,700 25.1
Certificates of deposit (4):
2.00 - 3.99% 100 -
4.00 - 5.99% 115,466 43.4
6.00 - 7.99% 83,353 31.3
8.00 - 9.99% 388 .2
------- -----
Total certificates of deposit 199,307 74.9
------- -----
Total deposits $266,007 100.0%
======= =====
</TABLE>
- -----------------------------
(1) Winton's weighted average interest rate on passbook accounts fluctuates
with the general movement of interest rates. The weighted average interest
rate on passbook accounts was 3.59% at September 30, 1998.
(2) Winton's weighted average interest rate paid on Christmas Club accounts
fluctuates with the general movement of interest rates. At September 30,
1998, the weighted average rate on club accounts was 3.25%.
(3) Winton's weighted average interest rate paid on NOW accounts fluctuates
with the general movement of interest rates. At September 30, 1998, the
weighted average rate on NOW accounts was .95%.
(4) Includes Individual Retirement Accounts and jumbo certificates of deposit
(those with balances in excess of $100,000). Terms of certificates of
deposit offered range from 30 days to 15 years, with the average accounts
ranging from 90 days to 5 years.
18
<PAGE>
The following table shows rate and maturity information for Winton's
certificates of deposit as of September 30, 1998:
<TABLE>
<CAPTION>
Amount Due
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
(In thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 3.99% $ - $ 100 $ - $ - $ 100
4.00 - 5.99 86,285 24,076 4,974 131 115,466
6.00 - 7.99 31,652 28,433 18,001 5,267 83,353
8.00 - 9.99 142 239 - 7 388
------- ------ ------ ----- -------
Total certificates of
deposit $118,079 $52,848 $22,975 $5,405 $199,307
======= ====== ====== ===== =======
</TABLE>
The following table presents the amount of Winton's certificates of deposit
of $100,000 or more, by the time remaining until maturity at September 30, 1998:
<TABLE>
<CAPTION>
Maturity At September 30, 1998
(In thousands)
<S> <C>
Three months or less $ 9,135
Over 3 months to 6 months 9,645
Over 6 months to 12 months 16,605
Over twelve months 29,343
------
Total $64,728
======
</TABLE>
Borrowings. During the year ended September 30, 1998, Winton's only
borrowings were FHLB advances. See "REGULATION - Federal Home Loan Banks." The
following table sets forth the maximum amount of Winton's FHLB advances
outstanding at any month-end, during the periods shown, and the average
aggregate balances of FHLB advances for such periods:
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Maximum amount of FHLB advances $77,882 $57,897 $46,376
======= ======= =======
Average amount of FHLB advances outstanding during period $61,136 $51,146 $35,292
======= ======= =======
</TABLE>
The following table sets forth certain information as to Winton's FHLB
advances at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
FHLB advances $56,899 $57,425 $46,376
======= ======= =======
Weighted average interest cost of FHLB advances during
period based on month end balances 5.94% 5.92% 5.66%
==== ==== ====
</TABLE>
19
<PAGE>
Asset/Liability Management. Winton's earnings depend primarily upon its net
interest income, which is the difference between its interest income on its
interest-earning assets, such as mortgage loans, investment securities and
mortgage-backed securities, and its interest expense paid on its
interest-bearing liabilities, consisting of deposits and borrowings. As market
interest rates change, asset yields and liability costs do not change
simultaneously. Due to maturity, repricing and timing differences of
interest-earning assets and interest-bearing liabilities, earnings will be
affected differently under various interest rate scenarios. Winton has sought to
limit these net earnings fluctuations and manage interest rate risk by
originating adjustable-rate loans and purchasing relatively short-term and
variable-rate investments and securities.
20
<PAGE>
The following table sets forth certain information relating to Winton's
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $299,643 $24,813 8.28% $263,344 $22,086 8.37%
Mortgage-backed securities -
available for sale 687 46 6.70 1,948 119 6.11
Mortgage-backed securities - held
to maturity 13,654 829 6.07 15,552 942 6.06
Investment securities - held to
maturity 13,424 826 6.15 11,785 757 6.42
Investment securities - available
for sale 4,889 279 5.71 2,007 122 6.08
Other interest-earning assets 4,331 278 6.42 3,544 5.84
-------- ------- ---- -------- ------- ----
207
Total interest-earning assets 336,628 27,071 8.04 298,180 24,233 8.13
Non-interest-earning assets 4,920 7,970
-------- --------
Total assets $341,548 $306,150
======== ========
Interest-bearing liabilities:
Deposits $251,393 13,118 5.22 $229,708 12,009 5.23
FHLB advances 61,136 3,630 5.94 51,146 3,027 5.92
-------- ------- ---- -------- -------- ----
Total interest-bearing
liabilities 312,529 16,748 5.36 280,854 15,036 5.35
-------- ------- ---- -------- -------- ----
Non-interest-bearing liabilities 3,786 3,275
-------- --------
Total liabilities 316,315 284,129
Shareholders' equity 25,233 22,021
-------- --------
Total liabilities and
shareholders' equity $341,548 $306,150
======== ========
Net interest income/
Interest rate spread $10,323 2.68% $ 9,197 2.78%
======= ==== ======== ====
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.05% 3.08%
==== ====
Average interest-earning assets to
interest-bearing liabilities 107.71% 106.17%
====== ======
Year ended September 30,
1996
Average Interest
outstanding earned/ Yield/
balance paid rate
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $225,164 $18,627 8.27%
Mortgage-backed securities -
available for sale 2,400 113 4.71
Mortgage-backed securities - held
to maturity 17,311 1,070 6.18
Investment securities - held to
maturity 9,927 636 6.41
Investment securities - available
for sale 3,228 185 5.73
Other interest-earning assets 3,049 199 6.53
--------- --------- ----
Total interest-earning assets 261,079 20,830 7.98
Non-interest-earning assets 7,283
--------
Total assets $268,362
========
Interest-bearing liabilities:
Deposits $209,879 10,700 5.10
FHLB advances 35,292 1,996 5.66
-------- -------- ----
Total interest-bearing
liabilities 245,171 12,696 5.18
-------- -------- ----
Non-interest-bearing liabilities 2,349
--------
Total liabilities 247,520
Shareholders' equity 20,842
--------
Total liabilities and
shareholders' equity $268,362
========
Net interest income/
Interest rate spread $ 8,134 2.80%
======== ====
Net interest margin (net interest
income as a percent of average
interest-earning assets) 3.02%
====
Average interest-earning assets to
interest-bearing liabilities 106.49%
======
</TABLE>
- ---------------------------
(1) Includes loans held for sale and non-accrual loans.
21
<PAGE>
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected Winton's interest income and expense during 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 (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The
combined effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
Increase (Decrease) Increase (Decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable(1) $2,968 $(241) $2,727 $3,244 $251 $3,495
Mortgage-backed securities- available for sale (83) 10 (73) (18) 24 6
Mortgage-backed securities- held to maturity (115) 2 (113) (107) (21) (128)
Investment securities - available for sale 165 (8) 157 (73) 10 (63)
Investment securities - held to maturity 101 (32) 69 120 1 121
Other interest-earning assets(2) 49 22 71 29 (21) 8
------ ----- ------ ------ ----- ------
Total interest-earning assets 3,085 (247) 2,838 3,195 244 3,439
Interest expense attributable to:
Deposits 1,132 (23) 1,109 1,031 278 1,309
Borrowings 593 10 603 933 98 1031
------ ------ ------- ------- ------ -------
Total interest-bearing liabilities 1,725 (13) 1,712 1,964 376 2,340
------ ------ ------ ------ ----- ------
Increase in net interest income $1,360 $(234) $1,126 $1,231 $(132) $1,099
====== ===== ====== ====== ===== ======
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
Winton's interest rate spread is the principal determinant of income. The
interest rate spread, and therefore net interest income, can vary considerably
over time because asset and liability repricing do not coincide. Moreover, the
long-term or cumulative effect of interest rate changes can be substantial.
Interest rate risk is defined as the sensitivity of an institution's earnings
and net asset values to changes in interest rates. The management and Board of
Directors of Winton attempt to manage Winton's exposure to interest rate risk in
a manner to maintain the projected four-quarter percentage change in net
interest income and the projected change in the market value of portfolio equity
within the limits established by the Board of Directors, assuming a permanent
and instantaneous parallel shift in interest rates.
As a part of its effort to monitor its interest rate risk, Winton reviews
the reports of the OTS which set forth the application of the "net portfolio
value" ("NPV") methodology, adopted by the OTS as part of its capital
regulations, to the assets and liabilities of Winton. Although Winton is not
currently subject to the NPV regulation, because its implementation has been
delayed by the OTS, the application of the NPV methodology may illustrate
Winton's level of interest rate risk.
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (100 basis points equals 1%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
22
<PAGE>
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution would
have to deduct 50% of the amount of the decrease in excess of such 2% in the
calculation of the institution's risk-based capital, if the regulations were in
effect. Even before the regulation is in effect, OTS could increase Winton's
risk-based capital requirement on an individualized basis to address excess
interest rate risk. See "Regulation - Office of Thrift Supervision -- Regulatory
Capital Requirements."
At September 30, 1998, 2% of the present value of Winton's assets was
approximately $7.2 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $5.9 million at September 30, 1998, Winton
would not have been required to deduct approximately $650,000 (50% of the $1.3
million difference) from its capital in determining whether Winton met its
risk-based capital requirement, if the regulation had been in effect for Winton.
Presented below, as of September 30, 1998, is an analysis of Winton's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates.
<TABLE>
<CAPTION>
September 30, 1998
Change in Interest Rate Board Limit $ Change % Change
(Basis Points) % change In NPV in NPV
(Dollars in thousands)
<S> <C> <C> <C>
+300 (75)% $(9,674) (33)%
+200 (50) (5,907) (20)
+100 (20) (2,680) (9)
0 - - -
-100 (15) 2,311 8
-200 (25) 4,847 17
-300 (35) 8,105 28
</TABLE>
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment, the
amount of interest Winton would receive on its loans would increase relatively
slowly as loans are slowly prepaid and new loans at higher rates are made.
Moreover, the interest Winton would pay on its deposits would increase rapidly
because Winton's deposits generally have shorter periods to repricing.
Assumptions used in calculating the amounts in this table are OTS assumptions.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
In the event that interest rates rise, Winton's net interest income could
be expected to be negatively affected. Moreover, rising interest rates could
negatively affect Winton's earnings due to diminished loan demand.
23
<PAGE>
The following table sets forth at the date indicated, the weighted
average yields on Winton's interest-earning assets, the weighted average
interest rates on interest-bearing liabilities, the interest rate spread and the
net interest margin on interest-earning assets.
<TABLE>
<CAPTION>
At September 30,
1998 1997 1996
<S> <C> <C> <C>
Weighted average yield on loan portfolio 8.28% 8.35% 8.18%
Weighted average yield on mortgage-backed securities 6.43 6.43 6.18
Weighted average yield on investment securities 6.11 6.50 6.43
Weighted average yield on other interest-earning assets 6.46 6.59 7.00
Weighted average yield on all interest-earning assets 8.05 8.14 7.96
Weighted average interest rate paid on deposits 5.18 5.31 5.18
Weighted average interest rate paid on borrowings 5.98 6.22 6.15
Weighted average interest rate paid on all interest-bearing 5.32 5.48 5.34
liabilities
Interest rate spread (spread between weighted average interest rate
on all interest-earning assets and all interest-bearing 2.73 2.66 2.62
liabilities)
</TABLE>
Competition
Winton competes for deposits with other savings associations, commercial
banks and credit unions and with the issuers of commercial paper and other
securities, such as shares in money market mutual funds. The primary factors in
competing for deposits are interest rates and convenience of office location. In
making loans, Winton competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage brokers
and other lenders. Winton competes for loan originations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable.
Due to Winton's size relative to the many other financial institutions in
its market area, management believes that Winton does not have a substantial
share of the deposit and loan markets.
The size of financial institutions competing with Winton is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon Winton.
Year 2000 Considerations
WFC is addressing the potential problems associated with the possibility
that the computers which control or operate Winton's operating systems may not
be programmed to read four-digit date codes and, upon arrival of the year 2000,
may recognize the two-digit code "00" as the year 1900, causing systems to fail
to function or to generate erroneous date. Other concerns have been raised
regarding February 29, 2000, as well as September 9, 1999, which are new
calculations challenges that may result in further problems.
Most significantly affected are all forms of financial accounting,
including interest computations, due dates, pensions, personnel benefits,
investments, legal commitments, valuations, fixed asset depreciation schedules,
tax filings and financial models. Additional problems may occur on other systems
using computers for processing, vault openings, check protectors and gas and
electric. The total impact is currently unknown; however, it is projected that
failure to address these programming code issues and make appropriate changes
may expose an institution to all types of risks, including credit, transaction,
liquidity, interest rate, compliance, reputation, strategic, price and foreign
exchange.
Winton has established a Year 2000 team, headed by the systems analyst, to
analyze the risk of potential problems that might arise from the failures of
computer programming to recognize the year 2000 and to develop a plan to
mitigate any such risk. Research by the team indicates that the greatest
24
<PAGE>
potential impact upon Winton is the risk related to vendors used by Winton,
particularly its data processing service bureau. Quarterly progress reports from
the service bureau indicated levels of manpower and expertise sufficient to
amend and test the adequacy of their computer programming and systems prior to
the arrival of the year 2000. All other vendors and commercial customer's have
been identified and requests for year 2000 certificates have been forwarded by
Winton.
The year 2000 team submits quarterly progress reports to the Board of
Directors and has established a target date of December 31, 1998, for all
required internal testing of each system utilized, which is expected to be
minimal. The team estimates that the impact upon the Company's results of
operations, liquidity and capital resources will be immaterial.
Management has developed a contingency plan which includes manual
procedures along with certain off-line canned programs. Management has set a
budget of approximately $100,000 to ensure WFC and Winton are year 2000
compliant.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare properly for
Year 2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. Winton is assessing such risks among
its customers. WFC could also be materially adversely affected if other third
parties, such as governmental agencies, clearing houses, telephone companies,
utilities and other service providers fail to prepare properly. Winton is
therefore attempting to assess these risks and take action to minimize their
effect.
Subsidiary Activities
Winton has no subsidiaries. WFC's only subsidiary is Winton.
Personnel
As of September 30, 1998, Winton had 93 full-time equivalent employees.
Winton believes that relations with its employees are excellent. Winton offers
health, disability, life and dependent care benefits. None of the employees of
Winton are represented by a collective bargaining unit.
REGULATION
General
WFC is a savings and loan holding company within the meaning of the Home
Owners Loan Act, as amended (the "HOLA"). Consequently, WFC is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, WFC is subject to
provisions of the Ohio Revised Code applicable to corporations generally.
As a savings and loan association chartered under the laws of Ohio, Winton
is subject to regulation, examination and oversight by the Superintendent of the
Division (the "Ohio Superintendent"). Because Winton's deposits are insured by
the FDIC, Winton also is subject to regulatory oversight by the FDIC. Winton
must file periodic reports with the OTS concerning its activities and financial
condition. Examinations are conducted periodically by federal and state
regulators to determine whether Winton is in compliance with various regulatory
requirements and is operating in a safe and sound manner. Winton is a member of
the FHLB and is subject to certain regulations promulgated by the Board of
Governors of the Federal Reserve System (the "FRB").
Congress is considering legislation to eliminate the federal savings and
loan charter and the separate federal regulation of savings and loan
associations. Pursuant to such legislation, Congress may eliminate the OTS and
Winton may be regulated under federal law as a bank or be required to change its
charter. Such change in regulation or charter would likely change the range of
activities in which Winton may engage and would probably subject Winton to more
regulation by the FDIC. In addition, WFC might become subject to a different set
of holding company regulations limiting the activities in which WFC may engage
25
<PAGE>
and subjecting WFC to additional regulatory requirements, including separate
capital requirements. At this time, WFC cannot predict when or whether Congress
may actually pass legislation regarding WFC's and Winton's regulatory
requirements or charter. Although such legislation, if enacted, may change the
activities in which WFC or Winton are authorized to engage, it is not
anticipated that the current activities of either WFC or Winton will be
materially affected by those activity limits.
Ohio Corporation Law
Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code regulates
certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination may
not occur unless (1) one of the specified exceptions applies, (2) the holders of
at least two-thirds of the voting shares, and of at least a majority of the
voting shares not beneficially owned by the Interested Shareholder, approve the
business combination at a meeting called for such purpose, or (3) the business
combination meets certain statutory criteria designed to ensure that the issuing
public corporation's remaining shareholders receive fair consideration for their
shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. Neither
WFC nor Winton has opted out of the protection afforded by Chapter 1704.
Control Share Acquisition. Section 1701.831 of the Ohio Revised Code (the
"Control Share Acquisition Statute") requires that, with certain exceptions,
acquisitions of voting securities which would result in the acquiring
shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of
an Ohio corporation (a "Control Share Acquisition") must be approved in advance
by the holders of at least a majority of the outstanding voting shares of such
corporation represented at a meeting at which a quorum is present and a majority
of the portion of the outstanding voting shares represented at such a meeting
excluding the voting shares owned by the acquiring shareholder, by certain other
persons who acquire or transfer voting shares after public announcement of the
acquisition or by certain officers of the corporation or directors of the
corporation who are employees of the corporation. The Control Share Acquisition
Statute was intended, in part, to protect shareholders of Ohio corporations from
coercive tender offers.
Takeover Bid Statute. Ohio law provides that an offeror may not make not
make a tender offer or request or invitation for tenders that would result in
the offeror beneficially owning more than ten percent of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities (the "Securities Division") and provides such
information to the target company and the offerees within Ohio. The Securities
Division may suspend the continuation of the control bid if the Securities
Division determines that the offeror's filed information does not provide full
disclosure to the offerees of all material information concerning the control
bid. The statue also provides that an offeror may not acquire any equity
security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
Ohio Savings and Loan Regulation
The Ohio Superintendent is responsible for the regulation and supervision
of Ohio savings and loan associations in accordance with the laws of the State
of Ohio and imposes assessments on Ohio associations based on their asset size
to cover the costs of supervision and examination. Ohio law prescribes the
permissible investments and activities of Ohio savings and loan associations,
26
<PAGE>
including the types of lending that such associations may engage in and the
investments in real estate, subsidiaries and corporate or government securities
that such associations may make. The ability of Ohio associations to engage in
these state-authorized investments and activities is subject to oversight and
approval by the FDIC, if such investments or activities are not permissible for
a federally-chartered savings association. The Ohio Superintendent also has
approval authority over any mergers involving, or acquisitions of control of,
Ohio savings and loan associations. The Ohio Superintendent may initiate certain
supervisory measures or formal enforcement actions against Ohio associations.
Ultimately, if the grounds provided by law exist, the Superintendent may place
an Ohio association in conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically governing
savings and loan associations, Winton is also governed by Ohio corporate law, to
the extent such law does not conflict with the laws specifically governing
savings and loan associations.
Office of Thrift Supervision
General. The OTS is an office of the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings associations and all other savings associations the deposits of which
are insured by the FDIC in the SAIF. The OTS issues regulations governing the
operation of savings associations, regularly examines such associations and
imposes assessments on savings associations based on their asset size to cover
the costs of general supervision and examination. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area.
Regulatory Capital Requirements. Winton is required by OTS regulations to
meet certain minimum capital requirements. The tangible capital requirement
requires savings associations to maintain "tangible capital" of not less than
1.5% of their adjusted total assets. Tangible capital is defined in OTS
regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 3% of their total assets. The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. Winton
does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of Winton includes a general loan loss allowance of $789,000
at September 30, 1998.
Winton met all of its capital requirements at September 30, 1998. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to the interest rate risk component, a savings association
will have to measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
such excess exposure from its total capital when determining its risk-based
27
<PAGE>
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio in excess of 12% will not be subject to the interest
rate risk component. Pending implementation of the interest rate risk component,
the OTS has the authority to impose a higher individualized capital requirement
on any savings association it deems to have excess interest rate risk. The OTS
also may adjust the risk-based capital requirement on an individualized basis to
take into account risks due to concentrations of credit and non-traditional
activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations will be subject to increased monitoring and
asset growth restrictions and will be required to obtain prior approval for
acquisitions, branching and engaging in new lines of business. Furthermore,
critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. Under such regulations, unless an association has
received the highest possible examination rating, the association will be
subject to restrictive action by the OTS if it does not maintain core capital of
at least 4%. Winton's capital at September 30, 1998, met the standards for the
highest category, a "well-capitalized" institution.
Federal law prohibits a savings association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized and (b) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.
Liquidity. OTS regulations require that a savings association maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than 4.0% of its net
withdrawable savings deposits payable in one year plus borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet these liquidity requirements. The eligible liquidity of Winton at September
30, 1998, was approximately $37.4 million, or 19.3%, and exceeded the 4.0%
liquidity requirement by approximately $29.5 million.
Qualified Thrift Lender Test. Savings associations are required to meet the
QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include credit
card, student and small business loans and stock issued by any FHLB, the FHLMC
or the FNMA. Under such test, 65% of an institution's "portfolio assets" (total
assets less goodwill and other intangibles, property used to conduct business
and 20% of liquid assets) must consist of QTI on a monthly average basis in nine
out of every 12 months. Effective September 30, 1996, a savings association may
also qualify as a QTL by meeting the definition of "domestic building and loan
association" under the Internal Revenue Code of 1986, as amended (the "Code").
In order for an institution to meet the definition of a "domestic building and
loan association" under the Code, at least 60% of such institution's assets must
consist of specified types of property, including cash loans secured by
residential real estate or deposits, educational loans and certain governmental
obligations. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings association fails to meet the QTL test, the
association and its holding company become subject to certain operating and
regulatory restrictions. A savings association that fails to meet the QTL test
will not be eligible for new FHLB advances. At September 30, 1998, Winton met
the QTL test.
Lending Limit. OTS regulations generally limit the aggregate amount that a
savings association can lend to one borrower to an amount equal to 15% of the
association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
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marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying the limit on
loans to one borrower, the regulations require that loans to certain related
borrowers be aggregated. At September 30, 1998, Winton was in compliance with
this lending limit.
Transactions with Insiders and Affiliates. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. Winton was in compliance with such
restrictions at September 30, 1998.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. WFC is an
affiliate of Winton. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. Winton was in
compliance with these requirements and restrictions at September 30, 1998.
Limitations on Capital Distributions. The OTS imposes various restrictions
or requirements on the ability of associations to make capital distributions,
including dividend payments. An association which has converted from mutual to
stock form is prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. OTS
regulations also establish a three-tier system limiting capital distributions
according to ratings of associations based on their capital level and
supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, and (ii) the amount authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association. Winton meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision.
As a subsidiary of WFC, Winton is required to give the OTS 30 days' notice
prior to declaring any dividend on its stock. The OTS may object to the
distribution during such 30-day period based on safety and soundness concerns.
Holding Company Regulation. WFC is a savings and loan holding company
within the meaning of the HOLA. As such, WFC has registered with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by WFC.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
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As a unitary savings and loan holding company, WFC generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities and
insurance activities without restriction. Congress is considering legislation
which may limit WFC's ability to engage in these activities. It cannot be
predicted whether and in what form these proposals might become law. However,
such limits would not impact WFC's current activities, which consist solely of
holding stock of Winton. The broad latitude to engage in activities under
current law can be restricted. If the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of WFC and its
affiliates may be imposed on the savings association. Notwithstanding the
foregoing rules as to permissible business activities of a unitary savings and
loan holding company, if the savings association subsidiary of a holding company
fails to meet the QTL test, then such unitary holding company would become
subject to the activities restrictions applicable to multiple holding companies.
At September 30, 1998, Winton met both those tests.
If WFC acquired control of another savings institution, other than through
a merger or other business combination with Winton, WFC would become a multiple
savings and loan holding company. Unless the acquisition was an emergency thrift
acquisition and each subsidiary savings association met the QTL test, the
activities of WFC and any of its subsidiaries (other than Winton or other
subsidiary savings associations) would thereafter be subject to activity
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof that is not a savings institution
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for a
subsidiary savings institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding companies,
or (vii) those activities authorized by the FRB as permissible for bank holding
companies, unless the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve acquisitions resulting in the formation of a multiple
savings and loan holding company that controls savings associations in more than
one state only if the multiple savings and loan holding company involved
controls a savings association that operated a home or branch office in the
state of the association to be acquired as of March 5, 1987, or if the laws of
the state in which the institution to be acquired is located specifically permit
institutions to be acquired by state-chartered institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).
As under prior law, the OTS may approve an acquisition resulting in a multiple
savings and loan holding company controlling savings associations in more than
one state in the case of certain emergency thrift acquisitions. Bank holding
companies have had more expansive authority to make interstate acquisitions than
savings and loan holding companies since August 1995.
Federal Regulation of Acquisitions of Control of WFC and Winton. In
addition to the Ohio law limitations on the merger and acquisition of Winton and
WFC, federal limitations generally require regulatory approval of acquisitions
at specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
Winton or WFC without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition as a savings and loan
holding company.
In addition, any merger of Winton must be approved by the OTS as well as
the Superintendent. Further, any merger of WFC in which WFC is not the resulting
company must also be approved by both the OTS and the Superintendent.
Federal Deposit Insurance Corporation
Deposit Insurance and Assessments. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
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safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
Winton is a member of the SAIF and its deposit accounts are insured by the FDIC
up to the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including Winton, and has authority to initiate
enforcement actions against federally-insured savings associations if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in the SAIF
and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Prior to September 1996, the SAIF's ratio of reserves to insured deposits
was significantly below the level required by law, while the BIF's ratio was
above the required level. As a result, institutions with SAIF-insured deposits
were paying higher deposit insurance assessments than institutions with
BIF-insured deposits. Federal legislation providing for the recapitalization of
the SAIF became effective in September 1996 and included a special assessment of
$.657 per $100 of SAIF-insured deposits held at March 31, 1995. Winton had
approximately $195.6 million in deposits at March 31, 1995, and paid a special
assessment of $1.3 million.
State-Chartered Association Activities. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or subject to
different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of Winton'
activities and investments at September 30, 1998, were permissible for a federal
association.
FRB Reserve Requirements
Effective December 1, 1998, FRB regulations require savings associations to
maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up
to $46.5 million (subject to an exemption of up to $4.9 million), and of 10% of
net transaction accounts in excess of $46.5 million. At September 30, 1998,
Winton was in compliance with the present reserve requirements and the
requirements then in effect.
Federal Home Loan Banks
The FHLBs provide credit to their members in the form of advances. Winton
is a member of the FHLB of Cincinnati and must maintain an investment in the
capital stock of the FHLB of Cincinnati in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of Winton's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 5% of its advances from the FHLB of Cincinnati. Winton was in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $4.0 million at September 30, 1998.
FHLB advances to member institutions who meet the QTL Test are generally
limited to the lower of (i) 25% of the member's assets or (ii) 20 times the
member's investment in FHLB stock. At September 30, 1998, Winton's maximum limit
on advances was approximately $80.0 million. The granting of advances is also
subject to the FHLB's collateral and credit underwriting guidelines.
Upon the origination or renewal of a loan or advance, the FHLB is required
by law to obtain and maintain a security interest in collateral in one or more
of the following categories: fully-disbursed, whole first mortgage loans on
improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the United States
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
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The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
Federal Taxation
WFC and Winton are each subject to the federal tax laws and regulations
which apply to corporations generally. In addition to the regular income tax,
WFC and Winton may be subject to an alternative minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Winton's average gross receipts for the three tax years ending on September
30, 1998, is $25.8 million and as a result, Winton does not qualify as a small
corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as Winton, were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of two reserve methods of
Section 593 of the Code. The reserve methods under Section 593 of the Code
permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, Winton used the percentage of taxable income method.
The Act eliminated the percentage of taxable income method of accounting
for bad debts by thrift institutions, effective for taxable years beginning
after 1995. Thrift institutions that are treated as small banks are allowed to
utilize the experience method applicable to such institutions, while thrift
institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing reserves
for bad debt will treat such change as a change in the method of accounting,
initiated by the taxpayer and having been made with the consent of the Secretary
of the Treasury. Section 481(a) of the Code requires certain amounts to be
recaptured with respect to such change. Generally, the amounts to be recaptured
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will be determined solely with respect to the "applicable excess reserves" of
the taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, beginning with the first taxable
year beginning after 1995, subject to the residential loan requirement described
below. In the case of a thrift institution that is treated as a large bank, the
amount of the institution's applicable excess reserves generally is the excess
of (i) the balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses on
nonqualifying loans (all other types of loans) as of the close of its last
taxable year beginning before January 1, 1996, over (ii) the balances of such
reserves as of the close of its last taxable year beginning before January 1,
1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that
is treated as a small bank, like Winton, the amount of the institution's
applicable excess reserves generally is the excess of (i) the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988
reserves or (b) what the thrift's reserves would have been at the close of its
last year beginning before January 1, 1996, had the thrift always used the
experience method.
For taxable years that begin after December 31, 1995, and before January 1,
1998, if a thrift meets the residential loan requirement for a tax year, the
recapture of the applicable excess reserves otherwise required to be taken into
account as a Code Section 481(a) adjustment for the year will be suspended. A
thrift meets the residential loan requirement if, for the tax year, the
principal amount of residential loans made by the thrift during the year is not
less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by Winton to WFC is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and the gross
income of Winton for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of September 30, 1998, the pre-1988 reserves of Winton for tax purposes
totaled approximately $1.1 million. Winton believes it had approximately $19.7
million of accumulated earnings and profits for tax purposes as of September 30,
1998, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether Winton will have current or accumulated earnings and
profits in subsequent years.
The tax returns of Winton have been audited or closed without audit through
fiscal year 1994. In the opinion of management, any examination of open returns
would not result in a deficiency which could have a material adverse effect on
the financial condition of Winton.
Ohio Taxation
WFC is subject to the Ohio corporation franchise tax, which, as applied to
WFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times
taxable net worth. For tax years beginning after December 31, 1998, the rate of
tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable
income and 8.5% of computed Ohio taxable income in excess of $50,000 or (ii)
.400% times taxable net worth.
A special litter tax is also applicable to all corporations, including WFC,
subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
Winton is a "financial institution" for State of Ohio tax purposes. As
such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of the taxable book
net worth of Winton determined in accordance with generally accepted accounting
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principles. For tax year 1999, however, the franchise tax on financial
institutions will be 1.4% of the taxable book net worth and for tax year 2000
and years thereafter the tax will be 1.3% of the taxable book net worth. As a
"financial institution," Winton is not subject to any tax based upon net income
or net profits imposed by the State of Ohio.
Item 2. Description of Property
The following table sets forth certain information at September 30, 1998,
regarding the properties on which the main office and each branch office of
Winton is located:
<TABLE>
<CAPTION>
Owned Date Square Net
Location or leased acquired footage book value (1)
- -------- --------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Main office:
5511 Cheviot Road owned/leased (2) 1967 8,600 $853
Cincinnati, Ohio 45247
Branch offices:
601 Main Street leased N/A 4,100 -
Cincinnati, Ohio 45202
4517 Vine Street
Cincinnati, Ohio 45217 owned 1932 2,600 $ 75
10575 Harrison Avenue
Harrison, Ohio 45030 owned 1981 4,800 $367
7014 Vine Street
Cincinnati, Ohio 45216 owned 1897 3,200 $ 91
</TABLE>
- -----------------------------
(1) Net book value amounts are for land, building and improvements.
(2) In January 1990, Winton entered into a lease agreement pursuant to which it
leases a building containing approximately 3,750 square feet adjacent to
Winton's main office on Cheviot Road. The initial term of the lease was
three years, renewable for seven successive three year periods. Winton has
the right to purchase the building during the term of the lease. In January
1996 the lease was renewed for an additional three year period.
Winton also owns furniture, fixtures and various bookkeeping and accounting
equipment. The net book value of Winton's investment in office premises and
equipment totaled $2.9 million at September 30, 1998.
Item 3. Legal Proceedings
A class action complaint was filed against Winton on September 28, 1998, in
the Court of Common Pleas of Hamilton County Ohio. The case is styled Spencer v.
Winton Savings & Loan Co., et al., Case # A9805495 and alleges that Winton
violated Ohio Revised Code ss. 5301.36 by failing to record mortgage
satisfactions within 90 days from the date of satisfaction. Currently, only
David and Kellie Spencer, a single mortgagor of Winton's, have sued; however,
there are class action allegations in the complaint. To date, there has been no
motion to certify the class. Ohio Revised Code ss.5301.35 states that a
mortgagor may recover $250 in a civil action if the 90-day provision is
violated, but does not preclude any other legal remedies to which an aggrieved
mortgagor may be entitled. In this case, plaintiffs seek statutory damages in
the amount of $250, and all other relief to which they may be entitled. Until
the class is certified, management cannot predict Winton's total exposure.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders of WFC during
the last quarter of fiscal year ended September 30, 1998.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information contained in those portions of the Annual Report to
Shareholders for the fiscal year ended September 30, 1998 (the "Annual Report"),
which are included in Exhibit 13 hereto under the caption "MARKET PRICE OF
WINTON FINANCIAL'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS" is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in those portions of the Annual Report included
in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated herein by
reference.
Item 7. Consolidated Financial Statements
The Consolidated Financial Statements contained in those portions of the
Annual Report included in Exhibit 13 hereto are incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
This information is included under the heading "Asset/Liability Management"
in Item 1, "Description of Business," on pages 20 through 24 of this document.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained in the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders of Winton Financial Corporation (the "Proxy
Statement"), which is included in Exhibit 20 hereto, under the captions "BOARD
OF DIRECTORS," "EXECUTIVE OFFICERS" and "VOTING SECURITIES AND OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
Item 10. Executive Compensation
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Not applicable
35
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 3 Amended Articles of Incorporation and Code of
Regulations
Item 10 Material Contracts
Item 13 Portions of the 1998 Annual Report to Shareholders
Item 20 Proxy Statement for 1999 Meeting of Shareholders
Item 21 Subsidiaries of the Registrant
Item 23 Consent of Grant Thornton LLP regarding WFC's
Consolidated Financial Statements and Forms S-8 for
WFC's 1988 Stock Option Plan and 401(k) Profit
Sharing Plan
Item 27.1 1998 Financial Data Schedule
Item 27.2 Restated 1997 Financial Data Schedule
Item 99.1 Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
Item 99.2 Form 5500 for fiscal year ended
September 30, 1997, for the Winton
Savings & Loan Company 401(k) Profit
Sharing Plan
(b) No current report on Form 8-K was filed by WFC during the
last quarter of the fiscal year covered by this Report.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on December 18, 1998.
WINTON FINANCIAL CORPORATION
By /s/ Robert L. Bollin
Robert L. Bollin,
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Jill M. Burke By /s/ Robert J. Bollin
Jill M. Burke, Robert J. Bollin,
Principal Financial Officer Director
and Principal Accounting
Officer
Date: December 18, 1998 Date: December 18, 1998
By /s/ Robert E. Hoeweler By /s/ Thomas H. Humes
Robert E. Hoeweler, Thomas H. Humes,
Director Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ Timothy M. Mooney By /s/ William J. Parchman
Timothy M. Mooney, William J. Parchman,
Director Director
Date: December 18, 1998 Date: December 18, 1998
By /s/ Henry L. Schulhoff By /s/ J. Clay Stinnett
Henry L. Schulhoff, J. Clay Stinnett,
Director Director
Date: December 18, 1998 Date: December 18, 1998
36
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
3.1 Articles of Incorporation, as amended through February 1, Incorporated by reference to the Current
1995, of Winton Financial Corporation Report on Form 8-K dated June 21, 1995 and
filed by WFC (the "8-K") with the
Securities and Exchange Commission (the
"SEC"), Exhibit 4a
3.2 Regulations of Winton Financial Corporation Incorporated by reference to the current
annual report on the 8-K filed by WFC with
the SEC, Exhibit 4b
10.1 The Winton Savings and Loan Co. Employee Incorporated by reference to the Form S-4
Stock Ownership Plan Registration Statement filed by WFC with
the SEC on November 30, 1989 (the "1989
Form S-4")
10.2 Amendment No. 1 to the Winton Savings and
Loan Co. Employee Stock Ownership Plan
10.3 Amendment No. 2 to The Winton Savings and
Loan Co. Employee Stock Ownership Plan
10.4 The Winton Savings and Loan Co. 1988 Incorporated by reference to the definitive
Employee Stock Option and Incentive Plan Proxy Statement for the 1995 Annual Meeting
of Shareholders filed by WFC with the SEC
on January 6, 1995
10.5 Employment Agreement between WFC, Winton and Robert L. Incorporated by reference to Quarterly
Bollin, dated May 22, 1998 Report on Form 10-QSB for the quarter ended
June 30, 1998, filed by WFC with the SEC
in August 1998 (the "6/98 10-QSB"),
Exhibit 10.2
10.6 Employment Agreement between WFC, Winton and Gregory J. Incorporated by reference to the 6/98
Bollin, dated May 22, 1998 10-QSB, Exhibit 10.1
10.7 Employment Agreement between WFC, Winton and James M. Incorporated by reference to Quarterly
Brigger, dated May 1, 1996 Report Form 10-QSB for the quarter ended
June 30, 1996 filed by WFC with the SEC
in August, 1996 (the "6/96 10-QSB")
10.8 Employment Agreement between WFC, Winton and Jill M. Burke, Incorporated by reference to the 6/96 10-QSB
dated May 1, 1996
10.9 Employment Agreement between WFC, Winton and Mary Ellen Incorporated by reference to the 6/96 10-QSB
Lovett
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.10 Employment Agreement between WFC, Winton and Anthony G. Incorporated by reference to the 6/96 10-QSB
Gerstner, dated May 1, 1996
10.11 Severance Agreement between WFC and Jill M. Burke, dated Incorporated by reference to the 6/98
May 22, 1998 10-QSB, Exhibit 10.3
13 Portions of the Winton Financial Corporation 1998 Annual
Report to Shareholders
20 Proxy Statement for the 1999 Annual Meeting of Shareholders
of Winton Financial Corporation
21 Subsidiaries of the Registrant Incorporated by reference to the Annual
Report on Form 10-KSB for the fiscal year
ended September 30, 1996, filed by WFC with
the SEC on December 24, 1996, Exhibit 21
23.1 Consent of Grant Thornton LLP regarding WFC's Consolidated
Financial Statements and Forms S-8 for WFC's 1988 Stock
Option Plan and 401(k) Profit Sharing Plan
27.1 1998 Financial Data Schedule
27.2 Restated 1997 Financial Data Schedule
99.1 Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
99.2 Form 5500 for fiscal year ended September 30, 1997, for the
Winton Savings & Loan Company 401(k) Plan
</TABLE>
38
AMENDMENT NO. 1
TO THE
WINTON SAVINGS & LOAN CO.
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Winton Savings & Loan Co. ("Employer") has adopted an
Employee Stock Ownership Plan ("Plan"); and
WHEREAS, the Plan provides that the Employer may amend the Plan from
time to time; and\
WHEREAS, the Employer desires to amend the plan in certain respects;
NOW, THEREFORE, the Plan is amended as follows:
1. Section 2.03 shall be amended by deleting it in its entirety and
substituting the following therefor:
"2.03. Limitations on Annual Additions
ANNUAL ADDITIONS to each PARTICIPANT'S ACCOUNTS shall not exceed
the lesser of (a) $30,000 (or if greater, 1/4th of the defined benefit
dollar limitation in effect under CODE Section 415(b)(1) for the
LIMITATION YEAR); or (b) 25% of the PARTICIPANT'S compensation for the
LIMITATION YEAR. For any PLAN YEAR in which the conditions of CODE
Section 415(c)(6) are satisfied by the PLAN, the limitations contained
in this Section 2.03 shall be adjusted to the maximum amount permitted
under such section of the CODE. For purposes of this section, the
portion of such EMPLOYER contribution which is deemed to be allocated
to a PARTICIPANT'S ACCOUNT shall be an amount which bears the same
ratio to the total contribution made by or on behalf of the EMPLOYER
for such PLAN YEAR which is used to repay principal on one or more
PLAN loans, or to purchase EMPLOYER SHARES, as the number of EMPLOYER
SHARES allocated to such PARTICIPANT'S ACCOUNT on the anniversary date
of such PLAN YEAR bears to the total number of EMPLOYER SHARES
allocated to the ACCOUNTS of all PARTICIPANTS on the anniversary date
of such PLAN YEAR. Notwithstanding the provisions of Section 24.01,
the term 'ANNUAL ADDITIONS' shall not include any amounts credited to
the PARTICIPANT'S ACCOUNT (a) due to EMPLOYER contributions relating
to interest payments on a PLAN loan; or (b) attributable to a
FORFEITURE of EMPLOYER SHARES acquired with the proceeds of a PLAN
loan.
1
<PAGE>
For purposes of this Section 2.03, 'compensation' shall mean
compensation as defined in Treasury Regulation Section 1.415-2(d) and
shall include wages, salaries, fees for professional services,
percentage of profits, earned income in the case of a self-employed
PARTICIPANT, disability payments under CODE Section 105(d), paid or
reimbursed moving expenses to the extent not deductible by the
PARTICIPANT, medical reimbursement items and the value of a
non-qualified stock option to the extent includable in an EMPLOYEE'S
gross income upon making the election under CODE Section 83(b).
Specifically excluded are salary deferral contributions; contributions
to the distributions from most deferred compensation plans; amounts
realized from the sale of a non-qualified stock option plan or from
the sale, exchange or other disposition of stock acquired under a
qualified stock option plan and most amounts which receive special tax
benefits."
2. Section 12.02 shall be amended by deleting it in its entirety and
substituting the following therefor:
"12.02. Timing of Payments
(a) Unless the PARTICIPANT or BENEFICIARY elects otherwise, the
payment of retirement, death and disability benefits shall begin no
later than 60 days after the latest of the close of the PLAN YEAR in
which (i) the PARTICIPANT attains his NORMAL RETIREMENT AGE; (ii)
occurs the tenth anniversary of the year in which the PARTICIPANT
commenced participation in the PLAN; or (iii) the PARTICIPANT
terminates service with the EMPLOYER.
(b) Any termination benefits not paid in accordance with Section
12.05 shall be deferred, unless otherwise elected by the PARTICIPANT,
until the 60th day after the beginning of the PLAN YEAR following the
earlier of (i) the PARTICIPANT'S NORMAL RETIREMENT AGE; or (ii) the
fifth anniversary of the date on which the PARTICIPANT terminated his
employment with the EMPLOYER.
Notwithstanding any other provisions in this PLAN, benefit
payments shall commence under this PLAN by the April 1 following the
end of the calendar year in which the PARTICIPANT attains age 70 1/2.
For purposes of this PLAN, benefits are considered to have commenced
as of the first day on which all events have occurred which entitle
the PARTICIPANT to such benefit."
3. Section 12.05 shall be amended by deleting the first two
paragraphs thereof and substituting the following therefor:
"If a PARTICIPANT terminates service and the value of his
nonforfeitable ACCOUNT never exceeded $3,500, the PARTICIPANT shall
receive a distribution of the value of the entire nonforfeitable
portion of such ACCOUNT on the first day of the month coincident with
or following the date on which he has incurred a ONE-YEAR BREAK IN
SERVICE; and the remainder of such ACCOUNT will be treated as a
FORFEITURE.
If a PARTICIPANT terminates service and the value of his
nonforfeitable ACCOUNT ever exceeded $3,500 and he elects to receive
the value of his nonforfeitable ACCOUNT, he shall receive such
nonforfeitable ACCOUNT on the first day of the month coincident with
or following the date on which he has incurred a ONE-YEAR BREAK IN
SERVICE; and the remainder of such ACCOUNT will be treated as a
FORFEITURE."
2
<PAGE>
4. Section 12 shall be amended by adding a new paragraph 12.07 to
the end thereof:
"12.07. Right of First Refusal
(a) During any period when EMPLOYER SHARES are not publicly
traded, all distributions of such SHARES from ACCOUNTS to any
PARTICIPANT or his BENEFICIARY by the PLAN shall be subject to a
'right of first refusal' upon the terms and conditions hereinafter set
forth. The 'right of first refusal' shall provide that prior to any
transfer (as determined by the PLAN ADMINISTRATOR) of the SHARES, the
PARTICIPANT or BENEFICIARY must first offer to sell such SHARES to the
PLAN; and if the PLAN refuses to exercise its right to purchase the
SHARES, then the EMPLOYER shall have a 'right of first refusal' to
purchase such SHARES. Neither the PLAN nor the EMPLOYER shall be
required to exercise the 'right of first refusal'. This Section 12.07
shall not be operative unless and until the Board of Directors of the
EMPLOYER so directs.
(b) The terms and conditions of the 'right of first refusal'
shall be determined as follows:
(i) If the PARTICIPANT or BENEFICIARY receives a bona fide
offer for the purchase of all or any part of his EMPLOYER SHARES
from a third party, the PARTICIPANT or BENEFICIARY shall
forthwith deliver (by registered mail, return receipt requested)
a copy of any such offer to the PLAN ADMINISTRATOR. The TRUSTEE
(as directed by the PLAN ADMINISTRATOR) or the EMPLOYER, as the
case may be, shall then have 14 days after receipt by the PLAN
ADMINISTRATOR of the written offer to exercise the right to
purchase all or any portion of the SHARES.
(ii) The selling price and other terms under the 'right of
first refusal' must not be less favorable to the PARTICIPANT or
BENEFICIARY than the purchase price and other terms offered by a
buyer other than the EMPLOYER or the PLAN, making a good faith
offer to purchase the security."
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed the amendment effective as
of June 8, 1988.
WINTON SAVINGS & LOAN CO.
By /s/ James W. Brigger
Title: Vice President
Date: 6/27/90
4
AMENDMENT NO. 2
TO THE
WINTON SAVINGS & LOAN CO.
EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Winton Savings & Loan Co. ("Employer") has adopted an
Employee Stock Ownership Plan ("Plan"); and
WHEREAS, the Plan provides that the Employer may amend the Plan from
time to time; and
WHEREAS, the Employer desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan is amended as follows:
1. The name of the Plan shall be amended to read The Winton Financial
Corporation Employee Stock Ownership Plan.
2. Section 24.10 shall be amended by deleting it in its entirety and
substituting the following therefor: "'EMPLOYER' means the Winton Financial
Corporation and any other member of a controlled group."
3. Section 24.24 shall be amended by deleting it in its entirety and
substituting the following therefor:
"'PLAN' means The Winton Financial Corporation Employee
Stock Ownership Plan and any amendments made hereto."
IN WITNESS WHEREOF, the undersigned has executed the amendment
effective as of October 1, 1990.
WINTON SAVINGS & LOAN CO.
By James W. Brigger
Title: Vice President
Date: 10/1/90
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Since 1990, Winton Financial's activities primarily have been limited to owning
the outstanding common shares of Winton Savings. Therefore, the discussion that
follows focuses on the comparison of Winton Savings' operations in fiscal 1998,
fiscal 1997 and fiscal 1996.
Forward-Looking Statements
In the following pages, management presents an analysis of Winton Financial's
financial condition as of September 30, 1998, and the results of operations for
fiscal 1998, compared to prior years. In addition to this historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, Winton Financial's
operations and Winton Financial'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
Financial's general market area.
Without limiting the foregoing, some of the statements in the following
referenced sections of this discussion and analysis are forward-looking and are
therefore, subject to such risks and uncertainties:
1. Management's analysis of the interest rate risk of Winton Savings as set
forth under "Asset/Liability Management;"
2. Management's discussion of the liquidity of Winton Savings' assets and the
regulatory capital of Winton Savings as set forth under "Liquidity and
Capital Resources;"
3. The discussion of the anticipated effect of legislation that may be enacted
as set forth under "Charter Unification Legislation;" and
4. Management's determination of the amount and adequacy of the allowance for
loan losses as set forth under "Discussion of Changes in Financial
Condition from September 30, 1997 to September 30, 1998," "Comparison of
Results of Operations for the Fiscal Years Ended September 30, 1998 and
1997" and "Comparison of Results of Operations for the Fiscal Years Ended
September 30, 1997 and 1996."
5. Management's determination of the effects of the year 2000 on Winton
Financial's information technology systems as set forth under "Year 2000
Compliance Issues".
6. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements".
1
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1997 to
September 30, 1998
Winton Financial's consolidated assets totaled $354.2 million at September 30,
1998, an increase of $29.7 million, or 9.2%, over September 30, 1997 levels. The
current year's growth followed an increase in assets of $32.2 million, or 11.0%,
during fiscal 1997. Winton Financial's growth over the last two years is
generally indicative of management's efforts to increase net interest income
levels by effectively levering the capital base. Fiscal 1998 growth was
primarily funded by growth in deposits of $25.7 million and an increase in
shareholders' equity of $3.6 million, which were partially offset by a decrease
in advances from the FHLB of $526,000.
Cash and interest-bearing deposits increased during fiscal 1998 by $1.4 million,
or 51.3%, to a total of $4.2 million at September 30, 1998. Investment
securities totaled $20.4 million at September 30, 1998, an increase of $4.2
million, or 26.0%, over 1997 levels. This increase resulted from purchases
totaling $10.4 million during fiscal 1998, which were partially offset by
maturities of $6.7 million.
Loans receivable, including loans held for sale, increased by $24.8 million, or
8.8%, during fiscal 1998 to a total of $305.3 million. The increase is generally
indicative of the favorable interest rate spreads that were available on the
Company's portfolio loans during the year ended September 30, 1998. During
fiscal 1998, loan origination volume totaled $227.8 million, an increase of
$80.2 million, or 54.3%, over fiscal 1997. The growth in the loan portfolio
consisted primarily of $3.6 million of multi-family residential loans, $4.5
million of residential construction, $21.1 million of nonresidential real
estate, construction and land loans and $3.2 million of consumer loans, offset
by a decrease of $6.6 million in one- to four-family residential loans and a
$5.3 million increase in the level of undisbursed loans in process. Loan sales
volume totaled $110.5 million during fiscal 1998, an increase of $56.7 million,
or 105.3%, over fiscal 1997 levels.
At September 30, 1998, the allowance for loan losses of Winton Savings totaled
$842,000, an increase of $15,000 over the level maintained at September 30,
1997. At September 30, 1998, the allowance represented approximately .27% of the
total loan portfolio and 78.9% of total non-performing loans. At that date, the
ratio of total non-performing loans to total loans amounted to .34% as compared
to .16% at September 30, 1997. Although management believes that its allowance
for loan losses at September 30, 1998, was adequate based on the available facts
and circumstances, there can be no assurance that additions to such allowance
will not be necessary in future periods, which could adversely affect Winton
Financial's results of operations.
Deposits totaled $266.0 million at September 30, 1998, an increase of $25.7
million, or 10.7%, over 1997 levels. This increase was comprised of $23.2
million of growth in certificates of deposit and an increase of $2.5 million in
transaction accounts. During fiscal 1997, management elected to employ a
strategy to achieve growth in the deposit portfolio that included acquisition of
brokered certificates of deposit. Such brokered deposits totaled $28.5 million
at September 30, 1998.
2
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1997 to
September 30, 1998 (continued)
Advances from the FHLB totaled $56.9 million at September 30, 1998, a decrease
of $526,000, or 0.9%, from the amount outstanding at September 30, 1997.
Management generally utilizes such advances as an alternative source of funding
for loan origination volume.
Shareholders' equity totaled $26.9 million at September 30, 1998, an increase of
$3.6 million, or 15.5%, over the September 30, 1997 total. The increase resulted
from net earnings of $4.1 million, coupled with a $288,000 increase in the net
unrealized gains on securities designated as available for sale and $274,000 in
proceeds from the exercise of stock options, which were partially offset by
dividends on common shares totaling $1.0 million.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997
General
Net earnings for fiscal 1998 totaled $4.1 million, an increase of $831,000, or
25.8%, over the $3.2 million in net earnings recorded in fiscal 1997. The
increase in net earnings was primarily attributable to a $1.1 million increase
in net interest income, and a $561,000 increase in other income, which were
partially offset by an increase of $60,000 in the provision for losses on loans,
an increase of $414,000 in general, administrative and other expense and an
increase of $382,000 in the provision for federal income taxes.
Net Interest Income
Total interest income amounted to $27.1 million for fiscal 1998, an increase of
$2.8 million, or 11.7%, over fiscal 1997. The increase resulted primarily from a
$38.5 million, or 12.9%, increase in average interest-earning assets year to
year. Interest income on loans and mortgage-backed securities totaled $25.7
million in fiscal 1998, an increase of $2.5 million, or 11.0%, over fiscal 1997.
This increase resulted primarily from a $33.1 million, or 11.8%, increase in the
average balance outstanding, offset by a decrease in yield, from 8.24% in 1997
to 8.18% in 1998. Interest income on investment securities and interest-bearing
deposits totaled $1.4 million, a $297,000, or 27.3%, increase over fiscal 1997,
due primarily to a $5.3 million increase in the average balance outstanding,
offset by a decrease in yield from 6.27% in 1997 to 6.11% in 1998.
Interest expense on deposits totaled $13.1 million for fiscal 1998, an increase
of $1.1 million, or 9.2%, over fiscal 1997. The increase resulted primarily from
a $21.7 million, or 9.4%, increase in the average balance outstanding. Interest
expense on borrowings totaled $3.6 million, an increase of $603,000, or 19.9%,
from fiscal 1997, due primarily to a $10.0 million, or 19.5%, increase in the
average balance outstanding, coupled with an increase of 2 basis points in the
average cost of borrowings to 5.94% in fiscal 1998.
3
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 12.2%, to a total of $10.3
million for fiscal 1998, as compared to fiscal 1997. The interest rate spread
declined by 10 basis points, from 2.78% for fiscal 1997 to 2.68% for fiscal
1998. The net interest margin amounted to 3.07% for fiscal 1998, as compared to
3.08% for fiscal 1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $60,000
provision for losses on loans during fiscal 1998, due primarily to growth in the
loan portfolio during the year. There can be no assurance that the allowance for
loan losses of the Company will be adequate to cover losses on nonperforming
assets in the future.
Other Income
Other income totaled $2.2 million for the fiscal year ended September 30, 1998,
an increase of $561,000, or 34.7%, compared to fiscal 1997, due primarily to a
$728,000 increase in gain on sale of loans and a $53,000 increase in other
operating income, which were partially offset by a $152,000 decrease in mortgage
servicing fees, a $36,000 decrease in the gain on sale of investments and
mortgage-backed securities designated as available for sale and a $32,000
decrease in the gain on sale of real estate acquired through foreclosure. The
increase in the gain on sale of loans was due primarily to the aforementioned
increase in the volume of loan sales during fiscal 1998.
General, Administrative and Other Expense
General, administrative and other expense totaled $6.3 million for fiscal 1998,
an increase of $414,000, or 7.0%, over fiscal 1997. The increase resulted
primarily from an increase of $170,000, or 5.8%, in employee compensation and
benefits, a $95,000, or 7.8%, increase in occupancy and equipment, a $38,000, or
14.4%, increase in franchise taxes, a $69,000, or 40.8%, increase in advertising
and a $98,000, or 9.2%, increase in other operating expense, which were
partially offset by a $56,000, or 27.2%, decrease in federal deposit insurance
premiums.
4
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
General, Administrative and Other Expense (continued)
The increase in employee compensation and benefits resulted primarily from
normal merit increases coupled with an increase in staffing levels year to year.
The increase in other operating expenses was due primarily to an increase in
costs generally related to the increased loan origination volume and an increase
in overall operating costs related to the Corporation's growth year to year.
Federal Income Taxes
The provision for federal income taxes increased by $382,000, or 22.7%, for the
fiscal year ended September 30, 1998, as compared to fiscal 1997. This increase
resulted primarily from the increase in net earnings before taxes of $1.2
million, or 24.7%. Winton Financial's effective tax rates amounted to 33.7% and
34.3% for the fiscal years ended September 30, 1998 and 1997, respectively.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996
General
Net earnings for fiscal 1997 totaled $3.2 million, a $2.0 million, or 173.2%,
increase over the $1.2 million in net earnings recorded in fiscal 1996. The
increase in net earnings was primarily attributable to a $1.3 million charge
recorded in fiscal 1996 related to the recapitalization of the Savings
Association Insurance Fund ("SAIF"), coupled with a $1.1 million increase in net
interest income, a $253,000 decline in the provision for losses on loans, a
$200,000 increase in other income and a decrease of $296,000 in general,
administrative and other expense (after consideration of the SAIF assessment),
which were partially offset by an increase of $1.1 million in the provision for
federal income taxes.
Net Interest Income
Total interest income amounted to $24.2 million for fiscal 1997, an increase of
$3.4 million, or 16.3%, over fiscal 1996. The increase resulted primarily from a
$37.1 million, or 14.2%, increase in average interest-earning assets year to
year. Interest income on loans and mortgage-backed securities totaled $23.1
million in fiscal 1997, an increase of $3.3 million, or 16.8%, over fiscal 1996.
This increase resulted primarily from a $36.0 million, or 14.7%, increase in the
average balance outstanding, coupled with an increase in yield, from 8.09% in
1996 to 8.24% in 1997. Interest income on investment securities and
interest-bearing deposits totaled $1.1 million, a $66,000, or 6.5%, increase
over fiscal 1996, due primarily to a $1.1 million increase in the average
balance outstanding.
5
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996 (continued)
Net Interest Income (continued)
Interest expense on deposits totaled $12.0 million for fiscal 1997, an increase
of $1.3 million, or 12.2%, over fiscal 1996. The increase resulted primarily
from a $19.8 million increase in the average balance outstanding, coupled with a
13 basis point increase in the average cost of deposits, to 5.23% in fiscal
1997. Interest expense on borrowings increased by $1.0 million, or 51.7%, due
primarily to a $15.9 million increase in the average balance outstanding coupled
with a 26 basis point increase in the average cost of borrowings year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 13.1%, to a total of $9.2
million for fiscal 1997, as compared to fiscal 1996. The interest rate spread
declined by 2 basis points, from 2.80% for fiscal 1996 to 2.78% for fiscal 1997.
The net interest margin increased by 6 basis points, to 3.08% for fiscal 1997,
as compared to 3.02% for fiscal 1996.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management determined that the
allowance was adequate and, therefore, a provision for losses on loans was not
necessary during the fiscal year ended September 30, 1997.
Other Income
Other income totaled $1.6 million for the fiscal year ended September 30, 1997,
an increase of $200,000, or 14.1%, compared to fiscal 1996, due primarily to a
$95,000, or 12.8%, increase in gain on sale of loans, a $32,000 gain on sale of
real estate acquired through foreclosure, and a $27,000 increase in the gain on
sale of investments and mortgage-backed securities. The increase in the gain on
sale of loans is due primarily to the aforementioned increase in the volume of
loan sales during fiscal 1997.
General, Administrative and Other Expense
General, administrative and other expense totaled $5.9 million for fiscal 1997,
a decrease of $1.6 million, or 21.1%, from fiscal 1996. The decrease resulted
primarily from the absence of a one-time $1.3 million charge recorded in 1996 in
connection with the assessment to recapitalize the SAIF and the resulting
decline in premiums for fiscal 1997, coupled with a $615,000 provision for
merger costs recorded in 1996, which were partially offset by a $291,000, or
11.1%, increase in employee compensation and benefits and a $194,000, or 22.2%,
increase in other operating expenses.
6
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1997 and 1996 (continued)
General, Administrative and Other Expense (continued)
Legislation to recapitalize the SAIF provided for a special assessment of $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Winton Savings had $195.6 million in SAIF
deposits at March 31, 1995 (including $11.5 million in deposits acquired in an
acquisition in April 1995 which are attributed to Winton Savings at March 31,
1995), resulting in an assessment of approximately $1.3 million, or $850,000
after tax, which was recorded as a charge in the quarter ended September 30,
1996, and was paid on November 27, 1996.
The increase in employee compensation and benefits resulted primarily from
normal merit increases coupled with an increase in staffing levels year to year.
The increase in other operating expenses is due primarily to an increase in
costs generally related to the increased loan origination volume and an increase
in overall operating costs related to Winton Financial's growth year to year.
Federal Income Taxes
The provision for federal income taxes increased by $1.1 million, or 168.0%, for
the fiscal year ended September 30, 1997, as compared to fiscal 1996. This
increase resulted primarily from the increase in net earnings before taxes of
$3.1 million, or 171.4%. Winton Financial's effective tax rates amounted to
34.3% and 34.7% for the fiscal years ended September 30, 1997 and 1996,
respectively.
7
<PAGE>
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table sets forth certain information relating to Winton Savings'
average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $299,643 $24,813 8.28% $263,344 $22,086 8.37%
Mortgage-backed securities - available for sale 687 46 6.70 1,948 119 6.11
Mortgage-backed securities - held to maturity 13,654 829 6.07 15,552 942 6.06
Investment securities - held to maturity 13,424 826 6.15 11,785 757 6.42
Investment securities - available for sale 4,889 279 5.71 2,007 122 6.08
Interest-bearing deposits and other 4,331 278 6.42 3,544 207 5.84
------- ------ ------ ------- ------ ------
Total interest-earning assets 336,628 27,071 8.04 298,180 24,233 8.13
Non-interest-earning assets 4,920 7,970
------- -------
Total assets $341,548 $306,150
======= =======
Interest-bearing liabilities:
Deposits $251,393 13,118 5.22 $229,708 12,009 5.23
FHLB advances 61,136 3,630 5.94 51,146 3,027 5.92
------- ------ ------ ------- ------ ------
Total interest-bearing liabilities 312,529 16,748 5.36 280,854 15,036 5.35
------ ------ ------ ------
Non-interest-bearing liabilities 3,786 3,275
------- -------
Total liabilities 316,315 284,129
Shareholders' equity 25,233 22,021
------- -------
Total liabilities and shareholders' equity $341,548 $306,150
======= =======
Net interest income/Interest rate spread $10,323 2.68% $ 9,197 2.78%
====== ====== ====== ======
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.07% 3.08%
====== ======
Average interest-earning assets to interest-bearing liabilities 107.71% 106.17%
====== ======
Year ended September 30,
1996
Average Interest
outstanding earned/ Yield/
balance paid rate
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $225,164 $18,627 8.27%
Mortgage-backed securities - available for sale 2,400 113 4.71
Mortgage-backed securities - held to maturity 17,311 1,070 6.18
Investment securities - held to maturity 9,927 636 6.41
Investment securities - available for sale 3,228 185 5.73
Interest-bearing deposits and other 3,049 199 6.53
------- ------ -----
Total interest-earning assets 261,079 20,830 7.98
Non-interest-earning assets 7,283
-------
Total assets $268,362
=======
Interest-bearing liabilities:
Deposits $209,879 10,700 5.10
FHLB advances 35,292 1,996 5.66
-------- ------
Total interest-bearing liabilities 245,171 12,696 5.18
------ -----
Non-interest-bearing liabilities 2,349
-------
Total liabilities 247,520
Shareholders' equity 20,842
-------
Total liabilities and shareholders' equity $268,362
=======
Net interest income/Interest rate spread $ 8,134 2.80%
====== ====
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.02%
======
Average interest-earning assets to interest-bearing liabilities 106.49%
=======
</TABLE>
- ---------------------------
(1) Includes loans held for sale and non-accrual loans.
8
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected WFC's interest income and expense during 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 (change
in volume multiplied by prior year rate), (ii) changes in rate (change in rate
multiplied by prior year volume) and (iii) total changes in rate and volume. The
combined effects of changes in both volume and rate, which cannot be separately
identified, have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
Year ended September 30,
1998 vs. 1997 1997 vs. 1996
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable (1) $2,968 $(241) $2,727 $3,244 $ 251 $3,495
Mortgage-backed securities - available
for sale (83) 10 (73) (18) 24 6
Mortgage-backed securities - held to
maturity (115) 2 (113) (107) (21) (128)
Investment securities - available for sale 165 (8) 157 (73) 10 (63)
Investment securities - held to maturity 101 (32) 69 120 1 121
Other interest-earning assets (2) 49 22 71 29 (21) 8
----- ---- ----- ----- ---- -----
Total interest income 3,085 (247) 2,838 3,195 244 3,439
Interest expense attributable to:
Deposits 1,132 (23) 1,109 1,031 278 1,309
Borrowings 593 10 603 933 98 1,031
----- ---- ----- ----- ---- -----
Total interest expense 1,725 (13) 1,712 1,964 376 2,340
----- ---- ----- ----- ---- -----
Increase in net interest income $1,360 $(234) $1,126 $1,231 $(132) $1,099
===== ===== ===== ===== ==== =====
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
9
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset/Liability Management
WFC's earnings depend primarily upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as
mortgage loans, investment securities and mortgage-backed securities, and its
interest expense paid on interest-bearing liabilities, consisting of deposits
and borrowings. As market interest rates change, asset yields and liability
costs do not change simultaneously. Due to maturity, repricing and timing
differences between such interest-earning assets and such interest-bearing
liabilities, WFC's earnings will be affected differently under various interest
rate scenarios. Management believes that the steps which have been taken in
asset/liability management may reduce the overall vulnerability of WFC's to
interest rate risk. For example, Winton Savings has sought to limit these net
earnings fluctuations and manage interest rate risk by originating
adjustable-rate loans and by purchasing relatively short-term and variable-rate
investments and securities. However, in order to better compete for deposits,
Winton Savings has offered market-sensitive certificates of deposit, which
result in increased interest expense in rising rate environments. At September
30, 1998, approximately $143.1 million, or 39.7%, of Winton Savings' portfolio
of interest-earning assets had adjustable rates.
WFC's principal financial objective is to enhance long-term profitability while
reducing exposure to increases in interest rates. To accomplish this objective,
WFC has formulated an asset and liability management policy, the principal
elements of which are (1) to increase the interest-rate sensitivity of the
assets of Winton Savings by emphasizing the origination of adjustable-rate
mortgage loans, (2) to maintain its investment portfolio with a relatively short
term to maturity, (3) to shorten asset maturities, (4) to lengthen the
maturities of liabilities to the extent practicable by marketing longer term
certificates of deposit, and (5) to meet the consumer preference for fixed-rate
loans in periods of low interest rates by selling the preponderance of such
loans in the secondary market. Because interest-rate-sensitive liabilities
continue to exceed interest-rate-sensitive assets, Winton Savings would be
negatively affected by a rising or protracted high interest rate environment and
would be beneficially affected by a declining interest rate environment.
The management and Board of Directors of Winton Savings attempt to manage Winton
Savings' exposure to interest rate risk (the sensitivity of an institution's
earnings and net asset values to changes in interest rates) in a manner to
maintain the projected four-quarter percentage change in net interest income and
the projected change in the market value of portfolio equity within the limits
established by the Board of Directors, assuming a permanent and instantaneous
parallel shift in interest rates.
As a part of its effort to monitor its interest rate risk, Winton Savings
reviews the reports of the OTS which set forth the application of the "net
portfolio value" ("NPV") methodology, adopted by the OTS as part of its capital
regulations, to the assets and liabilities of Winton Savings. Although Winton
Savings is not currently subject to the NPV regulation, because its
implementation has been delayed by the OTS, the application of the NPV
methodology may illustrate Winton Savings' level of interest rate risk.
10
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (100 basis points equals 1%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution would
have to deduct 50% of the amount of the decrease in excess of such 2% in the
calculation of the institution's risk-based capital, if the regulations were in
effect. Even before the regulation is in effect, OTS could increase Winton
Savings' risk-based capital requirement on an individualized basis to address
excess interest rate risk.
At September 30, 1998, 2% of the present value of Winton Savings' assets was
approximately $7.2 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $5.9 million at September 30, 1998, Winton
Savings would not have been required to reduce its capital in determining
whether Winton Savings met its risk-based capital requirement, if the regulation
had been in effect for Winton Savings.
Presented below, as of September 30, 1998, is an analysis of Winton Savings'
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates.
<TABLE>
<CAPTION>
September 30, 1998
Change in interest rate Board limit $ Change % Change
(Basis Points) % change in NPV in NPV
(In thousands)
<S> <C> <C> <C>
+300 (75)% $(9,674) (33)%
+200 (50) (5,907) (20)
+100 (20) (2,680) (9)
- - - -
-100 (15) 2,311 8
-200 (25) 4,847 17
-300 (35) 8,105 28
</TABLE>
11
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
As illustrated in the table, NPV is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment, the
amount of interest Winton Savings would receive on its loans would increase
relatively slowly as loans are slowly prepaid and new loans at higher rates are
made. Moreover, the interest Winton Savings would pay on its deposits would
increase rapidly because Winton Savings' deposits generally have shorter periods
to repricing.
Assumptions used in calculating the amounts in the above table are OTS
assumptions.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
In the event that interest rates rise, Winton Savings' net interest income could
be expected to be negatively affected. Moreover, rising interest rates could
negatively affect Winton Savings' earnings due to diminished loan demand.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
Winton Savings, like other financial institutions, is required under applicable
federal regulations to maintain sufficient funds to meet deposit withdrawals,
loan commitments and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary sources
of funds are deposits, borrowings, principal and interest repayments on loans
and proceeds from the sale of mortgage loans.
At September 30, 1998, Winton Savings had $118.1 million of certificates of
deposit maturing within one year. It has been the Company's historic experience
that such certificates of deposit will be renewed at market rates of interest.
It is management's belief that maturing certificates of deposit over the next
year will similarly be renewed at market rates of interest without a material
adverse effect on results of operations.
In the event that certificates of deposit cannot be renewed at prevailing market
rates, the Company can obtain up to $18.3 million in additional advances from
the FHLB of Cincinnati. At September 30, 1998, the Company had $56.9 million of
outstanding FHLB advances. The Company also obtains brokered deposits as a
supplement to its local deposits when such funds are attractively priced in
relation to the local market. As of September 30, 1998, the Company had $28.5
million in brokered deposits.
The Company's liquidity, represented by cash and cash-equivalents, is a function
of its operating, investing and financing activities. These activities are
summarized below for the periods indicated.
<TABLE>
<CAPTION>
For the year ended September 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Net earnings $ 4,057 $ 3,226 $ 1,181
Adjustments to reconcile net earnings to net
cash used in operating activities (3,798) (1,971) (194)
------ ------ ------
Net cash provided by operating activities 259 1,255 987
Net cash used in investing activities (23,463) (29,012) (42,513)
Net cash provided by financing activities 24,632 29,039 39,440
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 1,428 1,282 (2,086)
Cash and cash equivalents at beginning of year 2,786 1,504 3,590
------ ------ ------
Cash and cash equivalents at end of year $ 4,214 $ 2,786 $ 1,504
====== ====== ======
</TABLE>
The OTS requires minimum levels of liquid assets. OTS regulations presently
require Winton Savings to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement, which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of the Company's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Company may rely, if necessary, to fund
deposit withdrawals and other short-term funding needs.
13
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
The liquidity of Winton Savings, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year was
19.3% at September 30, 1998. At September 30, 1998, the Company's "liquid"
assets totaled approximately $37.4 million, which was approximately $29.5
million in excess of the current OTS minimum requirement. Winton Financial
believes that the Company's liquidity posture at September 30, 1998, was
adequate to meet outstanding loan commitments and other cash requirements.
Winton Savings is subject to minimum capital standards promulgated by the OTS.
Such capital standards generally require the maintenance of regulatory capital
sufficient to meet each of the following three requirements: the tangible
capital requirement, the core capital requirement and the risk-based capital
requirement. At September 30, 1998, Winton Savings' tangible capital of $25.6
million, or 7.3% of adjusted total assets, exceeded the 1.5% requirement by
$20.3 million; its core capital of $25.6 million, or 7.3% of adjusted total
assets, exceeded the minimum 3.0% requirement by $15.1 million; and, its
risk-based capital of $26.4 million, or 10.6% of risk-weighted assets, exceeded
the 8% requirement by $6.4 million.
In fiscal 1993, the OTS adopted an amendment to the regulatory risk-based
capital requirement to include an interest rate risk component, though
implementation of the component has been delayed. Additionally, the OTS has
proposed an amendment to the core capital requirement that would increase the
minimum requirement to 4% of adjusted total assets for substantially all savings
associations. Management anticipates that Winton Savings' regulatory capital
will continue to meet the minimum requirements should the interest rate risk
component or the core capital proposal be adopted in their present form.
Potential Impact on Future Results of Operations of Current and Pending
Legislation
Legislation repealing the percentage of earnings bad debt reserve provisions of
the Internal Revenue Code previously applicable to qualifying thrift
institutions was enacted into law in fiscal 1997. The legislation, which is part
of The Small Business Job Protection Act of 1996 (the "Jobs Act"), requires all
thrift institutions to pay tax on or recapture their excess bad debt reserves
accumulated since 1988. The legislation substantially equalizes the taxation of
banks and thrift institutions, but is protects thrifts from taxes on "bad debt
reserves" established prior to 1988. The Jobs Act eliminates the percentage of
taxable income method for deducting bad debt reserves for all thrifts for tax
years beginning after December 31, 1995 (1996, as to Winton Financial). Under
the legislation, Winton Financial is required to recapture approximately
$980,000 of its bad debt reserves as taxable income, which represents the
post-1987 additions to the reserves, and is unable to utilize the percentage of
earnings method to compute its reserves in the future. Winton Financial has
provided deferred taxes for this amount and will be permitted to amortize the
recapture of its bad debt reserves over six years, beginning in fiscal 1999.
14
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Potential Impact on Future Results of Operations of Current and Pending
Legislation (continued)
Legislation had been introduced in Congress to eliminate the federal regulation
of savings and loan associations and to develop a common charter for all
financial institutions. As a result, Winton Financial might become subject to a
different form of holding company regulation, which may limit the activities in
which it may engage and subject it to other additional regulatory requirements,
including separate capital requirements. In addition, Congress may eliminate the
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. Winton
Financial and Winton Savings cannot predict when or whether Congress may
actually pass such legislation or whether such legislation will actually change
the regulation and permissible activities of Winton Financial and Winton
Savings. Although such legislation may change the activities in which both
Winton Financial and Winton Savings may engage, it is not anticipated that
current activities will be materially affected by those activity limits.
Effects of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments 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, 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.
15
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 adopted SFAS No. 125 during fiscal 1998, as required, without
material effect on Winton Financial's consolidated financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material effect on Winton Financial's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's reportable operating segments which is based on reporting
information the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. For many enterprises,
the management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material effect on Winton Financial's financial position or results of
operations.
16
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements (continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
The definition of a derivative financial instrument is complex, but in general,
it is an instrument with one or more underlyings, such as an interest rate or
foreign exchange rate, that is applied to a notional amount, such as an amount
of currency, to determine the settlement amount(s). It generally requires no
significant initial investment and can be settled net or by delivery of an asset
that is readily convertible to cash. SFAS No. 133 applies to derivatives
embedded in other contacts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on Winton Financial's financial position
or results of operations.
The foregoing discussion of the effects of recent accounting pronouncements
contains forward-looking statements that involve risks and uncertainties.
Changes in economic circumstances, interest rates or the balance of loan
servicing rights sold and retained by Winton Savings could cause the effects of
the accounting pronouncements to differ from management's foregoing assessment.
Year 2000 Compliance Issues
The Year 2000 issue is a serious operational problem which is widespread and
complex, affecting all industries. The Federal Financial Institution Examination
Council (the "FFIEC"), representing the views of each of the primary financial
institution regulators, has focused on the risk that programming codes in
existing computer systems will fail to properly recognize the new millennium
when it occurs in the year 2000. Winton Savings is addressing the potential
problems associated with the possibility that the computers which control or
operate the Company's operating systems may not be programmed to read four-digit
date codes and, upon arrival of the year 2000, may recognize the two-digit code
"00" as the year 1900, causing systems to fail to function or to generate
erroneous data. Other concerns have been raised regarding February 29, 2000, as
well as September 9, 1999, which are new calculation challenges that may result
in further problems.
17
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Issues (continued)
Most significantly affected are all forms of financial accounting, including
interest computations, due dates, pensions, personnel benefits, investments,
legal commitments, valuations, fixed asset depreciation schedules, tax filings
and financial models. Additional problems may occur on other systems using
computers for processing, vault openings, check protectors and gas and electric.
The total impact is currently unknown; however, it is projected that failure to
address these programming code issues and make appropriate changes may expose an
institution to all types of risks, including credit, transaction, liquidity,
interest rate, compliance, reputation, strategic, price and foreign exchange.
Winton Savings has established a Year 2000 team, headed by the systems analyst,
to analyze the risk of potential problems that might arise from the failures of
computer programming to recognize the year 2000 and to develop a plan to
mitigate any such risk. Research by the team indicates that the greatest
potential impact upon Winton Savings is the risk related to vendors used by
Winton Savings, particularly the Company's data processing service bureau.
Quarterly progress reports from the service bureau indicated levels of manpower
and expertise sufficient to amend and test the adequacy of their computer
programming and systems prior to the arrival of the year 2000. All other vendors
and commercial customer's have been identified and requests for year 2000
certificates have been forwarded by Winton Savings.
The year 2000 team submits quarterly progress reports to the Board of Directors
and has established a target date of December 31, 1998 for all required internal
testing of each system utilized, which is expected to be minimal. The team
estimates that the impact upon the Company's results of operations, liquidity
and capital resources will be immaterial.
Management has developed a contingency plan which includes manual procedures
along with certain off-line canned programs. Management has set a budget of
approximately $100,000 to ensure Winton Financial and Winton Savings are year
2000 compliant.
In addition, financial institutions may experience increases in problem loans
and credit losses in the event that borrowers fail to prepare properly for Year
2000, and higher funding costs could result if consumers react to publicity
about the issue by withdrawing deposits. Winton Savings is assessing such risks
among its customers. WFC could also be materially adversely affected if other
third parties, such as governmental agencies, clearing houses, telephone
companies, utilities and other service providers fail to prepare properly.
Winton Savings is therefore attempting to assess these risks and take action to
minimize their effect.
18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Winton Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Winton Financial Corporation as of September 30, 1998 and 1997, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the years in the three year period ended September 30, 1998. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Winton Financial
Corporation as of September 30, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Cincinnati, Ohio
November 19, 1998 (except for Note O, as to which the date is December 4, 1998)
19
<PAGE>
<TABLE>
<CAPTION>
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
(In thousands, except share data)
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 1,607 $ 1,367
Interest-bearing deposits in other financial institutions 2,607 1,419
------- -------
Cash and cash equivalents 4,214 2,786
Investment securities available for sale - at market 5,579 3,631
Investment securities - at amortized cost, approximate market
value of $15,185 and $12,679 at September 30, 1998 and 1997 14,858 12,585
Mortgage-backed securities available for sale - at market 565 799
Mortgage-backed securities - at cost, approximate market
value of $12,266 and $14,345 at September 30, 1998 and 1997 12,418 14,614
Loans receivable - net 297,055 276,334
Loans held for sale - at lower of cost or market 8,253 4,210
Office premises and equipment - at depreciated cost 2,945 2,627
Real estate acquired through foreclosure 495 513
Federal Home Loan Bank stock - at cost 4,033 2,998
Accrued interest receivable on loans 2,407 2,185
Accrued interest receivable on mortgage-backed securities 91 109
Accrued interest receivable on investments and interest-bearing deposits 285 241
Prepaid expenses and other assets 488 393
Intangible assets - net of amortization 402 463
Prepaid federal income taxes 105 -
------- -------
Total assets $354,193 $324,488
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $266,007 $240,317
Advances from the Federal Home Loan Bank 56,899 57,425
Accounts payable on mortgage loans serviced for others 912 842
Advance payments by borrowers for taxes and insurance 610 412
Other liabilities 1,342 1,137
Accrued federal income taxes - 85
Deferred federal income taxes 1,531 993
------- -------
Total liabilities 327,301 301,211
Commitments - -
Shareholders' equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued - -
Common stock - 5,000,000 shares without par value authorized;
4,014,304 and 1,986,152 shares outstanding - -
Additional paid-in capital 8,782 6,501
Retained earnings - restricted 17,520 16,474
Unrealized gains on securities designated as available for sale,
net of related tax effects 590 302
------- -------
Total shareholders' equity 26,892 23,277
------- -------
Total liabilities and shareholders' equity $354,193 $324,488
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
(In thousands, except share data)
1998 1997 1996
<S> <C> <C> <C>
Interest income
Loans $24,813 $22,086 $18,627
Mortgage-backed securities 875 1,061 1,183
Investment securities 1,105 879 821
Interest-bearing deposits and other 278 207 199
------ ------ ------
Total interest income 27,071 24,233 20,830
Interest expense
Deposits 13,118 12,009 10,700
Borrowings 3,630 3,027 1,996
------ ------ ------
Total interest expense 16,748 15,036 12,696
------ ------ ------
Net interest income 10,323 9,197 8,134
Provision for losses on loans 60 - 253
------ ------ ------
Net interest income after provision for losses on loans 10,263 9,197 7,881
Other income
Gain on sale of mortgage loans 1,565 837 742
Gain on sale of investment and mortgage-backed securities
designated as available for sale - 36 9
Gain on sale of real estate acquired through foreclosure - 32 -
Mortgage servicing fees, net 168 320 284
Other operating 447 394 384
------ ------ ------
Total other income 2,180 1,619 1,419
General, administrative and other expense
Employee compensation and benefits 3,086 2,916 2,625
Occupancy and equipment 1,320 1,225 1,154
Federal deposit insurance premiums 150 206 1,773
Franchise taxes 302 264 254
Amortization of intangible assets 61 61 61
Advertising 238 169 137
Other operating 1,164 1,066 872
Merger related costs - - 615
------ ------ ------
Total general, administrative and other expense 6,321 5,907 7,491
------ ------ ------
Earnings before income taxes 6,122 4,909 1,809
Federal income taxes
Current 1,675 972 844
Deferred 390 711 (216)
------ ------ ------
Total federal income taxes 2,065 1,683 628
------ ------ ------
NET EARNINGS $ 4,057 $ 3,226 $ 1,181
====== ====== ======
EARNINGS PER SHARE
Basic $1.01 $.81 $.30
==== === ===
Diluted $.96 $.80 $.30
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
<TABLE>
<CAPTION>
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30, 1998, 1997 and 1996
(In thousands, except share data)
Unrealized
gains on
Additional securities
Common paid-in available Retained
stock capital for sale earnings Total
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995 $- $6,444 $178 $13,775 $20,397
Proceeds from exercise of stock options - 57 - - 57
Net earnings for the year ended September 30, 1996 - - - 1,181 1,181
Unrealized gains on securities designated as available for
sale, net of related tax effects - - 10 - 10
Cash dividends of $.2075 per share - - - (814) (814)
-- ----- -- ------ -------
Balance at September 30, 1996 - 6,501 188 14,142 20,831
Net earnings for the year ended September 30, 1997 - - - 3,226 3,226
Unrealized gains on securities designated as available for
sale, net of related tax effects - - 114 - 114
Cash dividends paid of $.225 per share - - - (894) (894)
-- ----- -- ------ ------
Balance at September 30, 1997 - 6,501 302 16,474 23,277
Stock dividend effected in the form of a 2-for-1 stock split - 2,007 - (2,007) -
Proceeds from exercise of stock options - 274 - - 274
Net earnings for the year ended September 30, 1998 - - - 4,057 4,057
Unrealized gains on securities designated as available for
sale, net of related tax effects - 288 - 288
Cash dividends of $.25 per share - - - (1,004) (1,004)
-- ----- -- ------ ------
Balance at September 30, 1998 $- $8,782 $590 $17,520 $26,892
== ===== === ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
<TABLE>
<CAPTION>
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
(In thousands)
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 4,057 $ 3,226 $ 1,181
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Amortization of premiums on investments and mortgage-backed
securities 29 17 52
Amortization of deferred loan origination fees (198) (198) (149)
Depreciation and amortization 409 393 355
Amortization of intangible assets 61 61 61
Gain on sale of investment securities designated as available for sale - (36) -
Gain on sale of mortgage-backed securities designated as available
for sale - - (9)
Gain on sale of real estate acquired through foreclosure - (32) -
Provision for losses on loans 60 - 253
Gain on sale of mortgage loans (1,199) (517) (420)
Loans disbursed for sale in the secondary market (108,187) (43,888) (36,301)
Proceeds from sale of loans in the secondary market 105,343 42,930 35,065
Federal Home Loan Bank stock dividends (248) (188) (155)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (222) (277) (329)
Accrued interest receivable on mortgage-backed securities 18 17 9
Accrued interest receivable on investments (44) (78) 24
Prepaid expenses and other assets (95) 16 (73)
Accounts payable on mortgage loans serviced for others 70 156 64
Other liabilities 205 (1,136) 1,666
Federal income taxes
Current (190) 78 (91)
Deferred 390 711 (216)
------- ------- ------
Net cash provided by operating activities 259 1,255 987
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 2,389 3,950 2,040
Purchase of mortgage-backed securities designated as available for sale - - (3,087)
Purchase of mortgage-backed securities designated as held to maturity - - (293)
Proceeds from the sale of mortgage-backed securities designated as
available for sale - - 1,406
Proceeds from the maturity of investment securities 6,650 3,500 2,250
Proceeds from the sale of investment securities designated as
available for sale - 122 -
Purchase of investment securities designated as held to maturity (8,928) (2,491) (1,350)
Purchase of investment securities designated as available for sale (1,495) (4,988) -
Loan principal repayments 92,741 63,990 40,475
Loan disbursements (119,653) (103,776) (85,242)
Sale of loan participations 6,329 11,385 1,732
Proceeds from the sale of real estate acquired through foreclosure - 94 -
Purchase and renovation of office premises and equipment (709) (334) (246)
Additions to real estate acquired through foreclosure - (13) (157)
Purchase of Federal Home Loan Bank stock (787) (451) (41)
-------- -------- ------
Net cash used in investing activities (23,463) (29,012) (42,513)
-------- -------- ------
Net cash used in operating and investing activities
(subtotal carried forward) (23,204) (27,757) (41,526)
-------- -------- ------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
(In thousands)
1998 1997 1996
<S> <C> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(23,204) $(27,757) $(41,526)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts, including
purchased deposits 25,690 18,784 23,628
Proceeds from Federal Home Loan Bank advances 68,039 37,107 65,262
Repayment of Federal Home Loan Bank advances (68,565) (26,058) (48,716)
Advances by borrowers for taxes and insurance 198 100 23
Proceeds from exercise of stock options 274 - 57
Dividends paid on common stock (1,004) (894) (814)
-------- --------- ---------
Net cash provided by financing activities 24,632 29,039 39,440
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,428 1,282 (2,086)
Cash and cash equivalents at beginning of year 2,786 1,504 3,590
-------- ------- -------
Cash and cash equivalents at end of year $ 4,214 $ 2,786 $ 1,504
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,805 $ 894 $ 809
======== ======= =======
Interest on deposits and borrowings $ 16,643 $ 14,808 $ 12,650
======= ======= =======
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through
foreclosure $ 52 $ 200 $ 61
======== ======= =======
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 288 $ 114 $ 10
======== ======= =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 366 $ 320 $ 322
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Winton Financial Corporation ("Winton Financial", or the "Corporation") is a
savings and loan holding company whose activities are primarily limited to
holding the stock of The Winton Savings and Loan Company ("Winton Savings",
or the "Company"). The Company conducts a general banking business in
southwestern Ohio which consists of attracting deposits from the general
public and applying those funds to the origination of loans for residential,
consumer and nonresidential purposes. The Company's profitability is
significantly dependent on its net interest income, which is the difference
between interest income generated from interest-earning assets (i.e. loans
and investments) and the interest expense paid on interest-bearing
liabilities (i.e. customer deposits and borrowed funds). Net interest income
is affected by the relative amount of interest-earning assets and
interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Company can be
significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general
accounting practices within the financial services industry. In preparing
consolidated financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
revenues and expenses during the reporting period. Actual results could
differ from such estimates.
During fiscal 1996, Winton Financial merged Blue Chip Savings Bank ("Blue
Chip") with and into its subsidiary, Winton Savings, in a transaction which
was accounted for as a pooling-of-interests. In connection with the business
combination, Winton Financial issued 361,952 shares of common stock.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and the Company. Condensed financial statements of the
Corporation are presented in Note M as of September 30, 1998 and 1997, and
for the fiscal years ended September 30, 1998, 1997 and 1996. All
significant intercompany balances and transactions have been eliminated in
the accompanying consolidated financial statements.
25
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires that investments be categorized as held-to-maturity,
trading, or available for sale. Securities classified as held-to-maturity
are carried at cost only if the Corporation has the positive intent and
ability to hold these securities to maturity. Trading securities and
securities available for sale are carried at fair value with resulting
unrealized gains or losses recorded to operations or shareholders' equity,
respectively. At September 30, 1998 and 1997, the Corporation's shareholders
equity reflected net unrealized gains on securities designated as available
for sale totaling $590,000 and $302,000, respectively.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses
and premiums and discounts on loans purchased and sold. Premiums and
discounts on loans purchased and sold are amortized and accreted to
operations using the interest method over the average life of the underlying
loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status. If the ultimate collectibility of principal is
in doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At September 30,
1998 and 1997, loans held for sale were carried at cost.
Winton Savings accounts for mortgage servicing rights pursuant to the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires that
Winton Savings recognize as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained would allocate some of the cost of the loans to
the mortgage servicing rights.
26
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
SFAS No. 125 requires that securitization of mortgage loans be accounted
for as sales of mortgage loans and acquisitions of mortgage-backed
securities. Additionally, SFAS No. 125 requires that capitalized mortgage
servicing rights and capitalized excess servicing receivables be assessed
for impairment. Impairment is measured based on fair value.
The mortgage servicing rights recorded by the Company, calculated in
accordance with the provisions of SFAS No. 125, were segregated into pools
for valuation purposes, using as pooling criteria the loan term and coupon
rate. Once pooled, each grouping of loans was evaluated on a discounted
earnings basis to determine the present value of future earnings that a
purchaser could expect to realize from each portfolio. Earnings were
projected from a variety of sources including loan servicing fees, interest
earned on float, net interest earned on escrows, miscellaneous income, and
costs to service the loans. The present value of future earnings is the
"economic" value for the pool, i.e., the net realizable present value to an
acquirer of the acquired servicing.
The Company recorded amortization related to mortgage servicing rights
totaling approximately $213,000, $32,000 and $6,000 for the years ended
September 30, 1998, 1997 and 1996, respectively. At September 30, 1998 and
1997, the fair value of the Company's mortgage servicing rights totaled
approximately $790,000 and $636,000, respectively.
4. Loan Origination and Commitment Fees
The Company accounts for loan origination fees in accordance with the
provisions of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Pursuant to the provisions of SFAS No. 91, origination fees
received from loans, net of certain direct origination costs, are deferred
and amortized to interest income using the interest method, giving effect to
actual loan prepayments. Additionally, SFAS No. 91 generally limits the
definition of loan origination costs to the direct costs attributable to
originating a loan, i.e., principally actual personnel costs. Fees received
for loan commitments that are expected to be drawn upon, based on the
Company's experience with similar commitments, are deferred and amortized
over the life of the related loan using the interest method. Fees for other
commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
5. Allowance for Loan Losses
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level
of delinquent and problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current and anticipated economic conditions in its
primary lending
27
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
areas. When the collection of a loan becomes doubtful, or otherwise
troubled, the Company records a charge-off equal to the difference between
the fair value of the property securing the loan and the loan's carrying
value. Major loans, including development projects, and major lending areas
are reviewed periodically to determine potential problems at an early date.
The allowance for loan losses is increased by charges to earnings and
decreased by charge-offs (net of recoveries).
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company considers
its investment in one- to four-family residential loans and consumer
installment loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. With respect to the Company's
investment in nonresidential and multi-family residential real estate loans,
and its evaluation of impairment thereof, such loans are generally
collateral dependent and, as a result, are carried as a practical expedient
at the lower of cost or fair value.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
At September 30, 1998 and 1997, the Company had no loans that would be
defined as impaired under SFAS No. 114.
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line and
accelerated methods over the useful lives of the assets, estimated to be
thirty to forty years for buildings, five to fifteen years for building
improvements and three to fifteen years for furniture and equipment. An
accelerated depreciation method is used for tax reporting purposes.
28
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the value
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are considered. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
8. Federal Income Taxes
The Corporation accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred
tax liability or deferred tax asset is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences
between the tax basis of an asset or liability and its reported amount in
the consolidated financial statements that will result in net taxable or
deductible amounts in future periods. Deferred tax assets are recorded only
to the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of income taxes results primarily from different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, mortgage servicing rights, the general loan loss allowance and
the percentage of earnings bad debt deduction. Additionally, a temporary
difference is recognized for depreciation utilizing accelerated methods for
federal income tax purposes.
9. Amortization of Intangible Assets
Goodwill and other intangible assets arising from the acquisition of
deposits from another financial institution are being amortized on the
straight-line method over a ten year period.
29
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Employee Benefit Plans
The Corporation has an Employee Stock Ownership Plan ("ESOP") which provides
retirement benefits for substantially all employees who have completed one
year of service. Contributions of $98,000, $90,000 and $65,000 were made to
the ESOP for the years ended September 30, 1998, 1997 and 1996,
respectively. At September 30, 1998, the ESOP held 321,992 shares (adjusted)
of the Corporation's common stock, all of which had been allocated to
participants as of that date. All share totals and per share amounts have
been adjusted to give effect to the two-for-one stock split in the form of a
stock dividend effected during fiscal 1998.
The Company has a contributory 401(k) plan covering all employees who have
attained the age of 21 and have completed one year of service. Contributions
to the plan are voluntary and are matched at the discretion of the Board of
Directors. Contributions to the plan totaled $29,000, $25,000 and $23,000,
for the years ended September 30, 1998, 1997 and 1996, respectively.
11. Earnings Per Share
Basic earnings per share is computed based upon 4,012,605, 3,972,304 and
3,970,034 weighted-average shares outstanding for the fiscal years ended
September 30, 1998, 1997 and 1996, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
4,205,030, 4,026,996 and 3,989,657 for the fiscal years ended September 30,
1998, 1997 and 1996, respectively.
Effective during the fiscal year ended September 30, 1998, the Corporation
began presenting earnings per share pursuant to the provisions of SFAS No.
128, "Earnings per Share." Accordingly, the fiscal 1997 and 1996 earnings
per share presentation has been revised to conform to SFAS No. 128, and to
give effect to the two-for-one stock split effected during fiscal 1998.
12. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks and interest-bearing deposits due from other
financial institutions with original maturities of less than ninety days.
30
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value.
When quoted market prices are not available for financial instruments, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at September
30, 1998 and 1997:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statements of financial condition for cash
and cash equivalents are deemed to approximate fair value.
Investments and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts, and consumer
and other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair value of NOW accounts, passbook and club
accounts, advance payments and amounts due on loans serviced
for others are deemed to approximate the amount payable on
demand. Fair values for fixed-rate certificates of deposit
have been estimated using a discounted cash flow calculation
using the interest rates currently offered for deposits of
similar remaining maturities.
31
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
Advances from the Federal Home Loan Bank: The fair value of
these advances is estimated using the interest rates currently
offered for advances of similar remaining maturities or, when
available, quoted market prices.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at
September 30, 1998 and 1997, was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at September
30:
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 4,214 $ 4,214 $ 2,786 $ 2,786
Investment securities designated
as available for sale 5,579 5,579 3,631 3,631
Investment securities - at cost 14,858 15,185 12,585 12,679
Mortgage-backed securities designated
as available for sale 565 565 799 799
Mortgage-backed securities - at cost 12,418 12,266 14,614 14,345
Loans receivable - net 305,308 317,216 280,544 283,594
Federal Home Loan Bank stock 4,033 4,033 2,998 2,998
------- -------- ------- -------
$346,975 $359,058 $317,957 $320,832
======= ======= ======= =======
Financial liabilities
Deposits $266,007 $266,556 $240,317 $240,875
Advances from Federal Home Loan Bank 56,899 56,905 57,425 57,428
Advance payments and amounts due on loans
serviced for others 1,522 1,522 1,254 1,254
------- -------- ------- -------
$324,428 $324,983 $298,996 $299,557
======= ======= ======= =======
</TABLE>
32
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
consolidated financial statement presentation.
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and agency
obligations $14,858 $15,185 $12,585 $12,679
Available for sale:
U.S. Government and agency obligations 4,587 4,855 3,088 3,149
Corporate equity securities 103 724 103 482
------ ------ ------ ------
4,690 5,579 3,191 3,631
------ ------ ------ ------
Total investment securities $19,548 $20,764 $15,776 $16,310
====== ====== ====== ======
</TABLE>
At September 30, 1998, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $1,216,000, which was
comprised solely of gross unrealized gains.
At September 30, 1997, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $534,000, which was
comprised of gross unrealized gains of $549,000 and gross unrealized losses
of $15,000.
The amortized cost and estimated fair value of U.S. Government and agency
obligations, including those designated as available for sale, at September
30, 1998, by term to maturity are shown below.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
(In thousands)
<S> <C> <C>
Due in one year or less $ 6,149 $ 6,193
Due in one to three years 4,710 4,770
Due in three to five years 8,586 9,077
------ ------
$19,445 $20,040
====== ======
</TABLE>
33
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at September 30, 1998
and 1997, are shown below.
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Federal Home Loan Mortgage Corporation
Participation certificates $ 4,402 $ 11 $ (68) $ 4,345
Government National Mortgage Association
Participation certificates 598 9 - 607
Federal National Mortgage Association
Participation certificates 2,912 1 (65) 2,848
Collateralized mortgage obligations 1,181 - (12) 1,169
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - (24) 3,113
Residential Funding Corporation
Collateralized mortgage obligations 188 - (4) 184
------ ---- ---- ------
Total mortgage-backed securities
held to maturity 12,418 21 (173) 12,266
Available for sale:
Government National Mortgage Corporation
Participation Certificates 561 4 - 565
------ ---- ---- ------
Total mortgage-backed securities $12,979 $ 25 $(173) $12,831
====== ==== ==== ======
</TABLE>
34
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1997
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Federal Home Loan Mortgage Corporation
Participation certificates $ 5,371 $ 34 $ (92) $ 5,313
Government National Mortgage Association
Participation certificates 811 25 - 836
Federal National Mortgage Association
Participation certificates 3,449 5 (63) 3,391
Collateralized mortgage obligations 1,657 - (67) 1,590
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - (106) 3,031
Residential Funding Corporation
Collateralized mortgage obligations 189 - (5) 184
------ ---- ---- ------
Total mortgage-backed securities
held to maturity 14,614 64 (333) 14,345
Available for sale:
Government National Mortgage Corporation
Participation Certificates 782 17 - 799
------ ---- ---- ------
Total mortgage-backed securities $15,396 $ 81 $(333) $15,144
====== ==== ==== ======
</TABLE>
35
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE B - INVESTMENTS AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities, including those designated
as available for sale at September 30, 1998, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
<TABLE>
<CAPTION>
Amortized cost
(In thousands)
<S> <C>
Due within three years $ 2
Due after three years through five years 7
Due after five years through ten years 12
Due after ten years through twenty years 2,943
Due after twenty years 10,015
------
$12,979
======
</TABLE>
Mortgage-backed securities with an approximate carrying value of $3.2
million were pledged to secure public deposits at September 30, 1998.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Residential real estate
One- to four-family residential $138,415 $145,039
Multi-family residential 75,442 71,798
Construction 19,505 15,036
Nonresidential real estate and land 60,722 47,974
Nonresidential construction 9,782 1,401
Consumer and other 8,176 5,003
------- -------
312,042 286,251
Less:
Undisbursed portion of loans in process 13,616 8,364
Deferred loan origination fees 529 726
Allowance for loan losses 842 827
------- -------
$297,055 $276,334
======= =======
</TABLE>
36
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE C - LOANS RECEIVABLE (continued)
The Company's lending efforts have historically focused on one- to
four-family residential and multi-family residential real estate loans,
which comprise approximately $223.0 million, or 75%, of the total loan
portfolio at September 30, 1998, and $223.5 million, or 81%, of the total
loan portfolio at September 30, 1997. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Company with adequate collateral coverage in
the event of default. Nevertheless, the Company, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending area of southwestern Ohio, thereby
impairing collateral values. However, management is of the belief that
residential real estate values in the Company's primary lending area are
presently stable.
As discussed previously, the Company has sold whole loans and participating
interests in loans in the secondary market, generally retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately
$163.0 million, $145.2 million and $116.6 million at September 30, 1998,
1997 and 1996, respectively. At September 30, 1998, loans sold with recourse
totaled $7.7 million.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Beginning balance $827 $857 $654
Provision for losses on loans 60 - 253
Charge-off of loans (47) (51) (50)
Recoveries of loan losses 2 21 -
--- --- --
Ending balance $842 $827 $857
=== === ===
</TABLE>
37
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
At September 30, 1998, the Company's allowance for loan losses was comprised
of a general loan loss allowance of $789,000, which is includible as a
component of regulatory risk-based capital, and a specific loan loss
allowance totaling $53,000.
Nonperforming and nonaccrual loans at September 30, 1998, 1997 and 1996,
totaled $1.1 million, $472,000 and $923,000, respectively. Interest income
that would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $31,000, $26,000 and $53,000 for the
years ended September 30, 1998, 1997 and 1996, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Land $ 336 $ 336
Office buildings and improvements 2,466 2,413
Furniture, fixtures and equipment 2,979 2,323
----- -----
5,781 5,072
Less accumulated depreciation and
amortization 2,836 2,445
----- -----
$2,945 $2,627
===== =====
</TABLE>
The Company leases part of the main office facility and the adjacent real
property under three-year operating lease agreements at an annual cost of
$46,000 per year. The lease for the main office facility is renewable for
seven additional three-year terms at market rates. The lease for the
adjacent real property is renewable for six additional three-year terms at
market rates. The Company may purchase the land and property at any time
after the first three-year term for total consideration of $500,000.
Additionally, a lease was assumed as part of the Blue Chip merger. The lease
expires on December 1, 1999, with two five year renewal options and has a
minimum commitment of approximately $45,000 for each of the fiscal years
ended December 31, 1998 and 1999, and $7,000 for fiscal 2000. Further, the
Company has entered into a lease agreement during fiscal 1998 on a new loan
origination office, which provides for annual lease payments of $21,000
through fiscal 2002 and a commitment of $18,000 for fiscal 2003. The Company
has an option to extend the lease term for an additional five year period at
market rates.
38
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE F - DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
Deposit type and weighted-average interest rate 1998 1997
(In thousands)
<S> <C> <C>
NOW accounts and money market deposits
1998 - 0.95% $ 18,338
1997 - 1.65% $ 13,575
Passbook and Club accounts
1998 - 3.59% 48,362
1997 - 3.70% 50,622
------- -------
Total demand, transaction and passbook deposits 66,700 64,197
Certificates of deposit
Original maturities of:
Less than 12 months
1998 - 5.66% 60,188
1997 - 5.66% 49,356
12 months to 36 months
1998 - 5.98% 89,966
1997 - 6.14% 80,730
More than 36 months
1998 - 6.24% 17,470
1997 - 6.25% 15,758
Individual Retirement and Keogh
1998 - 6.05% 31,683
1997 - 6.16% 30,276
------- -------
Total certificates of deposit 199,307 176,120
------- -------
Total deposit accounts $266,007 $240,317
======= =======
</TABLE>
The Company had certificate of deposit accounts with balances equal to or
in excess of $100,000 totaling $64.7 million and $54.7 million at September
30, 1998 and 1997, respectively.
39
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE F - DEPOSITS (continued)
Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Passbook and money market deposit accounts $1,813 $ 1,843 $ 1,735
NOW accounts 191 218 206
Certificates of deposit 11,114 9,948 8,759
------ ------ ------
$13,118 $12,009 $10,700
====== ====== ======
</TABLE>
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
(In thousands)
<S> <C> <C>
Less than one year $118,079 $101,627
One year to three years 75,823 68,954
More than three years 5,405 5,539
--------- ---------
$199,307 $176,120
======= =======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 30,
1998, by pledges of certain residential mortgage loans totaling $85.3
million, and the Company's investment in Federal Home Loan Bank stock, are
summarized as follows:
<TABLE>
<CAPTION>
Maturing fiscal
Interest rate year ending in 1998 1997
(In thousands)
<S> <C> <C> <C>
5.15% - 7.20% 1998 $ - $25,500
5.67% - 7.20% 1999 8,500 8,500
6.17% - 8.35% 2000 11,000 11,000
6.23% - 7.20% 2001 4,000 4,000
6.05% - 7.20% 2002 8,256 8,318
5.87% 2003 2,000 -
2.50% - 5.95% Thereafter 23,143 107
------ ------
$56,899 $57,425
====== ======
Weighted-average interest rate 5.98% 6.22%
==== ====
</TABLE>
40
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended September 30 as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate $2,081 $1,669 $615
Increase (decrease) in taxes resulting from:
Nondeductible expenses 11 11 11
Nontaxable dividend income (4) (4) (4)
Low income housing investment tax credits (42) - -
Other 19 7 6
----- ----- ---
Federal income tax provision per consolidated
financial statements $2,065 $1,683 $628
===== ===== ===
Effective tax rate 33.7% 34.3% 34.7%
==== ==== ====
</TABLE>
The composition of the Corporation's net deferred tax liability at
September 30 is as follows:
<TABLE>
<CAPTION>
Taxes (payable) refundable on temporary 1998 1997
differences at statutory rate: (In thousands)
<S> <C> <C>
Deferred tax assets:
General loan loss allowance $ 286 $ 281
Amortization of intangible assets 42 43
------ -----
Total deferred tax assets 328 324
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (529) (444)
Difference between book and tax depreciation (50) (76)
Percentage of earnings bad debt deduction (331) (331)
Unrealized gains on securities designated as available for sale (303) (155)
Deferred loan origination costs (366) (68)
Mortgage servicing rights (269) (216)
Other (11) (27)
------ -----
Total deferred tax liabilities (1,859) (1,317)
------ -----
Net deferred tax liability $(1,531) $ (993)
====== =====
</TABLE>
41
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE H - FEDERAL INCOME TAXES (continued)
The Company was allowed a special bad debt deduction generally limited to 8%
of otherwise taxable income, subject to certain limitations based on
aggregate loans and savings account balances at the end of the year. If the
amounts that qualify as deductions for federal income taxes are later used
for purposes other than for bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. This percentage of earnings bad
debt deduction had accumulated to approximately $2.0 million as of September
30, 1998. The amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction was approximately $400,000 at September
30, 1998. See Note K for additional information regarding future percentage
of earnings bad debt deductions.
NOTE I - LOAN COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Company's involvement in such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At September 30, 1998, the Company had total outstanding commitments of
approximately $18.8 million to originate residential one- to four-family and
multi-family real estate loans on the basis of an 80% loan-to-value ratio,
of which $1.6 million were comprised of adjustable-rate loans at rates
ranging from 6.875% to 8.00%, and $17.2 million were comprised of fixed-rate
loans at rates ranging from 6.375% to 9.00%. The Company also had total
outstanding commitments of approximately $2.4 million to originate
nonresidential real estate and land loans, of which $2.3 million were
comprised of fixed-rate loans at interest rates ranging from 7.125% to
8.75%, and $65,000 were comprised of adjustable rate loans at 8.00%. The
Company also had total outstanding commitments of approximately $717,000 to
originate lines of credit. Additionally, the Company had unused lines of
credit related to home equity loans and commercial loans totaling $12.0
million and $3.3 million, respectively. In the opinion of management, all
loan commitments equaled or exceeded prevalent market interest rates as of
September 30, 1998, and such commitments have been underwritten on the same
basis as that of the existing loan portfolio. Management believes that all
loan commitments are able to be funded through cash flow from operations and
existing excess liquidity. Fees received in connection with these
commitments have not been recognized in earnings.
42
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 19967
NOTE J - REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on its financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Winton
Savings must meet specific capital guidelines that involve quantitative
measures of Winton Savings' assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. Winton
Savings' capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
The minimum capital standards of the OTS 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. The tangible capital requirement
provides for minimum tangible capital (defined as shareholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. The risk-based capital
requirement currently provides for the maintenance of core capital plus
general loan loss allowances equal to 8.0% of risk-weighted assets as of
September 30, 1998. In computing risk-weighted assets, Winton Savings
multiplies the value of each asset on its statement of financial condition
by a defined risk-weighted factor, e.g., one- to four-family residential
loans carry a risk-weighted factor of 50%.
The OTS has proposed an amendment to the core capital requirement that would
increase the minimum requirement to a range of 4.0% - 5.0% of adjusted total
assets for substantially all savings associations. Management anticipates no
material change to the Company's excess regulatory capital position if the
proposal is adopted in its present form.
As of September 30, 1998 and 1997, management believes that the Company met
all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
As of September 30, 1998
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $25,633 7.3% =>$ 5,291 =>1.5% =>$17,637 => 5.0%
Core capital $25,633 7.3% =>$10,582 =>3.0% =>$21,164 => 6.0%
Risk-based capital $26,422 10.6% =>$20,001 =>8.0% =>$25,001 =>10.0%
</TABLE>
43
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE J - REGULATORY CAPITAL (continued)
<TABLE>
<CAPTION>
As of September 30, 1997
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $22,252 6.9% =>$ 4,852 =>1.5% =>$16,173 => 5.0%
Core capital $22,252 6.9% =>$ 9,704 =>3.0% =>$19,408 => 6.0%
Risk-based capital $23,015 10.8% =>$17,129 =>8.0% =>$21,412 =>10.0%
</TABLE>
The Company's management believes that under the current regulatory capital
regulations, the Company will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Company, such as increased interest rates or a downturn in the
economy in the Company's market area, could adversely affect future earnings
and consequently, the ability to meet future regulatory capital
requirements.
NOTE K - LEGISLATIVE MATTERS
The deposit accounts of Winton Savings and of other savings associations are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the
Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF were
below the level required by law, because a significant portion of the
assessments paid into the fund were used to pay the cost of prior thrift
failures. The deposit accounts of commercial banks are insured by the FDIC
through the Bank Insurance Fund ("BIF"), except to the extent such banks
have acquired SAIF deposits. The reserves of the BIF met the level required
by law in May 1995.
Legislation was enacted to recapitalize the SAIF that provided for a special
assessment totaling $.657 per $100 of SAIF deposits held at March 31, 1995,
in order to increase SAIF reserves to the level required by law. Winton
Savings held $195.6 million in deposits at March 31, 1995, resulting in an
assessment of approximately $1.3 million, or $850,000 after-tax, which was
charged to operations in fiscal 1996.
Under separate legislation related to the recapitalization plan, Winton
Savings is required to recapture as taxable income approximately $980,000 of
its tax bad debt reserve, which represents the post-1987 additions to the
reserve, and will be unable to utilize the percentage of earnings method to
compute its bad debt deduction in the future. Winton Savings has provided
deferred taxes for this amount and will be permitted to amortize the
recapture of the bad debt reserve in taxable income over six years
commencing in fiscal 1999.
44
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN
The Corporation has a Stock Option and Incentive Plan that provides for the
issuance of 523,000 shares (adjusted) of authorized but unissued common
shares.
In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation is
then recognized over the service period, which is usually the vesting
period. Alternatively, SFAS No. 123 permits entities to continue to account
for stock options and similar equity instruments under Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities that continue to account for stock options using APB Opinion No. 25
are required to make pro forma disclosures of net earnings and earnings per
share, as if the fair value-based method of accounting defined in SFAS No.
123 had been applied.
The Corporation applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the Corporation's stock option plan been determined
based on the fair value at the grant dates for awards under the plan
consistent with the accounting method utilized in SFAS No. 123, the
Corporation's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $4,057 $3,226 $1,181
===== ===== =====
Pro-forma $3,966 $3,226 $ 910
===== ===== =====
Earnings per share
Basic As reported $1.01 $.81 $.30
==== === ===
Pro-forma $.99 $.81 $.26
=== == ===
Diluted As reported $.96 $.80 $.30
=== === ===
Pro-forma $.94 $.80 $.26
=== === ===
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
assumptions used for grants in fiscal 1998 and 1996: dividend yield of 3.4%,
expected volatility of 20.0%, risk-free interest rate of 6.0% and expected
lives of ten years.
45
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE L - STOCK OPTION PLAN (continued)
A summary of the status of the Corporation's stock option plan as of
September 30, 1998, 1997 and 1996, and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 493,000 $5.80 493,000 $5.80 252,000 $5.00
Granted 30,000 $9.94 - $ - 241,000 $6.66
Exercised (42,000) $9.84 - $ - - $ -
Forfeited - $ - - $ - - $ -
------- ---- ------- ---- ------- ----
Outstanding at end of year 481,000 $6.13 493,000 $5.80 493,000 $5.80
======= ==== ======= ==== ======= ====
Options exercisable at year-end 481,000 $6.13 493,000 $5.80 241,000 $6.66
======= ==== ======= ==== ======= ====
Weighted-average fair value of
options granted during the year $1.99 N/A $1.71
==== === ====
</TABLE>
The following information applies to options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
Number outstanding 481,000
Range of exercise prices $5.00 - $9.94
Weighted-average exercise price $6.13
Weighted-average remaining contractual life 6.7 years
</TABLE>
46
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION
The following condensed financial statements summarize the financial
position of the Corporation as of September 30, 1998 and 1997, and the
results of its operations and its cash flows for each of the years ended
September 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Winton Financial Corporation
STATEMENTS OF FINANCIAL CONDITION
September 30,
ASSETS 1998 1997
(In thousands)
<S> <C> <C>
Cash $ 265 $ 313
Investment in The Winton Savings and Loan Co. 26,294 22,830
Corporate equity securities - at fair value 724 482
Prepaid expenses and other assets 9 9
Prepaid federal income tax 61 -
------ ------
Total assets $27,353 $23,634
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 250 $ 228
Deferred federal income taxes 211 129
------ ------
Total liabilities 461 357
Shareholders' equity
Additional paid-in capital 8,782 6,501
Retained earnings 17,520 16,474
Unrealized gains on securities designated as
available for sale, net of related tax effects 590 302
------ ------
Total shareholders' equity 26,892 23,277
------ ------
Total liabilities and shareholders' equity $27,353 $23,634
====== ======
</TABLE>
47
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
<TABLE>
<CAPTION>
Winton Financial Corporation
STATEMENTS OF EARNINGS
Year ended September 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Revenue
Interest and dividends on investments $ 15 $ 13 $ 17
Gain on sale of investment securities
designated as available for sale - 36 -
Dividends received from subsidiary 773 894 904
Equity in undistributed earnings of subsidiary 3,335 2,400 346
----- ----- -----
4,123 3,343 1,267
Expenses
General and administrative 66 117 86
----- ------ -----
Net earnings $4,057 $3,226 $1,181
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Winton Financial Corporation
STATEMENTS OF CASH FLOWS
Year ended September 30,
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $4,057 $3,226 $1,181
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiary (3,335) (2,400) (346)
Gain on sale of investment securities
designated as available for sale - (36) -
Increases (decreases) in cash due to changes in:
Prepaid expenses and other assets (61) 23 (18)
Other 21 20 16
----- ----- -----
Net cash provided by operating activities 682 833 833
Cash flows provided by investing activities:
Proceeds from sale of investment securities
designated as available for sale - 122 -
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock (1,004) (894) (814)
Proceeds from exercise of stock options 274 - 57
----- ----- -----
Net cash used in financing activities (730) (894) (757)
----- ----- -----
Net increase (decrease) in cash and cash equivalents (48) 61 76
Cash and cash equivalents at beginning of year 313 252 176
----- ----- -----
Cash and cash equivalents at end of year $ 265 $ 313 $ 252
===== ===== =====
</TABLE>
48
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998, 1997 and 1996
NOTE M - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
Regulations of the OTS impose limitations on the payment of dividends and
other capital distributions by savings associations. Under such
regulations, a savings association that, immediately prior to, and on a pro
forma basis after giving effect to a proposed capital distribution, has
total capital (as defined by OTS regulation) that is equal to or greater
than the amount of its fully phased-in capital requirement is generally
permitted without OTS approval (but subsequent to 30 days prior notice to
the OTS of the planned dividend) to make capital distributions during a
calendar year in the amount of up to the greater of (i) 100% of its net
earnings to date during the year plus an amount equal to one-half of the
amount by which its total capital-to-assets ratio exceeded its fully
phased-in capital to assets ratio at the beginning of the year or (ii) 75%
of its net earnings for the most recent four quarters. Pursuant to such OTS
dividend regulations, Winton Savings had the ability to pay dividends of
approximately $6.3 million to Winton Financial at September 30, 1998.
NOTE O - BUSINESS COMBINATION
On December 4, 1998, the Corporation's Board of Directors approved a
business combination whereby BenchMark Federal Savings Bank ("BenchMark")
would merge with and into Winton Savings. The merger is expected to be
completed during fiscal 1999 pending regulatory and BenchMark shareholder
approval. The business combination will be accounted for as a
pooling-of-interests and, accordingly, the assets, liabilities and capital
of the respective combining companies will be added together at historic
carrying value. Unaudited pro-forma condensed, combined financial
information of the Corporation and BenchMark as of and for the year ended
September 30, 1998, is as follows:
<TABLE>
<CAPTION>
Winton Pro-forma
Financial BenchMark combined
(unaudited) (unaudited)
(In thousands, except share data)
<S> <C> <C> <C>
Total assets $354,193 $54,710 $408,903
======= ====== =======
Total liabilities $327,301 $51,215 $378,516
======= ====== =======
Shareholders' equity $ 26,892 $ 3,495 $ 30,387
======= ====== =======
Total revenue $ 29,251 $ 3,923 $ 33,174
Total expense 25,194 3,845 29,039
------- ------ -------
Net earnings $ 4,057 $ 78 $ 4,135
======= ====== =======
Basic earnings per share $1.01 $.69 $.94
==== === ===
</TABLE>
49
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant[X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
WINTON FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------
3) Filing Party:
--------------------------------------
4) Date Filed:
<PAGE>
WINTON FINANCIAL CORPORATION
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of
Winton Financial Corporation ("WFC") will be held at Shuller's Wigwam
Restaurant, 6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 29, 1999, at
10:00 a.m., Eastern Standard Time (the "Annual Meeting"), for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
To reelect three directors of WFC for terms expiring in 2002;
To consider and vote upon a proposed amendment to Article Fourth of
the amended Articles of Incorporation of WFC to increase the
authorized number of shares from 7,000,000 to 20,000,000,
18,000,000 of which will be common shares, each without par
value, and 2,000,000 of which will be preferred shares, each
without par value;
To consider and vote upon the Winton Financial Corporation 1999
Stock Option and Incentive Plan, a copy of which is attached
hereto as Exhibit A;
To consider and vote upon the ratification of the selection of Grant
Thornton LLP as the auditors of WFC for the current fiscal year;
and
To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
Only shareholders of WFC of record at the close of business on December
11, 1998, will be entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments thereof.
Whether or not you expect to attend the Annual Meeting, we urge you to
consider the accompanying Proxy Statement carefully and to SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The
giving of a Proxy does not affect your right to vote in person in the event you
attend the Annual Meeting.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 28, 1998 President
<PAGE>
WINTON FINANCIAL CORPORATION
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
PROXY STATEMENT
PROXIES
The enclosed Proxy is being solicited by the Board of Directors of
Winton Financial Corporation, an Ohio corporation ("WFC"), for use at the 1999
Annual Meeting of Shareholders of WFC to be held at Shuller's Wigwam Restaurant,
6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 29, 1999, at 10:00 a.m.,
Eastern Standard Time, and at any adjournments thereof (the "Annual Meeting").
Without affecting any vote previously taken, the Proxy may be revoked by a
shareholder before exercise by executing a later-dated Proxy or by giving notice
of revocation to WFC in writing or in open meeting. Attendance at the Annual
Meeting will not, of itself, revoke a Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of Messrs. Robert E. Hoeweler, Timothy M. Mooney
and J. Clay Stinnett as directors of WFC for terms expiring in 2002;
FOR the adoption of an amendment to Article Fourth of the amended
Articles of Incorporation of WFC (the "Amended Articles") to increase
the authorized number of shares from 7,000,000 to 20,000,000,
18,000,000 of which will be common shares, each without par value, and
2,000,000 of which will be preferred shares, each without par value
(the "Amendment");
FOR the approval of the Winton Financial Corporation 1999 Stock Option
and Incentive Plan (the "1999 Stock Option Plan"), a copy of which is
attached hereto as Exhibit A; and
FOR the ratification of the selection of Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year.
Proxies may be solicited by the directors, officers and other employees
of WFC and The Winton Savings and Loan Co., the wholly-owned subsidiary of WFC
("Winton"), in person or by telephone, telegraph, telecopy or mail. WFC may
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to beneficial
owners. The cost of soliciting proxies will be borne by WFC.
Only shareholders of record as of the close of business on December 11,
1998 (the "Voting Record Date"), are eligible to vote at the Annual Meeting and
will be entitled to cast one vote for each share of WFC (the "Common Shares")
owned. WFC's records disclose that, as of the Voting Record Date, there were
4,015,304 votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of WFC on or
about December 28, 1998.
<PAGE>
VOTE REQUIRED
Election of Directors
Under Ohio law and the Code of Regulations of WFC (the "Regulations"),
the three nominees receiving the greatest number of votes will be elected as
directors. Common Shares as to which the authority to vote is withheld and
shares held by a nominee for a beneficial owner that are represented in person
or by proxy at the Annual Meeting, but not voted with respect to the election of
directors ("Non-votes"), are not counted toward the election of directors or
toward the individual nominees specified in the enclosed Proxy. If the enclosed
Proxy is signed and dated by the shareholder, but no vote is specified thereon,
the Common Shares held by such shareholder will be voted FOR the reelection of
the three nominees.
Adoption of Amendment, Approval of 1999 Stock Option Plan and Ratification of
Selection of Auditors
The affirmative vote of the holders of at least a majority of the
outstanding Common Shares, voting in person or by proxy, is necessary to approve
the Amendment and the 1999 Stock Option Plan and to ratify the selection of
Grant Thornton as the auditors of WFC for the current fiscal year. The effect of
an abstention or a Non-vote is the same as a vote against the Amendment, against
the 1999 Stock Option Plan and against ratification. If the accompanying Proxy
is signed and dated by the shareholder, but no vote is specified thereon, the
Common Shares held by such shareholder will be voted FOR the adoption of the
Amendment, FOR the approval of the 1999 Stock Option Plan and FOR the
ratification of the selection of Grant Thornton as auditors.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons known to WFC to own beneficially more than five percent of the
Common Shares as of December 1, 1998:
<TABLE>
<CAPTION>
Amount and Nature Percentage of Common
Name and Address of Beneficial Ownership (1) Shares Outstanding (2)
- ---------------- ----------------------- --------------------
<S> <C> <C>
Star Bank, N.A., as Trustee 321,992 (3) 8.02%
P.O. Box 1118
Cincinnati, Ohio 45201
Daniel P. Randolph 239,608 (4) 5.97%
Suite 700
105 East Fourth Street
Cincinnati, Ohio 45202
Henry L. Schulhoff 289,800 (5) 7.13%
7 West Seventh Street
Cincinnati, Ohio 45202
</TABLE>
- -----------------------------
(1) A person is the beneficial owner of Common Shares if such person, directly
or indirectly, has sole or shared voting or investment power over such
shares directly or indirectly or has the right to acquire such voting or
investment power within 60 days. All Common Shares are owned directly with
sole voting or investment power, unless otherwise indicated by footnote.
All stock options granted under the Winton Financial Corporation Stock
Option and Incentive Plan, as amended (the "1988 Option Plan"), are
currently exercisable.
(2) For each person, assumes a total of 4,015,304 Common Shares outstanding,
plus the number of Common Shares such person may acquire pursuant to the
1988 Option Plan, if any.
(Footnotes continue on next page)
2
<PAGE>
(3) The Common Shares are held by Star Bank, N.A., as trustee under The Winton
Financial Corporation Employee Stock Ownership Plan (the "ESOP"). Star
Bank, N.A., has investment power with respect to all of such common shares
and voting power with respect to the unallocated common shares.
(4) Based on a Schedule 13G filed with the Securities and Exchange Commission
by Daniel P. Randolph. Includes 42,144 Common Shares held by Daniel P.
Randolph in an individual retirement account; 178,164 Common Shares owned
as trustee under a trust for the benefit of R. Irene Randolph; 10,800
Common Shares owned as trustee under a trust for the benefit of Ronald I.
Oldiges; and 8,500 Common Shares owned as trustee under a trust for the
benefit of Charles Randolph.
(5) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by Mr. Schulhoff's spouse as to which
Mr. Schulhoff disclaims beneficial ownership; and 14,200 Common Shares
owned by Schulhoff & Company, Inc., a corporation of which Mr. Schulhoff is
a major shareholder.
The following table sets forth certain information with respect to the
number of Common Shares beneficially owned by each director of WFC and by all
directors and executive officers of WFC as a group as of December 1, 1998:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Common
Name and Address (1) Beneficial Ownership (2) Shares Outstanding (3)
- ----------------- --------------------- -------------------
<S> <C> <C>
Robert J. Bollin 92,940 (4) 2.29%
Robert L. Bollin 193,508 (5) 4.73
Robert E. Hoeweler 181,200 (6) 4.46
Thomas H. Humes 12,000 (7) 0.30
Timothy M. Mooney 12,000 (8) 0.30
William J. Parchman 181,835 (9) 4.48
Henry L. Schulhoff 289,800 (10) 7.13
J. Clay Stinnett 11,000 (11) 0.27
All directors and executive officers
of WFC as a group (12 persons) 1,290,789 (12) 29.15%
</TABLE>
(1) Each of the persons listed in this table may be contacted at the address of
WFC, 5511 Cheviot Road, Cincinnati, Ohio 45247.
(2) A person is the beneficial owner of Common Shares if such person, directly
or indirectly, has sole or shared voting or investment power over such
shares directly or indirectly or has the right to acquire such voting or
investment power within 60 days. All Common Shares are owned directly with
sole voting and investment power, unless otherwise indicated by footnote.
All stock options granted under the 1988 Option Plan are currently
exercisable.
(3) For each person, assumes a total of 4,015,304 Common Shares outstanding,
plus the number of Common Shares such person may acquire pursuant to the
1988 Option Plan, if any.
(4) Includes 40,000 Common Shares that may be acquired upon the exercise of
options and 52,940 Common Shares held in the individual retirement account
of Robert J. Bollin, the trustee of which is A. G. Edwards, Inc.
(5) Includes 80,000 Common Shares that may be acquired upon the exercise of
options; 37,453 Common Shares held for the benefit of Robert L. Bollin in
The Winton Savings and Loan Co. Cash and Deferred Plan (the "Deferred
Plan"), the trustees of which are James W. Brigger, Robert L. Bollin and
Mary Ellen Lovett, executive officers of WFC; 34,415 Common Shares held for
the benefit of Robert L. Bollin in the ESOP; 1,360 Common Shares held by
the individual retirement account of Robert L. Bollin, the trustee of which
is Merrill Lynch; 36,080 Common Shares held jointly with Mr. Bollin's
spouse; 4,000 Common Shares held by A. G. Edwards, Inc., for the benefit of
Elaine Bollin; and 200 Common Shares held by Elaine Bollin as custodian for
Anthony Bollin.
(Footnotes continue on next page)
3
<PAGE>
(6) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 51,600 Common Shares held jointly with Mr. Hoeweler's spouse;
39,800 Common Shares owned as trustee under a trust for the benefit of
Brian Hoeweler; and 39,800 Common Shares owned as trustee under a trust for
the benefit of Jennifer Hoeweler.
(7) Includes 10,000 Common Shares that may be acquired upon the exercise of an
option and 2,000 Common Shares held by Prudential Securities for the
benefit of Thomas H. and Marcia Humes.
(8) Includes 10,000 Common Shares that may be acquired upon the exercise of an
option and 2,000 Common Shares held by PaineWebber for the benefit of
Timothy M. Mooney.
(9) Includes 40,000 Common Shares that may be acquired upon the exercise of
options; 114,480 Common Shares held in the individual retirement account of
William J. Parchman, the trustee of which is Alex Brown & Sons, Inc.; and
14,075 Common Shares owned by Mr. Parchman's spouse.
(10) Includes 50,000 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by Mr. Schulhoff's spouse, as to which
Mr. Schulhoff disclaims beneficial ownership; and 14,200 Common Shares
owned by Schulhoff & Company, Inc., a corporation of which Mr. Schulhoff is
a major shareholder.
(11) Includes 10,000 Common Shares that may be acquired upon the exercise of an
option and 1,000 Common Shares held by Merrill Lynch for the benefit of J.
Clay Stinnett.
(12) Includes 414,000 Common Shares that may be acquired upon the exercise of
options and 111,135 Common Shares held in the ESOP.
PROPOSAL ONE - REELECTION OF DIRECTORS
The Regulations provide for a Board of Directors consisting of nine
persons, divided into three classes of three directors each. Each class serves
for a three-year period. Each of the directors of WFC is also a director of
Winton.
The entire Board of Directors of WFC acts as a nominating committee for
selecting nominees for election as directors. In accordance with Section 2.03 of
the Regulations, nominees for election as directors may be proposed only by the
directors or by a shareholder entitled to vote for directors if such shareholder
has submitted a written nomination to the Secretary of WFC by the later of the
February 1st immediately preceding the annual meeting of shareholders or the
sixtieth day before the first anniversary of the most recent annual meeting of
shareholders held for the election of directors. Each such written nomination
must state the name, age, business or residence address of the nominee, the
principal occupation or employment of the nominee, the number of Common Shares
owned either beneficially or of record by each such nominee and the length of
time such Common Shares have been so owned.
The Board of Directors proposes the reelection of the following
directors to terms which will expire in 2002:
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held Director Since
---- ---- ---------------- --------------
<S> <C> <C> <C>
Robert E. Hoeweler 51 Director 1989
Timothy M. Mooney 51 Director 1996
J. Clay Stinnett 47 Director 1996
</TABLE>
- -----------------------------
(1) As of December 1, 1998.
If any nominee is unable to stand for election, the Proxies will be
voted for such substitute as the Board of Directors recommends. At this time,
the Board of Directors knows of no reason why any nominee would be unable to
serve if elected. No shareholder may cumulate votes in the election of
directors. There is presently one vacancy on the Board of Directors in the class
of directors which will stand for election in January 2000, which resulted from
the decision of a director not to stand for re-election in 1997.
4
<PAGE>
The following directors will continue to serve after the Annual Meeting
for the terms indicated:
<TABLE>
<CAPTION>
Position(s) Director Term
Name Age(1) Held Since Expires
<S> <C> <C> <C> <C>
Robert J. Bollin (2) 76 Director 1989 2001
Robert L. Bollin (2) 46 Director and President 1989 2000
Thomas H. Humes 49 Director 1996 2001
William J. Parchman 79 Director and 1989 2000
Chairman of the Board
Henry L. Schulhoff 54 Director 1989 2001
</TABLE>
- -----------------------------
(1) As of December 1, 1998.
(2) Robert L. Bollin, a director and the President of WFC, is the son of Robert
J. Bollin, a director of WFC, and a brother of Gregory J. Bollin, a Vice
President of WFC.
Robert E. Hoeweler was elected to the Board of Directors of Winton in 1988.
Mr. Hoeweler is a certified public accountant. Since 1972, Mr. Hoeweler has been
active in the management of a group of family-owned companies which includes
Aluminum Extruded Shapes, Inc.
Timothy M. Mooney has served as Vice President and Chief Financial Officer
of Kendle International Inc., a clinical research organization in Cincinnati,
since 1996. From 1994 to 1995, he served as Vice President, Chief Financial
Officer and Treasurer of The Future Now, Inc., a computer reseller located in
Cincinnati. From 1988 to 1994, Mr. Mooney served as Senior Vice President and
Chief Financial Officer of Hook-SupRx, Inc., a retail drug store chain.
J. Clay Stinnett has served since 1993 as President and a director of J.R.
Concepts, Inc., a direct mail advertising company in Cincinnati. Prior to 1993,
Mr. Stinnett spent almost 20 years in the banking business, including serving as
President and Chief Operating Officer of PNC Bank, N.A. (formerly The Central
Trust Co., N.A.), until 1992.
Robert J. Bollin began his banking career in 1947 as an office manager for
Cincinnati Federal Savings Association in Price Hill. He then moved to the
O'Bryonville Savings and Loan Association, where he served as Assistant
Secretary and Chief Executive Officer. In 1955, Mr. Bollin joined Winton as
Secretary and Chief Executive Officer. He has since retired from his positions
as Secretary and Chief Executive Officer, but still participates in Winton's
business as a Vice President and an appraiser of construction loans. Mr. Bollin
has been active in the McAuley High School Development Board and the LaSalle
High School Advisory Board.
Robert L. Bollin has been the President and a director of Winton since 1988
and the President and a director of WFC since incorporation in November 1989.
Mr. Bollin joined Winton in 1969, initially working part time while completing a
degree in Business Management at Miami University. In 1979, he was promoted to
Secretary and Assistant Managing Officer of Winton, responsible for managing
Winton's accounting operations, developing and implementing Winton's investment
policy in consultation with the Board of Directors and managing the day-to-day
operations of Winton.
Thomas H. Humes has served as President of Great Traditions Land and
Development Co., a real estate and land development company in Cincinnati, for
the past six years.
William J. Parchman has served as a director of Winton for 43 years. A
graduate of the University of Cincinnati, he received his law degree and was
admitted to the practice of law in Ohio in 1949. Mr. Parchman was the founder of
Parchman & Oyler Company Realtors which, at its peak, was Cincinnati's largest
residential real estate company. Mr. Parchman served as National Alumni
President of the University of Cincinnati and more recently as Chairman of the
Board of the University of Cincinnati Foundation. He was also a director of the
Cincinnati Metropolitan Housing Authority for 18 years, past president of the
Cincinnati Board of Realtors and President of Clovernook Country Club. Mr.
Parchman was the first recipient of the Carl H. Lindner Medal for Outstanding
Business Achievement presented by the College of Business Administration Alumni
Association, University of Cincinnati.
5
<PAGE>
Henry L. Schulhoff became a director of Winton in February 1988. Since
1976, Mr. Schulhoff has been the President of Schulhoff and Company, Inc., a
local investment counseling firm.
Meetings of Directors
The Board of Directors of WFC met 12 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1998. Each director
attended at least 75% of the aggregate of such meetings.
The Board of Directors of Winton met 12 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1998. Each director
attended at least 75% of the aggregate of such meetings.
Committees of Directors
The Board of Directors of WFC has no standing committees. Nominations for
election of directors are determined by the entire Board of Directors. See
"Election of Directors."
The committees of the Board of Directors of Winton includes an Audit
Committee, an Executive Committee, a Loan Committee, a Compensation Committee,
an ESOP Committee and a Stock Option Committee. Each director attended at least
75% of the aggregate of all meetings of each committee on which he served as a
regular member.
The members of Winton's Audit Committee are Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Audit Committee is to
communicate with WFC outside auditors and to recommend to the Board of Directors
a firm of accountants to serve as independent auditors for WFC. The Audit
Committee met twice during the fiscal year ended September 30, 1998.
The members of the Executive Committee are Robert L. Bollin, Robert E.
Hoeweler, William J. Parchman and Henry L. Schulhoff. The function of the
Executive Committee is to examine, together with management, levels and methods
of investment, to review and evaluate alternative and additional investment
programs and to consider and establish interest rates on the various forms of
savings deposits and mortgage loans. The Executive Committee met 32 times during
the fiscal year ended September 30, 1998.
Winton's Loan Committee is comprised of Robert J. Bollin, William J.
Parchman and Henry L. Schulhoff. Robert L. Bollin serves as alternate. The
function of the Loan Committee is to approve loan applications and exercise the
authority of the Board of Directors when the Board is not in session, subject to
certain limitations. The Loan Committee met 37 times during the fiscal year
ended September 30, 1998.
Winton's Compensation Committee consists of Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Compensation Committee is to
confer with management and make recommendations to the Board of Directors
regarding the compensation of Winton's executive officers and employees. The
Compensation Committee met once during the fiscal year ended September 30, 1998.
The ESOP is administered by a committee of at least three directors
designated by the Board of Directors. The ESOP committee presently consists of
Robert J. Bollin, Robert E. Hoeweler and William J. Parchman. The ESOP Committee
did not meet during the fiscal year ended September 30, 1998.
The Stock Option Committee is responsible for administering the 1988 Option
Plan, including interpreting the 1988 Option Plan and awarding options pursuant
to its terms. The 1988 Stock Option Committee did not meet during the fiscal
year ended September 30, 1998. The current members of the Stock Option Committee
are Robert L. Bollin, Robert E. Hoeweler, William J. Parchman and Henry L.
Schulhoff.
6
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of WFC, other than those who are also directors:
<TABLE>
<CAPTION>
Name Age(1) Position(s) Held
<S> <C> <C>
Gregory J. Bollin 44 Vice President
Jill M. Burke 36 Treasurer and Chief
Financial Officer
James W. Brigger 50 Secretary
Mary Ellen Lovett 60 Vice President
</TABLE>
- -----------------------------
(1) As of December 1, 1998.
Gregory J. Bollin is a Vice President of WFC, a position he has held since
January 1994. Mr. Bollin also serves as Executive Vice President of Winton, a
position he has held since January 1993. Mr. Bollin served as Vice President of
Winton from 1988 until January 1993. Mr. Bollin is the brother of Robert L.
Bollin and the son of Robert J. Bollin.
Jill M. Burke is the Treasurer and Chief Financial Officer of WFC, a
position she has held since 1989. Ms. Burke also serves as Treasurer and
Controller of Winton, a position she has held since 1989.
James W. Brigger is the Secretary of WFC, a position he has held since
1989. Mr. Brigger also serves as Vice President of Winton.
Mary Ellen Lovett is a Vice President of WFC, a position she has held since
January 1994. Ms. Lovett also serves as Senior Vice President of Winton, a
position she has held since January 1993. Ms. Lovett served as Vice President of
Winton from 1988 to May 1993.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation
WFC does not pay directors fees. Each director of Winton receives $12,000
annually for monthly meetings and $100 for each meeting attended of a committee
of the Board of Directors of Winton, except for meetings of the Executive
Committee for which members receive $200 per meeting.
Executive Compensation
WFC does not pay any compensation to its executive officers. Executive
officers of Winton are compensated by Winton for services rendered to Winton.
Except for the President and Executive Vice President of Winton, no director or
executive officer of WFC received more than $100,000 in salary and bonus
payments from Winton during the year ended September 30, 1998.
7
<PAGE>
The following table sets forth certain information with respect to
compensation paid to the President and Executive Vice President of Winton:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Awards All Other
- --------------------------------------------------------------------------------------------------------------------
Options/SARs Compensation
Name and Principal Position Year Salary($) Bonus($) (#)(1) ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert L. Bollin, President 1998 $165,330 $52,000 - $8,567 (2)
1997 $158,599 $16,000 - $8,352 (2)
1996 $153,649 $16,000 20,000 $6,929 (2)
Gregory J. Bollin, Executive 1998 $120,669 $39,000 - $7,034 (3)
Vice President 1997 $115,569 $13,000 - $6,293 (3)
1996 $109,838 $13,000 12,000 $4,789 (3)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------
(1) These figures represent the number of Common Shares underlying options
granted to the named individuals during the year indicated pursuant to the
1988 Option Plan. Mr. Robert L. Bollin's and Mr. Gregory J. Bollin's
outstanding options were adjusted for the two 2-for-1 stock splits in the
form of stock dividends effective in 1993, 1994 and 1998. WFC has no
restricted stock awards or stock appreciation rights ("SARs").
(2) Consists of cash or stock contributions to the ESOP or the reallocation of
forfeited shares in the ESOP of $6,157, $6,202 and $4,862 allocated to Mr.
Robert L. Bollin's account and $2,410, $2,150 and $2,067 in matching
contributions to the Deferred Plan for Mr. Robert L. Bollin's account for
the years ended September 30, 1998, 1997 and 1996, respectively.
(3) Consists of cash or stock contributions to the ESOP or the reallocation of
forfeited shares in the ESOP of $6,144, $5,316 and $3,982 allocated to Mr.
Gregory J. Bollin's account and $890, $977 and $807 in matching
contributions to the Deferred Plan for Mr. Gregory J. Bollin's account for
the years ended September 30, 1998, 1997 and 1996, respectively.
Option Plan
In 1988, Winton converted from mutual to stock form (the "Conversion"). In
connection with the Conversion, the shareholders of Winton approved the 1988
Stock Option Plan. In 1990, the shareholders of Winton approved the
reorganization of Winton into a holding company structure, as a result of which
the shareholders of Winton became shareholders of WFC and Winton became a
wholly-owned subsidiary of WFC. The shareholders of WFC approved certain
amendments to the 1988 Stock Option Plan at the 1995 Annual Meeting of
Shareholders.
Pursuant to the 1988 Stock Option Plan, WFC has reserved 523,000 Common
Shares for issuance upon the exercise of options granted to directors and
employees of WFC. On December 1, 1998, options to purchase 480,000 Common Shares
were outstanding and exercisable. On August 8, 1998, the ten-year anniversary of
the effective date of the Conversion, the 1988 Stock Option Plan terminated. No
additional options may be granted under the 1988 Stock Option Plan.
Options granted to employees of Winton may be "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code (the
"Code"), while options granted to non-employee directors do not qualify as ISOs.
See "PROPOSAL THREE APPROVAL OF WINTON FINANCIAL CORPORATION 1999 STOCK OPTION
AND INCENTIVE PLAN - Tax Treatment of Incentive Stock Options."
8
<PAGE>
No option granted under the 1988 Stock Option Plan may be exercised
after the expiration of ten years from the date of grant, and an option
recipient generally cannot transfer or assign an option other than by will or in
accordance with the laws of descent and distribution.
The following table sets forth information regarding the number and
value of unexercised options granted pursuant to the 1988 Stock Option Plan held
by the persons listed in the Summary Compensation Table. No stock appreciation
rights have been granted under the 1988 Stock Option Plan.
<TABLE>
<CAPTION>
Aggregate Option/SAR Exercises in Last Fiscal Year and 9/30/98 Option/SAR Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs
Options/SARs at 9/30/98(#) at 9/30/98($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized ($) Unexercisable Unexercisable
- ---- ----------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Robert L. Bollin - - 80,000/ - $950,000/ -
Gregory J. Bollin - - 48,000/ - $570,000/ -
</TABLE>
- ------------------------
(1) An option is "in-the-money" if the fair value of the underlying stock
exceeds the market price of the option. The figure represents the value of
such unexercised options, determined by multiplying the number of
unexercised options by the difference between the exercise price of such
options and the $11.875 closing bid price for the Common Shares reported by
the American Stock Exchange ("AMEX"), on September 30, 1998.
Employment Contracts
WFC and Winton have entered into employment agreements with Robert L.
Bollin, President of WFC and Winton, and Gregory J. Bollin, Vice President of
WFC and Executive Vice President of Winton, which expire on April 30, 2001. The
employment agreements have a term of three years and provide for an annual
salary of not less than $182,000 for Robert L. Bollin and $134,000 for Gregory
J. Bollin and an annual salary and performance review by the Board of Directors.
The employment agreements require the inclusion of Robert L. and Gregory J.
Bollin in any formally established employee benefit, bonus, pension and profit
sharing plans for which senior management personnel are eligible and also
provide for vacation and sick leave.
The employment agreements are terminable by WFC and Winton at any time.
If the employment of either Robert L. Bollin or Gregory J. Bollin is terminated
at any time during such three-year term for any reason other than "just cause"
(as defined in the agreements), he will be entitled to receive his annual
compensation for the remainder of the three-year term of the agreement and a
continuation of benefits substantially equal to those being provided at the date
of termination of employment until the earliest to occur of the expiration of
the term of the employment agreement or the date on which the employee becomes
employed full-time by another employer.
If such employment is terminated, or if the position or
responsibilities of the employee is changed, in connection with or within one
year of a change in control of WFC or Winton, he will be entitled to receive an
amount equal to his then current annual compensation, multiplied by three,
subject to reduction to the extent necessary to comply with certain provisions
of the Internal Revenue Code of 1986, as amended, and regulations of the Office
of Thrift Supervision. Assuming employment termination in connection with such a
change of control, the maximum payment to Robert L. Bollin would be $546,000 and
to Gregory J. Bollin would be $402,000 or three times the greater of the minimum
salary levels in the agreements or the salary levels for fiscal 1998 reflected
in the Summary Compensation Table above.
9
<PAGE>
Personnel and Salary Committee Report on Executive Compensation
As a unitary savings and loan holding company, the business of WFC
consists principally of holding the stock of Winton. The functions of the
executive officers of WFC, who are also the executive officers of Winton,
pertain primarily to the operations of Winton. The executive officers receive
their compensation, therefore, from Winton, rather than from WFC. The
Compensation Committee of Winton has furnished the following report concerning
executive compensation:
Process for Determining Compensation
WFC has not paid any cash compensation to its executive officers since
its formation. All executive officers of WFC also currently hold positions with
Winton and receive cash compensation from Winton. Decisions on cash compensation
of Winton's executives are made by the three-member Compensation Committee of
Winton's Board of Directors.
The Compensation Committee reviews the compensation levels of the
executive officers, including the CEO, each year. The Compensation Committee
utilizes independent surveys of compensation of officers in the thrift industry,
taking into account comparable asset bases and geographic locations. The
Compensation Committee also assesses each particular executive officer's
contribution to WFC and Winton, the skills and experiences required by his/her
position and the potential of the executive officer. Based on the foregoing
factors, recommendations are made by the Compensation Committee to the Board of
Directors of Winton. Such recommendations are reviewed by the Board of Directors
of Winton, except that Board members who are also executive offices do not
participate in deliberations regarding their own respective compensation.
Compensation Policies toward Executive Officers Generally
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that will attract and
retain qualified executives and will reward individual performance, initiative
and achievement, while enhancing overall corporate performance and shareholder
value. The cash compensation program for executive officers consists of three
elements, a base salary component, a discretionary cash bonus, and an incentive
component payable under an incentive plan (the "Incentive Plan").
The objectives of the discretionary cash bonuses are to motivate and
reward the executive officers based on each individual's contribution to the
total performance of Winton and WFC and to reinforce a strong performance
orientation.
The objectives of the Incentive Plan are to motivate and reward the
executive officers in connection with the accomplishment of annual objectives of
Winton and WFC, to reinforce a strong performance orientation with
differentiation and variability in individual awards based on contribution to
annual and long range business results and to provide a competitive compensation
package which will attract, reward and retain individuals of the highest
quality. For the President and the Executive Vice President of Winton and the
President and Vice President of WFC, incentive awards are determined as a
percentage of gross income, which percentage is calculated utilizing a corporate
goal factor and a performance factor. The corporate goal factor is based upon
WFC's achievement of certain levels of earnings and a predetermined return on
equity. The performance factor is based upon the particular executive officer's
performance during the preceding year.
Determination of CEO's Compensation
The Compensation Committee based the compensation of Mr. Robert L.
Bollin in 1998 on the policies described above for executive officers. The
corporate profitability measurements considered were return on equity, net
income, earnings per share and return on assets. Additional corporate goals
considered were merger and acquisition activities, continued updating and
implementation of Winton's strategic plan and subsidiary oversight and progress.
The Compensation Committee believes that the level of compensation paid to Mr.
Robert L. Bollin in 1998 was fair and reasonable when compared with compensation
levels in the thrift industry reported in various independent surveys. The
compensation earned by Mr. Robert L. Bollin in 1998 reflects the significant
management and leadership responsibilities required of him and the effective
manner in which those responsibilities were fulfilled.
10
<PAGE>
Submitted by the Compensation Committee of Winton's Board of Directors
Thomas H. Humes
Timothy M. Mooney
J. Clay Stinnett
Personnel and Salary Committee Interlocks
During fiscal 1998, no member of the Compensation Committee was a
current or former executive officer or employee of WFC or Winton or had a
reportable business relationship with WFC or Winton.
Performance Graph
The following graph compares the cumulative total return on WFC's
common shares for the fiscal year ended September 30, 1998, with the cumulative
total return of the SNL Index, which is an index of banks whose shares are
traded on The New York Stock Exchange, AMEX or The Nasdaq Stock Market, and the
cumulative total return of the Standard and Poor's 500 for the same period.
[Includes a graph showing the performance of the three indices from September
30, 1993 to September 30, 1998.]
<TABLE>
<CAPTION>
Index 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
<S> <C> <C> <C> <C> <C> <C>
WFC 100.0 173.33 173.33 165.00 231.67 316.67
Nasdaq Bank 100.0 110.47 138.62 164.48 271.08 221.60
Index
S&P 500 Index 100.0 100.82 127.34 149.76 206.41 221.60
</TABLE>
Certain Transactions with Winton
Some of the directors and officers of WFC and Winton were customers of
and had transactions with Winton in the ordinary course of Winton's business
during the two years ended September 30, 1998. All loans and commitments to loan
included in such transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of the management of WFC, do not involve more than a normal risk of
collectibility or present other unfavorable features. Winton had no loans
outstanding to directors and executive officers at December 1, 1998.
11
<PAGE>
PROPOSAL TWO - APPROVAL OF AMENDMENT TO ARTICLES
On November 20, 1998, the Board of Directors of WFC unanimously
approved and recommended that the shareholders consider and approve an amendment
to Article Fourth of the Amended Articles that would increase the number of
WFC's authorized Common Shares from 5,000,000 shares to 18,000,000 shares.
The Amended Articles currently authorize 7,000,000 shares, consisting
of 5,000,000 Common Shares, each without par value, and 2,000,000 preferred
shares, each without par value. As of the Voting Record Date, there were
4,015,304 Common Shares issued and outstanding, 480,000 Common Shares reserved
for issuance upon the exercise of options and no preferred shares issued. On
December 4, 1998, WFC and BenchMark Federal Savings Bank, a federal savings bank
("BenchMark"), jointly announced the execution of a merger agreement (the
"Merger Agreement") that provides for the merger of BenchMark with and into
Winton (the "Merger"). Pursuant to the terms of the Merger Agreement, WFC will
issue 3.35 of its Common Shares for each of the 112,307 outstanding shares of
BenchMark, or an aggregate of 376,228 Common Shares. Following the consummation
of the Merger, therefore, only 128,468 Common Shares will be available for
future acquisitions, stock dividends, stock options or other corporate purposes.
In considering the Amendment, the Board of Directors concluded that it
would be advisable for the additional Common Shares to be available for issuance
at the discretion of the Board in connection with acquisitions, stock dividends,
stock splits and for any other purpose determined by the Board to be in the best
interests of WFC, without the delay attendant upon obtaining shareholder
approval prior to each issuance. Where approval by shareholders is otherwise
required for the issuance of Common Shares, whether by Ohio law, the rules of
the AMEX or other applicable requirement, such approval by shareholders will be
sought.
The Board of Directors of WFC recommends that the shareholders approve
the Amendment. Accordingly, the shareholders of WFC will be asked to approve the
following resolution at the Annual Meeting:
RESOLVED, that Article Fourth of the Amended Articles of Incorporation
of Winton Financial Corporation be, and it hereby is, deleted in its
entirety and replaced with the following new Article Fourth:
FOURTH: The authorized number of shares of the corporation
shall be twenty million (20,000,000), eighteen million
(18,000,000) of which shall be common shares, each without par
value, and two million (2,000,000) of which shall be preferred
shares, each without par value.
The directors of the corporation are authorized to adopt
amendments to the Articles of Incorporation in respect of any
unissued or treasury common and preferred shares and thereby
to fix or change, to the full extent now or hereafter
permitted by Ohio law: the division of such shares into series
and the designation and authorized number of shares of each
series; the dividend rate; the dates of payment of dividends
and the dates from which they are cumulative; the liquidation
price; the redemption rights and price; the sinking fund
requirements; the conversion rights; the restrictions on the
issuance of shares of any class or series; and such other
rights, preferences and limitations as shall not be
inconsistent with this Article Fourth.
Except as hereinafter provided and as may otherwise be
required by the laws of the State of Ohio, all voting power of
the corporation for all purposes is vested exclusively in the
holders of the common shares. The holders of common shares
shall be entitled to one vote for each common share held. The
holders of the preferred shares shall not be entitled to vote
at meetings of the shareholders of the corporation or to
receive notices of such meetings; provided, however, that in
the event dividends on the preferred shares, if any, shall at
any time become in arrears, the holders of the preferred
shares shall thereupon become entitled to one vote for each
preferred share held and to notice of all meetings of the
shareholders. Such voting and notice rights of the preferred
shareholders shall continue until all dividends in arrears on
the preferred shares shall have been paid in full, whereupon
such voting and notice rights of the preferred shareholders
shall cease and terminate.
All Common Shares, including those now authorized and those which would
be authorized by the Amendment, are equal in rank and have the same voting,
dividend and liquidation rights. Holders of WFC shares do not have pre-emptive
rights. Any increase in the number of authorized Common Shares will have no
immediate dilutive effect on the proportionate voting power of shareholders.
12
<PAGE>
However, the future issuance of additional Common Shares or preferred shares
could have a dilutive effect on the proportionate voting power, earnings per
share and book value per share of present shareholders. Under some
circumstances, the issuance of new shares may discourage certain potential
business combinations which some shareholders may believe to be in their best
interest and make more difficult management changes which might occur if the
potential business combination were successful.
PROPOSAL THREE - APPROVAL OF WINTON FINANCIAL CORPORATION
1999 STOCK OPTION AND INCENTIVE PLAN
General
The following is a summary of the terms of the 1999 Stock Option Plan
and is qualified in its entirety by reference to the full text of the 1999 Stock
Option Plan, a copy of which is attached hereto as Exhibit A.
Purpose, Administration and Eligibility
The purpose of the Stock Option Plan is to promote and advance the
interests of WFC and its shareholders by enabling WFC to attract, retain and
reward directors, managerial and other key employees of WFC and any subsidiary,
including Winton, and to strengthen the mutuality of interests between such
directors and employees and WFC's shareholders by providing such persons with a
proprietary interest in pursuing the long-term growth, profitability and
financial success of WFC. Pursuant to the Stock Option Plan, 401,530 Common
Shares have been reserved for issuance by WFC upon the exercise of options to be
granted to certain directors, officers and employees of WFC and Winton from time
to time under the 1999 Stock Option Plan. At December 1, 1998, approximately 20
persons were eligible to receive options granted under the 1999 Stock Option
Plan.
The Stock Option Plan will be administered by the Stock Option
Committee, a committee of directors composed of at least three directors of WFC.
The Stock Option Committee may grant options under the 1999 Stock Option Plan at
such times as they deem most beneficial to Winton and WFC on the basis of the
individual participant's position and duties and the value of the individual's
services and responsibilities to Winton and WFC.
Without further approval of the shareholders, the Board of Directors
may at any time terminate the 1999 Stock Option Plan or may amend it from time
to time in such respects as the Board of Directors may deem advisable, except
that the Board of Directors may not, without the approval of the shareholders,
make any amendment which would (a) increase the aggregate number of Common
Shares that may be issued under the 1999 Stock Option Plan (except for
adjustments to reflect certain changes in the capitalization of WFC), (b)
materially modify the requirements as to eligibility for participation in the
1999 Stock Option Plan, or (c) materially increase the benefits accruing to
participants under the 1999 Stock Option Plan. Notwithstanding the foregoing,
the Board of Directors may amend the 1999 Stock Option Plan to take into account
changes in applicable securities, federal income tax and other applicable laws.
Option Terms
Options granted to the officers and employees under the 1999 Stock
Option Plan may be ISOs within the meaning of Section 422 of the Code, or may be
options which do not qualify under Section 422 of the Code ("Non-Qualified Stock
Options"). Options granted under the 1999 Stock Option Plan to directors who are
not employees of WFC or Winton will be Non-Qualified Stock Options.
The exercise price of each option granted under the 1999 Stock Option
Plan will be determined by the Stock Option Committee at the time the option is
granted. However, the exercise price of an option may not be less than 100% of
the fair market value of the shares on the date of the grant. In addition, the
exercise price of an ISO may not be less than 110% of the fair market value of
the shares on the date of the grant if the recipient owns more than 10% of the
outstanding common shares of WFC. Subject to certain exceptions specified in the
1999 Stock Option Plan or as otherwise specified by the Stock Option Committee
at the time of grant, stock options are immediately exercisable in full. No
13
<PAGE>
stock option will be exercisable after the expiration of ten years from the date
of the grant. However, if a recipient of an ISO owns a number of shares
representing more than 10% of WFC shares outstanding at the time the ISO is
granted, the term of the ISO will not exceed five years. If the fair market
value of shares awarded pursuant to ISOs that are exercisable for the first time
during any calendar year by a participant under the 1999 Stock Option Plan
exceeds $100,000, the ISOs will be considered Non-Qualified Stock Options to the
extent of such excess.
An option recipient cannot transfer or assign an option other than by
will or in accordance with the laws of descent and distribution. Termination of
an option recipient's employment for cause, as defined in the 1999 Stock Option
Plan, will result in the annulment of any outstanding exercisable options. Any
outstanding options that have not yet been exercised will terminate upon the
resignation, removal or retirement of a director of WFC or Winton, or upon the
termination of employment of an officer or employee of WFC or Winton, except in
the case of death or disability of the option recipient or a change in control
of WFC or Winton.
WFC will receive no monetary consideration for the granting of options
under the Stock Option Plan. Upon the exercise of options, WFC will receive
payment of cash or, if acceptable to the Stock Option Committee, Common Shares
or outstanding awarded stock options. The market value of the Common Shares
underlying the options reserved for the 1999 Stock Option Plan is approximately
$5.4 million, based upon the number of shares reserved, multiplied by the $13.50
per share closing sales price of the Common Shares on December 10, 1998, as
quoted on AMEX.
Purchase Right
The Stock Option Committee may include as a term of any option granted
under the 1999 Stock Option Plan the right (a "Purchase Right"), but not the
obligation, of WFC to purchase all or any amount of the Common Shares acquired
by an optionee pursuant to the exercise of any such options. The Purchase Right
will provide for, among other terms, a specified duration of the Purchase Right,
a specified price per Common Share to be paid upon the exercise of the Purchase
Right and a restriction on the disposition of the Common Shares by the optionee
during the period of the Purchase Right.
Stock Appreciation Right
The Stock Option Committee may include a stock appreciation right (a
"Stock Appreciation Right") as a component of an option or independent of an
option. The Stock Appreciation Right would entitle the recipient to receive a
number of Common Shares or cash, or combination thereof, as the Stock Option
Committee shall determine, equal to the amount by which the fair market value of
the Common Shares subject to the Stock Appreciation Right exceeds the exercise
price of the Stock Appreciation Right.
Tax Treatment of Incentive Stock Options
An optionee who is granted an ISO will not recognize taxable income
either on the date of grant or on the date of exercise, although the difference
between the fair market value of the shares at the time of exercise and the
exercise price is a tax preference item potentially subject to the alternative
minimum tax.
Upon disposition of shares acquired from the exercise of an ISO,
capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the optionee disposes of the shares within two years
of the date of grant or within one year from the date of the issuance of the
shares to the optionee (a "Disqualifying Disposition"), then the optionee will
recognize ordinary income, as opposed to capital gain, at the time of
disposition. In general, the amount of ordinary income recognized will be equal
to the lesser of (i) the amount of gain realized on the disposition, or (ii) the
difference between the fair market value of the shares received on the date of
exercise and the exercise price. Any remaining gain or loss is treated as a
short-term, mid-term or long-term capital gain or loss, depending upon the
period of time the shares have been held.
WFC will not be entitled to a tax deduction upon either the exercise of
an ISO or the disposition of shares acquired pursuant to such exercise, except
to the extent that the optionee recognizes ordinary income in a Disqualifying
Disposition. Ordinary income from a Disqualifying Disposition will constitute
compensation but will not be subject to tax withholding, nor will it be
considered wages for payroll tax purposes.
If the holder of an ISO pays the exercise price, in whole or in part,
with previously acquired shares, the exchange should not affect the ISO tax
treatment of the exercise. Upon such exchange, and except for Disqualifying
Dispositions, no gain or loss is recognized by the optionee upon delivering
previously acquired shares to WFC, and shares received by the optionee equal in
number to the previously acquired common shares exchanged therefor will have the
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same basis and holding period for long-term or mid-term capital gain purposes as
the previously acquired shares. (The optionee, however, will not be able to
utilize the prior holding period for the purpose of satisfying the ISO statutory
holding period requirements for avoidance of a Disqualifying Disposition.)
Shares received by the optionee in excess of the number of shares previously
acquired will have a basis of zero and a holding period which commences as of
the date the shares are transferred to the optionee upon exercise of the ISO. If
an ISO is exercised using shares previously acquired through the exercise of an
ISO, the exchange of such previously acquired shares will be considered a
disposition of such shares for the purpose of determining whether a
Disqualifying Disposition has occurred.
Tax Treatment of Non-Qualified Stock Options
A recipient of a Non-Qualified Stock Option does not recognize taxable
income on the date of grant of the option, provided that the option does not
have a readily ascertainable fair market value at the time it is granted. In
general, the optionee must recognize ordinary income at the time of exercise of
a Non-Qualified Stock Option in the amount of the difference between the fair
market value of the shares on the date of exercise and the option exercise
price. The ordinary income recognized will constitute compensation for which tax
withholding by WFC generally will be required. The amount of ordinary income
recognized by an optionee will be deductible by WFC in the year that the
optionee recognizes the income if WFC complies with any applicable withholding
requirement.
If the sale of the shares could subject the optionee to liability under
Section 16(b) of the Securities Exchange Act of 1934, the optionee generally
will recognize ordinary income only on the date that the optionee is no longer
subject to such liability in an amount equal to the fair market value of the
shares on such date less the option exercise price. Nevertheless, the optionee
may elect under Section 83(b) of the Code, within 30 days of the date of
exercise, to recognize ordinary income as of the date of exercise, without
regard to the restriction of Section 16(b).
Shares acquired upon the exercise of a Non-Qualified Stock Option will
have a tax basis equal to their fair market value on the exercise date or other
relevant date on which ordinary income is recognized, and the holding period for
the shares generally will begin on the date of exercise or such other relevant
date. Upon subsequent disposition of the shares, the optionee will recognize
long-term capital gain or loss if the optionee has held the shares for more than
eighteen months prior to disposition, mid-term capital gain or loss if the
optionee has held the shares for more than one year but less than eighteen
months prior to disposition, or short-term capital gain or loss if the optionee
has held the shares for one year or less prior to disposition.
If an optionee with a Non-Qualified Stock Option pays the exercise
price, in whole or in part, with previously acquired shares, the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares received exceeds the exercise price. The optionee will not recognize gain
or loss upon delivering such previously acquired shares to WFC. Shares received
by an optionee equal in number to the previously acquired shares exchanged
therefor will have the same basis and holding period as such previously acquired
shares. Shares received by an optionee in excess of the number of such
previously acquired shares will have a basis equal to the fair market value of
such additional shares as of the date ordinary income is recognized. The holding
period for such additional shares will commence as of the date of exercise or
such other relevant date.
Tax Treatment of Stock Appreciation Rights
A participant in the 1999 Stock Option Plan is not taxed upon the grant
of Stock Appreciation Rights. Instead, participants will generally be taxed on
the exercise date, at ordinary income rates, on the amount of each received and
the fair market value of any Common Shares received. However, if the sale of
Common Shares could subject a participant to liability under Section 16(b) of
the Exchange Act, such participant generally will not recognize ordinary income
with respect to such Common Shares until the participant is no longer subject to
such liability, at which time the participant will recognize ordinary income in
an amount equal to the fair market value of Common Shares on such date.
The Stock Option Committee may grant options under the 1999 Stock
Option Plan to the directors, officers and employees of WFC and Winton in the
future at such times as they deem most beneficial to WFC and Winton on the basis
of the individual participant's responsibility, tenure and future potential.
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The Board of Directors of WFC recommends that the shareholders of WFC
approve the 1999 Stock Option Plan. Accordingly, the shareholders of WFC will be
asked to approve the following resolution at the Annual Meeting:
RESOLVED, that the Winton Financial Corporation 1999 Stock
Option and Incentive Plan be, and it hereby is, approved.
PROPOSAL FOUR - SELECTION OF AUDITORS
The Board of Directors has selected Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year and recommends
that the shareholders ratify the selection. Grant Thornton has audited the
financial statements of WFC or Winton since 1985. Management expects that a
representative of Grant Thornton will be present at the Annual Meeting, will
have the opportunity to make a statement if he or she so desires and will be
available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
selection of Grant Thornton as auditors for the current fiscal year.
PROPOSALS OF SECURITY HOLDERS AND OTHER MATTERS
Any proposals of qualified shareholders intended to be included in the
proxy statement for the 2000 Annual Meeting of Shareholders of WFC should be
sent to WFC by certified mail and must be received by WFC not later than August
30, 1999. In addition, if a shareholder intends to present a proposal at the
2000 Annual Meeting without including the proposal in the proxy materials
related to that meeting, and if the proposal is not received by November 13,
1999, then the proxies designated by the Board of Directors of WFC for the 2000
Annual Meeting of Shareholders of WFC may vote in their discretion on any such
proposal any shares for which they have been appointed proxies without mention
of such matter in the proxy statement or on the proxy card for such meeting.
Management knows of no other business which may be brought before the
Annual Meeting, including matters incident to the conduct of the Annual Meeting.
It is the intention of the persons named in the enclosed Proxy to vote such
Proxy in accordance with their best judgment on any other matters which may be
brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 28, 1998 President
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EXHIBIT A
WINTON FINANCIAL CORPORATION
1999 STOCK OPTION AND INCENTIVE PLAN
1. Purpose. The purpose of the Winton Financial Corporation 1999 Stock
Option and Incentive Plan (this "Plan") is to promote and advance the interests
of Winton Financial Corporation (the "Company") and its shareholders by enabling
the Company to attract, retain and reward directors, managerial and other
employees of the Company and any Subsidiary (hereinafter defined) and to
strengthen the mutuality of interests between such directors and employees and
the Company's shareholders by providing such persons with a proprietary interest
in pursuing the long-term growth, profitability and financial success of the
Company.
2. Definitions. For purposes of this Plan, the following terms shall have
the meanings set forth below:
(a) "Award" means the grant by the Committee of an Incentive Stock
Option, a Non-Qualified Stock Option or a Stock Appreciation Right, or any
combination thereof, as provided in the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto, together with rules, regulations and interpretations
promulgated thereunder.
(d) "Committee" means the Committee of the Board constituted as
provided in Section 3 of this Plan.
(e) "Common Shares" means the common shares, without par value, of the
Company or any security of the Company issued in substitution, in exchange
or in lieu thereof.
(f) "Company" means Winton Financial Corporation, an Ohio corporation,
or any successor corporation.
(g) "Employment" means regular employment with the Company or a
Subsidiary and does not include service as a director only.
(h) "ERISA" means the Employment Retirement Income Security Act, as
amended, or any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
(j) "Fair Market Value" shall mean the average of the highest and the
lowest selling price on the American Stock Exchange, Inc. on the date such
Stock Option is granted or, if there were no sales on such date, then on
the next prior business day on which there was a sale.
(k) "Incentive Stock Option" means any Stock Option granted pursuant
to the provisions of Section 6 of this Plan which is intended to be and is
specifically designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(l) "Non-Qualified Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan which is not an
Incentive Stock Option.
(m) "OTS" means the Office of Thrift Supervision, Department of the
Treasury.
(n) "Participant" means an employee or director of the Company or a
Subsidiary who is granted a Stock Option under this Plan. Notwithstanding
the foregoing, for the purposes of the granting of any Incentive Stock
Option under this Plan, the term "Participant" shall include only employees
of the Company or a Subsidiary.
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(o) "Plan" means the Winton Financial Corporation 1999 Stock Option
and Incentive Plan, as set forth herein and as it may be hereafter amended
from time to time.
(p) "Related" means (i) in the case of a Stock Appreciation Right, a
Stock Appreciation Right which is granted in connection with, and to the
extent exercisable, in whole or in part, in lieu of, an Option and (ii) in
the case of an Option, an Option with respect to which and to the extent to
which a Stock Appreciation Right is exercisable, in whole or in part, in
lieu thereof has been granted.
(q) "Repurchase Right" means the right defined in Section 10 of this
Plan.
(r) "Stock Appreciation Right" means a Stock Appreciation Right with
respect to shares granted by the Committee pursuant to Section 11 hereof.
(s) "Stock Option" means an award to purchase Common Shares granted
pursuant to the provisions of Section 6 of this Plan.
(t) "Subsidiary" means any corporation or entity in which the Company
directly or indirectly controls 50% or more of the total voting power of
all classes of its stock having voting power and includes, without
limitation, The Winton Savings and Loan Co.
(u) "Terminated for Cause" means any removal of a director or
discharge of an employee for personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of a material provision
of any law, rule or regulation (other than traffic violations or similar
offenses), a material violation of a final cease-and-desist order or any
other action of a director or employee which results in a substantial
financial loss to the Company or a Subsidiary.
3. Administration.
(a) This Plan shall be administered by the Committee, which shall be
comprised of not fewer than three of the members of the Board. The members
of the Committee shall be appointed from time to time by the Board. Members
of the Committee shall serve at the pleasure of the Board, and the Board
may from time to time remove members from, or add members to, the
Committee. A majority of the members of the Committee shall constitute a
quorum for the transaction of business. An action approved in writing by a
majority of the members of the Committee then serving shall be fully as
effective as if the action had been taken by unanimous vote at a meeting
duly called and held.
(b) The Committee is authorized to construe and interpret this Plan
and to make all other determinations necessary or advisable for the
administration of this Plan. The Committee may designate persons other than
members of the Committee to carry out its responsibilities under such
conditions and limitations as it may prescribe. Any determination, decision
or action of the Committee in connection with the construction,
interpretation, administration, or application of this Plan shall be final,
conclusive and binding upon all persons participating in this Plan and any
person validly claiming under or through persons participating in this
Plan. The Company shall effect the granting of Stock Options under this
Plan in accordance with the determinations made by the Committee, by
execution of instruments in writing in such form as approved by the
Committee.
4. Duration of, and Common Shares Subject to, this Plan.
(a) Term. This Plan shall terminate on the date which is ten (10)
years from the date on which this Plan is adopted by the Board, except with
respect to Stock Options then outstanding. Notwithstanding the foregoing,
no Incentive Stock Option may be granted under this Plan after the date
which is ten (10) years from the date on which this Plan is adopted by the
Board or the date on which this Plan is approved by the shareholders of the
Company, whichever is earlier.
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(b) Common Shares Subject to Plan. The maximum number of Common Shares
in respect of which Awards may be granted under this Plan, subject to
adjustment as provided in Section 9 of this Plan, shall be 401,530 Common
Shares.
For the purpose of computing the total number of Common Shares available
for Awards under this Plan, there shall be counted against the foregoing
limitations the number of Common Shares subject to issuance upon exercise or
settlement of Stock Options as of the dates on which such Stock Options are
granted. If any Stock Options or Stock Appreciation Rights are forfeited,
terminated or exchanged for other Stock Appreciation Rights or Stock Options, or
expire unexercised, the Common Shares which were theretofore subject to such
Awards shall again be available for Awards under this Plan to the extent of such
forfeiture, termination or expiration of such Awards.
Common Shares which may be issued under this Plan may be either authorized
and unissued shares or issued shares which have been reacquired by the Company.
No fractional shares shall be issued under this Plan.
5. Eligibility and Grants. Persons eligible for Awards under this Plan
shall consist of directors and managerial and other key employees of the Company
or a Subsidiary who hold positions with significant responsibilities or whose
performance or potential contribution, in the judgment of the Committee, will
benefit the future success of the Company or a Subsidiary. In selecting the
directors and employees to whom Awards will be made and the number of shares
subject to such Awards, the Committee shall consider the position, duties and
responsibilities of the eligible directors and employees, the value of their
services to the Company and the Subsidiaries and any other factors the Committee
may deem relevant.
6. Stock Options. Stock Options granted under this Plan may be in the form
of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions and in such form
as the Committee may from time to time approve and shall contain such additional
terms and conditions as the Committee shall deem desirable, not inconsistent
with the express provisions of the Plan:
(a) Grant. Stock Options may be granted under this Plan on terms and
conditions not inconsistent with the provisions of this Plan.
(b) Stock Option Price. The option exercise price per Common Share
purchasable under a Stock Option shall be determined by the Committee at
the time of grant; provided, however, that in no event shall the exercise
price of an Incentive Stock Option be less than 100% of the Fair Market
Value of the Common Shares on the date of the grant of such Incentive Stock
Option, and in the case of a Participant who owns Common Shares
representing more than 10% of the outstanding Common Shares at the time an
Incentive Stock Option is granted, the option exercise price shall in no
event be less than 110% of the Fair Market Value of the Common Shares at
the time the Incentive Stock Option is granted to such Participant.
(c) Stock Option Terms. Subject to the right of the Company to provide
for earlier termination in the event of any merger, acquisition or
consolidation involving the Company, the term of each Stock Option shall be
fixed by the Committee; provided, however, that the term of an Incentive
Stock Option will not exceed ten years after the date the Incentive Stock
Option is granted; provided further, however, that in the case of a
Participant who owns a number of Common Shares representing more than 10%
of the Common Shares outstanding at the time the Incentive Stock Option is
granted, the term of the Incentive Stock Option shall not exceed five
years.
(d) Exercisability. Except as set forth in this Plan or as designated
by the Committee at the time of grant, Stock Options awarded under this
Plan shall be immediately exercisable in full.
(e) Method of Exercise. A Stock Option may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying the
number of Common Shares to be purchased. Such notice shall be accompanied
by payment in full of the purchase price in cash or, if acceptable to the
Committee in its sole discretion, in Common Shares already owned by the
Participant, or by surrendering outstanding Stock Options. The Committee
may also permit Participants, either on a selective or aggregate basis, to
simultaneously exercise Stock Options and sell Common Shares thereby
acquired, pursuant to a brokerage or similar arrangement, approved in
advance by the Committee, and use the proceeds from such sale as payment of
the purchase price of such shares.
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(f) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive
Stock Options are exercisable under all plans of the Company or a
Subsidiary for the first time by a Participant during any calendar year
exceeds $100,000, or such other limit as may be required by the Code, such
Stock Options shall be Non-Qualified Stock Options to the extent of such
excess.
7. Effect of Termination of Employment, Disability, Death or Change in
Control .
(a) Except in the event of the death or disability of a Participant or
in the event a Participant is Terminated for Cause, upon the resignation,
removal or retirement from the board of directors of any Participant who is
a director of the Company or a Subsidiary or upon the termination of
Employment of a Participant who is not a director of the Company or a
Subsidiary, all Stock Options which have not yet become exercisable shall
thereupon terminate and be of no further force or effect, and, unless the
Committee shall specifically state otherwise at the time a Stock Option is
granted, all Stock Options which have become exercisable shall terminate if
they are not exercised by the earlier of (i) the respective dates of such
Stock Options or (ii) the date which is three (3) months after such
resignation, removal, retirement or termination of Employment.
(b) Unless the Committee shall specifically state otherwise at the
time a Stock Option is granted, all Stock Options granted under this Plan
shall become exercisable in full on the date of termination of a
Participant's employment or directorship with the Company or a Subsidiary
because of his death or disability, and, subject to extension by the
Committee, all Stock Options shall terminate if not exercised by the
earlier of (i) the respective expiration dates of any such Stock Options or
(ii) the date which is twelve (12) months after the Participant's death or
disability.
(c) Unless the Committee shall specifically state otherwise at the
time a Stock Option is granted, in the event the Employment or the
directorship of a Participant is Terminated for Cause, any Stock Option
which has not been exercised shall terminate and be of no further force or
effect as of the date the Participant is Terminated for Cause.
(d) All outstanding Stock Options shall become immediately exercisable
in the event of a change in control or imminent change in control of the
Company or any Subsidiary, as determined by the Committee. For purposes of
this Section 7, "change in control" shall mean: (i) the execution of an
agreement for the sale of all, or a material portion of, the assets of the
Company or The Winton Savings and Loan Co.; (ii) the execution of an
agreement for a merger or recapitalization of the Company or The Winton
Savings and Loan Co. or any merger or recapitalization whereby the Company
or The Winton Savings and Loan Co. is not the surviving entity; (iii) a
change of control of the Company or The Winton Savings and Loan Co., as
defined or determined by the OTS; or (iv) the acquisition, directly or
indirectly, of the beneficial ownership (within the meaning of the term
"beneficial ownership" as defined under Section 13(d) of the Exchange Act
and the rules promulgated thereunder) of twenty-five percent (25%) or more
of the outstanding voting securities of the Company or The Winton Savings
and Loan Co. by any person, trust, entity or group. For purposes of this
Section 7, "imminent change in control" shall refer to any offer or
announcement, oral or written, by any person or any persons acting as a
group, to acquire control of the Company or The Winton Savings and Loan Co.
as to which an application or notice has been filed with the OTS and such
application has been approved or such notice has not been disapproved.
8. Non-transferability of Stock Options. No Stock Option under this Plan,
and no rights or interests therein, shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution. During the
lifetime of a Participant, Stock Options are exercisable only by, and payments
in settlement of Stock Options will be payable only to, the Participant or his
or her legal representative.
9. Adjustments Upon Changes in Capitalization.
(a) The existence of this Plan and the Awards granted hereunder shall
not affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize the following: any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business; any merger, acquisition or
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consolidation of the Company; any issuance of bonds, debentures, preferred
or prior preference stocks ahead of or affecting the Company's capital
stock or the rights thereof; the dissolution or liquidation of the Company
or any sale or transfer of all or any part of its assets or business; or
any other corporate act or proceeding, including any merger or acquisition
which would result in the exchange of cash, stock of another company or
options to purchase the stock of another company for any Awards outstanding
at the time of such corporate transaction or which would involve the
termination of all Awards outstanding at the time of such corporate
transaction.
(b) In the event of any change in capitalization affecting the Common
Shares of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, spin-off, split-up, combination or
exchange of shares or other form of reorganization, or any other change
affecting the Common Shares, such proportionate adjustments, if any, as the
Board in its discretion may deem appropriate to reflect such change shall
be made with respect to the aggregate number of Common Shares for which
Awards in respect thereof may be granted under this Plan, the maximum
number of Common Shares which may be sold or awarded to any Participant,
the number of Common Shares covered by each outstanding Award, and the
exercise price per share in respect of outstanding Awards.
10. Right of Repurchase and Restrictions on Disposition. The Committee, in
its sole discretion, may include, as a term of any Incentive Stock Option or
Non-Qualified Stock Option, the right (hereinafter the "Repurchase Right"), but
not the obligation, to repurchase all or any amount of the Common Shares
acquired by a Participant pursuant to the exercise of any such options. The
Repurchase Right shall provide for, among other terms, a specified duration of
the Repurchase Right, a specified price per Common Share to be paid upon the
exercise of the Repurchase Right and a restriction on the disposition of the
Common Shares by the Participant during the period of the Repurchase Right. The
Repurchase Right may permit the Company to transfer or assign such right to
another party. The Company may exercise the Repurchase Right only to the extent
permitted by applicable law.
11. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right is
granted, to receive a number of Common Shares or an amount of cash or
combination thereof, as the Committee in its discretion shall determine, the
aggregate value of which (i.e., the sum of the amount of cash and/or the fair
market value of such Common Shares on the date of exercise) shall equal (as
nearly as possible) the amount by which the Fair Market Value per Common Share
on the date of such exercise shall exceed the exercise price of such Stock
Appreciation Right, multiplied by the number of Common Shares with respect to
which such Stock Appreciation Right shall have been exercised. A Stock
Appreciation Right may be Related to an option or may be granted independently
of any option and the Committee shall determine whether and to what extent a
Related Stock Appreciation Right shall be granted with respect therein;
provided, however, that notwithstanding any other provision of this Plan, in the
event that the Related Option is an Incentive Stock Option, the Related Stock
Appreciation Right shall satisfy all the applicable restrictions and limitations
of Section 6 hereof as if such Related Stock Appreciation Right were an
Incentive Stock Option. In the case of a Related Stock Option, such Related
Stock Option shall cease to be exercisable to the extent of the Common Shares to
which the Related Stock Appreciation Right was exercised. Upon the exercise or
termination of a Related Stock Option, any Related Stock Appreciation Right
shall terminate to the extent of the Common Shares with respect to which the
Related Stock Option was exercised or terminated.
12. Amendment and Termination of this Plan. Without further approval of the
shareholders, the Board may at any time terminate this Plan, or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would (a) increase the aggregate number of Common Shares which may be
issued under this Plan (except for adjustments pursuant to Section 9 of this
Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
13. Modification of Options. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Company; provided, however, that no such modification, extension or renewal
shall confer on the holder of such Stock Option any right or benefit which could
not be conferred on him by the grant of a new Stock Option at such time and
shall not materially decrease the Participant's benefits under the Stock Option
without the consent of the holder of the Stock Option, except as otherwise
permitted under this Plan.
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14. Miscellaneous.
(a) Tax Withholding. The Company shall have the right to deduct from
any settlement made under this Plan, including the delivery or vesting of
Common Shares, any federal, state or local taxes of any kind required by
law to be withheld with respect to such payments or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligation for the payment of such taxes. If Common Shares are used to
satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
(b) No Right to Employment. Neither the adoption of this Plan nor the
granting of any Award shall confer upon any employee of the Company or a
Subsidiary any right to continued Employment with the Company or a
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the Employment of any of
its employees at any time, with or without cause.
(c) Annulment of Stock Options. The grant of any Stock Option under
this Plan payable in cash is provisional until cash is paid in settlement
thereof. The grant of any Stock Option under this Plan payable in Common
Shares is provisional until the Participant becomes entitled to the
certificate in settlement thereof. In the event the Employment or the
directorship of a Participant is Terminated for Cause, any Stock Option
which is provisional shall be annulled as of the date of such termination.
(d) Other Company Benefit and Compensation Programs. Payments and
other benefits received by a Participant under an Award made pursuant to
this Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of the termination indemnity or severance pay law
of any country and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan or similar
arrangement provided by the Company or a Subsidiary unless expressly so
provided by such other plan or arrangement, or except where the Committee
expressly determines that an Award or portion of an Award should be
included to accurately reflect competitive compensation practices or to
recognize that an Award has been made in lieu of a portion of competitive
annual cash compensation. An Award under this Plan may be made in
combination with or in tandem with, or as an alternative to, grants, stock
options or payments under any other plans of the Company or a Subsidiary.
This Plan notwithstanding, the Company or any Subsidiary may adopt such
other compensation programs and additional compensation arrangements as it
deems necessary to attract, retain and reward directors and employees for
their service with the Company and its Subsidiaries.
(e) Securities Law Restrictions. No Common Shares shall be issued
under this Plan unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Common Shares delivered under this Plan may be
subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Shares are then listed, and any applicable federal or
state securities law. The Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions.
(f) Award Agreement. Each Participant receiving an Award under this
Plan shall enter into an agreement with the Company in a form specified by
the Committee agreeing to the terms and conditions of the Award and such
related matters as the Committee shall, in its sole discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this Plan
shall be borne by the Company.
(h) Governing Law. This Plan and all actions taken hereunder shall be
governed by and construed in accordance with the laws of the State of Ohio,
except to the extent that federal law shall be deemed applicable.
(i) Effective Date. This Plan shall be effective upon the later of
adoption by the Board and approval by the Company's shareholders. This Plan
shall be submitted to the shareholders of the Company for approval at an
annual or special meeting of shareholders held within twelve (12) months of
the adoption of the Plan by the Board.
ACCOUNTANTS' CONSENT
We have issued our report dated November 19, 1998 (except for Note O,
as to which the date is December 4, 1998), accompanying the consolidated
financial statements of Winton Financial Corporation which are incorporated
within the Annual Report on Form 10-K for the year ended September 30, 1998. We
hereby consent to the incorporation by reference of said report in Winton's Form
S-8 (333-34177) regarding the 1998 Stock Option Plan and Winton's Form S-8
(333-42251) regarding Winton's 401(k) Plan.
GRANT THORNTON LLP
Cincinnati, Ohio
December 22, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,607
<INT-BEARING-DEPOSITS> 2,607
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,144
<INVESTMENTS-CARRYING> 27,276
<INVESTMENTS-MARKET> 27,451
<LOANS> 305,308
<ALLOWANCE> 842
<TOTAL-ASSETS> 354,193
<DEPOSITS> 266,007
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,395
<LONG-TERM> 56,899
0
0
<COMMON> 0
<OTHER-SE> 26,892
<TOTAL-LIABILITIES-AND-EQUITY> 354,193
<INTEREST-LOAN> 24,813
<INTEREST-INVEST> 1,980
<INTEREST-OTHER> 278
<INTEREST-TOTAL> 27,071
<INTEREST-DEPOSIT> 13,118
<INTEREST-EXPENSE> 16,748
<INTEREST-INCOME-NET> 10,323
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,321
<INCOME-PRETAX> 6,122
<INCOME-PRE-EXTRAORDINARY> 4,057
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,057
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .96
<YIELD-ACTUAL> 3.07
<LOANS-NON> 936
<LOANS-PAST> 131
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 827
<CHARGE-OFFS> 47
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 842
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 842
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,367
<INT-BEARING-DEPOSITS> 1,419
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,430
<INVESTMENTS-CARRYING> 27,199
<INVESTMENTS-MARKET> 27,024
<LOANS> 280,544
<ALLOWANCE> 827
<TOTAL-ASSETS> 324,488
<DEPOSITS> 240,317
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,469
<LONG-TERM> 57,425
0
0
<COMMON> 0
<OTHER-SE> 23,277
<TOTAL-LIABILITIES-AND-EQUITY> 324,488
<INTEREST-LOAN> 22,086
<INTEREST-INVEST> 1,940
<INTEREST-OTHER> 207
<INTEREST-TOTAL> 24,233
<INTEREST-DEPOSIT> 12,009
<INTEREST-EXPENSE> 15,036
<INTEREST-INCOME-NET> 9,197
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 36
<EXPENSE-OTHER> 5,907
<INCOME-PRETAX> 4,909
<INCOME-PRE-EXTRAORDINARY> 3,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,226
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
<YIELD-ACTUAL> 3.08
<LOANS-NON> 393
<LOANS-PAST> 79
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,084
<ALLOWANCE-OPEN> 857
<CHARGE-OFFS> 51
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 827
<ALLOWANCE-DOMESTIC> 64
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 763
</TABLE>
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could because actual results to
differ material from those discussed in the statement. Winton Financial
Corporation desires to take advantage of the "safe harbor" provisions of the
Act. Certain information, particularly information regarding future economic
performance and finances and plans and objectives of management, contained or
incorporated by reference in Winton Financial Corporation's Annual Report on
Form 10-K for fiscal year 1998 is forward-looking. In some cases, information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement. In addition,
forward-looking statement s are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
Interest Rate Risk
Winton Financial Corporation's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. The interest income and interest expense of Winton Financial
Corporation change as the interest rates on mortgages, securities and other
assets and on deposits and other liabilities change. Interest rates may change
because of general economic conditions, the policies of various regulatory
authorities and other factors beyond Winton Financial Corporation's control. The
interest rates on specific assets and liabilities of Winton Financial
Corporation will change or "reprice" in accordance with the contractual terms of
the asset or liability instrument and in accordance with customer reaction to
general economic trends. In a rising interest rate environment, loans tend to
prepay slowly and new loans at higher rates increase slowly, while interest paid
on deposits increases rapidly because the terms to maturity of deposits tend to
be shorter than the terms to maturity or prepayment of loans. Such differences
in the adjustment of interest rates on assets and liabilities may negatively
affect Winton Financial Corporation income. Moreover, rising interest rates tend
to decrease loan demand in general, negatively affecting Winton Financial
Corporation income.
Possible Inadequacy of the Allowance for Loan Losses
The Winton Savings and Loan Co. maintains an allowance for loan losses based
upon a number of relevant factors, including, but not limited to, trends in the
level of nonperforming assets and classified loans, current and anticipated
economic conditions in the primary lending area, past loss experience, possible
losses arising from specific problem assets and changes in the composition of
the loan portfolio. While the Board of Directors of The Winton Savings and Loan
Co. believes that it uses the best information available to determine the
allowance for loan losses, unforeseen market conditions could result in material
adjustments, and net earnings could be significantly adversely affected if
circumstances differ substantially from the assumptions used in making the final
determination.
1
<PAGE>
Loans not secured by one- to four-family residential real estate are generally
considered to involve greater risk of loss than loans secured by one- to
four-family residential real estate due, in part, to the effects of general
economic conditions. The prepayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions that cause leases not to be renewed or that negatively
affect the operations of a commercial borrower. Construction loans may also be
negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, higher
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans, and the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan.
Competition
The Winton Savings and Loan Co. competes for deposits with other savings
associations, commercial banks and credit unions and issuers of commercial paper
and other securities, such as shares in money market mutual funds. The primary
factors in competing for deposits are interest rates and convenience of office
location. In making loans, The Winton Savings and Loan Co. competes with other
savings associations, commercial banks, consumer finance companies, credit
unions, leasing companies, mortgage companies and other lenders. Competition is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable. The size of financial institutions
competing with The Winton Savings and Loan Co. is likely to increase as a result
of changes in statutes and regulations eliminating various restrictions on
interstate and inter-industry branching and acquisitions. Such increased
competition may have an adverse effect upon Winton Financial Corporation.
Legislation and Regulation that may Adversely Affect The Winton Savings and Loan
Co.'s Earnings
The Winton Savings and Loan Co. is subject to extensive regulation by the Office
of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, Winton Financial Corporation is also subject to regulation and
examination by the OTS. Such supervision and regulation of The Winton Savings
and Loan Co. and Winton Financial Corporation are intended primarily for the
protection of depositors and not for the maximization of shareholder value and
may affect the ability of the company to engage in various business activities.
The assessments, filing fees and other costs associated with reports,
examinations and other regulatory matters are significant and may have an
adverse effect on Winton Financial Corporation's net earnings.
The FDIC is authorized to establish separate annual assessment rates for deposit
insurance of members of the Bank Insurance fund (the "BIF") and the Savings
Association Insurance Fund (the "SAIF") . The FDIC may increase assessment rates
for either fund if necessary to restore the fund's ratio of reserves to insured
deposits to the target level within a reasonable time and may decrease such
rates if such target level has been met. The FDIC has established a risk-based
assessment system for both SAIF and BIF members. Under such system, assessments
may vary depending on the risk the institution poses to its deposit insurance
fund. Such risk level is determined by reference to the institution's capital
level and the FDIC's level of supervisory concern about the institution.
2
<PAGE>
Congress is considering legislation to eliminate the federal thrift charter and
the separate federal regulation of savings and loan associations, and the
Department of the Treasury is preparing a report for Congress on the development
of a common charter for all financial institutions. As a result, The Winton
Savings and Loan Co. may have to convert to a different financial institution
charter or might be regulated under federal law as a bank. If The Winton Savings
and Loan Co. becomes a bank or is regulated as a bank, it would become subject
to the more restrictive activity limitations imposed on national banks.
Moreover, Winton Financial Corporation might become subject to more restrictive
holding company requirements, including activity limits and capital requirements
similar to those imposed on The Winton Savings and Loan Co. Winton Financial
Corporation cannot predict the impact of the conversion of The Winton Savings
and Loan Co. to, or regulation of The Winton Savings and Loan Co. as, a bank
until any legislation requiring such change is enacted.
Specific References
In addition to the foregoing, some of the matters, which are addressed in the
Form 10-K and Forms 10-Q's filed by Winton Financial Corporation and contain
forward-looking statements, include the following.
Pending legislation or proposals regarding changes in charter or regulation.
Management's determination of the amount of the allowance for loan losses and
expectations regarding its adequacy.
Management's efforts to reduce the higher degree of risk in second mortgage,
multifamily residential real estate, developed building lot, nonresidential real
estate and construction loans.
Management's expectation that secondary market activities will continue to
increase if interest rates decline.
Management's efforts to manage delinquencies.
Management's efforts to manage interest rate risk.
Management's characterization of its competition.
Pending regulatory proposals.
Levels of deposit insurance assessments.
3
<TABLE>
<CAPTION>
<S> <C> <C>
CMB Nos. 1210-0016
Form 5500-C/R Return/Report of Employee Benefit Plan 1210-0089
Department of the Treasury (With fewer than 100 participants) 1995
Internal Revenue Service This form is required to be filed under sections 104 and 4065
of the Employee
Department of Labor Retirement Income Security Act of 1974 and sections 6039D, This Form Is Open
Pension and Welfare Benefits 6047(e), to Public Inspection.
Administration 6057(b), and 6058(a) of the Internal Revenue Code.
Pension Benefit Guaranty Corporation > See separate instructions
- ----------------------------------------------------------------------------------------------------------------------------------
For the calendar plan year 1995 or fiscal plan year beginning October 1, 1995,
and ending September 30, 1996.
- ----------------------------------------------------------------------------------------------------------------------------------
If A(1) through A(4), B, C, and/or D do not apply to this year's
return/report, For IRS Use Only leave the boxes unmarked. EP-ID
You must check either box A(5) or A(6), whichever is applicable. See
instructions.
A This report/return is: (5) Form 5500-C filer check here.................
(1) the first return/report filed for the plan; (Complete only pages 1 and 3 through 6.)
(Code section 6039D filers see instructions
(2) an amended return/report; on page 5.)
(3) the final return/report filed for the plan; or (6) Form 5500-R filer check here.................
(4) a short plan year return/report (less than 12 months). X
(Complete only pages 1 and 2. Detach pages 3
through 6 before filing.) If you checked box (1)
or (3), you must file a Form 5500-C.
(See page 6 of the instructions.)
IF ANY INFORMATION ON A PREPRINTED PAGE 1 IS INCORRECT, CORRECT IT. IF ANY INFORMATION IS MISSING, ADD IT. PLEASE USE
RED INK WHEN MAKING THESE CHANGES AND INCLUDE THE PREPRINTED PAGE 1 WITH YOUR COMPLETED RETURN/REPORT.
B Check here if any information reported in 1a, 2a, 2b, or 5a changed since the last return/report for this plan .......... >
C If your plan year changed since the last return/report, check here ...................................................... >
D If you filed for an extension of time to file this return/report, check here and attach a copy of the approved extension >
- ----------------------------------------------------------------------------------------------------------------------------------
1a Name and address of plan sponsor (employer, if for a single-employer plan) 1b Employer identification number (EIN)
(Address should include room or suite no.) 31 1303854
-----------------------------------------
1c Sponsor's telephone number
WINTON FINANCIAL CORPORATION (513) 385-3880
-----------------------------------------
5511 CHEVIOT ROAD 1d Business code (see instructions,
page 19)
CINCINNATI, OH 45247 6120
-----------------------------------------
1e CUSIP Issuer number
-----------------------------------------
- ---------------------------------------------------------------------------------
2a Name and address of plan administrator (if same as plan sponsor, enter "Same") 2b Administrator's EIN
SAME
-----------------------------------------
2c Administrator's telephone number
- ----------------------------------------------------------------------------------------------------------------------------------
3a If you are filing this page without the preprinted historical plan
information and the name, address, and EIN of the plan sponsor or plan
administrator has changed since the last return/report filed for this plan,
enter the information from the last return/report in lines 3a and/or
3b and complete line 3c.
a Sponsor.................................................... EIN .................... Plan number .......................
b Administrator.............................................. EIN ..........................................................
c If line 3a indicates a change in the sponsor's name, address, and EIN, is this a change in sponsorship only? (See line 3c on
page 9 of the instructions for the definition of sponsorship.) Enter "Yes" or "No." >
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4 ENTITY CODE. (If not shown, enter the applicable code from page 9 of the A
instructions.) >
- -------------------------------------------------------------------------------------------- -------------------------------------
5a Name of plan > WINTON SAVINGS & LOAN CASH & DEFERRED PLAN...................... 5b Effective date of plan (mo., day,
yr.)
..................................................................................... 01/01/83
- -------------------------------------------------------------------------------------------- --------------------------------------
All filers must complete 6a through 6d, as applicable. 5c Three-digit
6a Welfare benefit plan 6b Pension benefit plan. plan number > 002
--------------------------------------
--------------------------------------
(If the correct codes are not preprinted below, enter the applicable codes from } 2
page 9 of the instructions in the boxes.)
--------------------------------------
}
--------------------------------------
--------------------------------------
6c Pension plan features. (If the correct codes are not preprinted below, enter C G
the applicable pension plan feature codes from page 9 of the instructions
in the boxes.) --------------------------------------
6d Fringe benefit plan. Attach Schedule F (Form 5500). See instructions.
- -----------------------------------------------------------------------------------------------------------------------------------
Caution: A penalty for the late or incomplete filing of this return/report will be assessed unless reasonable cause is established.
- -----------------------------------------------------------------------------------------------------------------------------------
Under penalties or perjury and other penalties set forth in the instructions, I
declare that I have examined this return/report, including accompanying
schedules and statements, and to the best of my knowledge and belief, it is
true, correct, and complete.
Signature of employer/plan sponsor > .................................................................. Date > .................
Type or print name of individual signing for employer/plan sponsor JAMES W BRIGGER, SECRETARY ..................................
Signature of plan administrator > ..................................................................... Date > .................
Type or print name of individual signing for plan sponsor JAMES W BRIGGER, SECRETARY
- -----------------------------------------------------------------------------------------------------------------------------------
For Paperwork Reduction Act Notice, see page 1 of the instructions. Form 5500-C/R (1995)
HLA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Form 5500-C/R (1995) 5500-R filers, complete pages 1 and 2 only. Form 5500-C filers, complete
page 1, skip page 2, and complete pages 3 through 6. Page 2
- -----------------------------------------------------------------------------------------------------------------------------------
6e Check investment arrangement(s): (1) Master trust (2) Common/Collective trust (3) Pooled Yes No
separate account
- -------------------------------------------------------------------------------------------------------- ----- ----- -----
7a Total participants: (1) At the beginning of plan year > 72..(2) At the end of plan year > 66
b Enter number of participants with account balances at the end of the plan year
(defined benefit plans do not complete this item) > 66.....
c (1) Were any participants in the pension benefit plan separated from service
with a deferred vested benefit for which a Schedule SSA (Form 5500) is
required to be attached? (See instructions) ................... 7c(1) x
----- ----- -----
(2) If "Yes," enter the number of separated participants required to be reported >
- --------------------------------------------------------------------------------------------------------------
8a Was this plan terminated during this plan year or any prior plan year? If "Yes," enter the year >.... 8a x
----- ----- -----
b Were all the plan assets either distributed to participants or
beneficiaries, transferred to another 8b x plan, or brought under the control of
PBGC? 8b x
----- ----- -----
c If line 8a is "Yes," and the plan is covered by PBGC, is the plan
continuing to file PBGC Form 1 and pay premiums until the end of the plan year
in which assets are distributed or brought under the control of PBGC? 8c n/a
- -------------------------------------------------------------------------------------------------------------- ----- ----- -----
9 Is this a plan established or maintained pursuant to one or more collective bargaining agreements?... 9 x
- --------------------------------------------------------------------------------------------------------------
----- ----- -----
10 If any benefits are provided by an insurance company, insurance service, or
similar organization, enter the number of
Schedules A (Form 5500), Insurance Information, that are attached. If none, enter -0-. > 0
- --------------------------------------------------------------------------------------------------------------
----- ----- -----
11a (1)Were any plan amendments adopted during this plan year?........................................... 11a(1) x
----- ----- -----
(2)Enter the date the most recent amendment was adopted > Month 7.... Day 1.... Year 8......
----- ----- -----
b If line 11a is "Yes," did any amendment result in a retroactive reduction
of accrued benefits for any 11b participant? 11b
----- ----- -----
c If line 11a is "Yes," did any amendment change the information contained in
the latest summary plan description or summary description of modifications
available at the time of the amendment? 11c
----- ----- -----
d If line 11c is "Yes," has a summary plan description or summary description
of modifications that reflects the plan amendments referred to on line 11c
been both furnished to participants and filed with the Department of 11d Labor? 11d
- -------------------------------------------------------------------------------------------------------------- ----- ----- -----
12a If this is a pension benefit plan subject to the minimum funding standards,
has the plan experienced a funding deficiency
for this plan year? (See instructions)............................................................. 12a n/a
----- ----- -----
b If line 12a is "Yes," have you filed Form 5330 to pay the excise tax?............................ 12b
----- ----- -----
c Is the plan administrator making an election under section 412(c)(8) for an amendment adopted after 12c n/a
the end of the plan year? (See instructions.)
----- ----- -----
d If a change in the actuarial funding method was made for the plan year 12d n/a
pursuant to a Revenue Procedure providing 12d n/a automatic approval for the
change, indicate whether the plan sponsor/administrator agrees to the change.
- -------------------------------------------------------------------------------------------------------------- ----- ----- -----
13a Total plan assets as of the beginning 1,444,341 and end 1,577,706 of the plan year
b Total liabilities as of the beginning 0 and end 0 of the plan year
c Net assets as of the beginning> 1,444,341 and end > 1,577,706 of the plan year
- -------------------------------------------------------------------------------------------------------------- ----- ----- -----
14 For this plan year, enter: a Plan income 221,219 d Plan contributions 155,907
b Expenses 87,854 e Total benefits paid 87,854
c Net income (loss) (subtract 14b from 14a) 133,365
- ----------------------------------------------------------------------------------------------------------------------------------
15 You may NOT use N/A in response to lines 15a through 15o. If you check "Yes," you must
enter a Yes No Amount
a dollar amount in the amount column. During this plan year:
------- ------ ------- -------------
a Was this plan covered by a fidelity bond? 15a x 2,000,000
------- ------ ------- -------------
b If line 15a is "Yes," enter the name of the surety company > OHIO CASUALTY
c Was there any loss to the plan, whether or not reimbursed, caused by fraud or 15c x
dishonesty?
------- ------ ------- -------------
d Was there any sale, exchange, or lease of any property between the plan and
the employer, any fiduciary, any of the five most highly
paid employees of the employer, any owner of a 10% or more interest in the employer, or 15d x
relatives of any such persons?....................................................
------- ------ ------- -------------
e Was there any loan or extension of credit by the plan to the employer, any fiduciary,
any of the five most highly paid
employees of the employer, any owner of a 10% or more interest in the employer, or 15e x
relatives of any such persons? ------- ------ ------- -------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
f Did the plan acquire or hold any employer security or employer real property?..... 15f x 799,538
------- ------ ------- -------------
g Has the plan granted an extension on any delinquent loan owed to the plan?........ 15g x
------- ------ ------- -------------
h Were any participant contributions transmitted to the plan more than 31 days after
receipt or
withholding by the employer?...................................................... 15h x
------- ------ ------- -------------
i Were any loans by the plan or fixed income obligations due the plan classified as
uncollectible or in
default as of the close of the plan year?......................................... 15i x
------- ------ ------- -------------
j Has any plan fiduciary had a financial interest in excess of 10% in any party providing
services to the
plan or received anything of value from any such party? 15j x
------- ------ ------- -------------
k Did the plan at any time hold 20% or more of its assets in any single
security, debt, mortgage, parcel
of real estate, or partnership/joint venture interests? 15k x 799,538
------- ------ ------- -------------
l Did the plan at any time engage in any transaction or series of related transactions
involving 20% or
more of the current value of plan assets? 15l x
------- ------ ------- -------------
m Were there any noncash contributions made to the plan the value of which was not 15m x
without an appraisal by an independent third party?
------- ------ ------- -------------
n Were there any purchases of nonpublicly traded securities by the plan the value of
which was set
without an appraisal by an independent third party 15n x
------- ------ ------- -------------
o Has the plan reduced or failed to provide any benefit when due under the plan because 15o x
of insufficient assets?
- ---------------------------------------------------------------------------------------------- ------- ------ ------- -------------
16a If the plan covered under the Pension Benefit Guaranty Corporation
termination insurance program? Yes X No Not determined
b If line 16a is "Yes" or "Not determined," enter the employer identification
number and the plan number used to identify it.
Employer identification number> Plan number>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
