FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-18993
WINTON FINANCIAL CORPORATION
(Exact name of registrant as specified 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 (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 385-3880
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ____
As of May 1, 1998, the latest practicable date, 4,014,304 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 17 pages
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Winton Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 16
SIGNATURES 17
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, September 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 1,367 $ 1,367
Interest-bearing deposits in other financial institutions 795 1,419
---------- ---------
Cash and cash equivalents 2,162 2,786
Investment securities available for sale - at market 5,383 3,631
Investment securities - at cost, approximate market
value of $13,209 and $12,679 at March 31, 1998 and
September 30, 1997 13,104 12,585
Mortgage-backed securities available for sale - at market 695 799
Mortgage-backed securities - at cost, approximate market value of $13,739 and
$14,345 at March 31, 1998
and September 30, 1997 13,849 14,614
Loans receivable - net 293,780 276,334
Loans held for sale - at lower of cost or market 5,694 4,210
Office premises and equipment - net 2,642 2,627
Real estate acquired through foreclosure 504 513
Federal Home Loan Bank stock - at cost 3,274 2,998
Accrued interest receivable on loans 2,207 2,185
Accrued interest receivable on mortgage-backed securities 103 109
Accrued interest receivable on investments 260 241
Prepaid expenses and other assets 636 393
Intangible assets - net 432 463
Prepaid federal income taxes 136 -
-------- --------
Total assets $344,861 $324,488
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $251,606 $240,317
Advances from the Federal Home Loan Bank 64,393 57,425
Accounts payable on mortgage loans serviced for others 855 842
Advance payments by borrowers for taxes and insurance 440 412
Other liabilities 1,178 1,137
Accrued federal income taxes - 85
Deferred federal income taxes 1,208 993
--------- ----------
Total liabilities 319,680 301,211
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 issued and outstanding - -
Additional paid-in capital 6,775 6,501
Retained earnings - substantially restricted 17,933 16,474
Unrealized gains on securities designated as available for sale, net 473 302
-------- --------
Total shareholders' equity 25,181 23,277
-------- --------
Total liabilities and shareholders' equity $344,861 $324,488
======= =======
</TABLE>
3
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Six months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $11,942 $10,643 $5,991 $5,423
Mortgage-backed securities 460 562 230 280
Investment securities 535 392 272 199
Interest-bearing deposits and other 121 93 60 47
-------- --------- ------- -------
Total interest income 13,058 11,690 6,553 5,949
Interest expense
Deposits 6,429 5,785 3,186 2,901
Borrowings 1,576 1,398 793 725
------- ------- ------ ------
Total interest expense 8,005 7,183 3,979 3,626
------- ------- ----- -----
Net interest income 5,053 4,507 2,574 2,323
Other income
Gain on sale of mortgage loans 633 272 385 57
Mortgage servicing fee income (expense) 74 155 (20) 79
Gain on sale of investments and mortgage-backed securities
designated as available for sale - 36 - -
Gain on sale of real estate acquired through foreclosure - 32 - 36
Other operating 206 181 103 91
------- ------- ------ -------
Total other income 913 676 468 263
General, administrative and other expense
Employee compensation and benefits 1,454 1,361 714 701
Occupancy and equipment 641 593 331 302
Federal deposit insurance premiums 74 134 37 9
Franchise taxes 146 131 78 67
Amortization of intangible assets 31 31 15 15
Advertising 110 78 61 39
Other operating 521 505 281 250
------- ------- ------ ------
Total general, administrative and other expense 2,977 2,833 1,517 1,383
------- ------- ----- -----
Earnings before income taxes 2,989 2,350 1,525 1,203
Federal income taxes
Current 901 123 360 353
Deferred 126 676 163 56
------- -------- ------ -------
Total federal income taxes 1,027 799 523 409
------- -------- ------ ------
NET EARNINGS $ 1,962 $ 1,551 $ 1,002 $ 794
======= ======= ======= ======
EARNINGS PER SHARE
Basic $.49 $.39 $.25 $.20
=== === === ===
Diluted $.47 $.39 $.24 $.20
=== === === ===
Dividends per share $.1250 $.1100 $.0625 $.0575
===== ===== ===== =====
</TABLE>
4
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,962 $ 1,551
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments
and mortgage-backed securities 14 5
Amortization of deferred loan origination fees (139) (118)
Depreciation 203 191
Amortization of intangible assets 31 31
Gain on sale of investment and mortgage-backed securities
designated as available for sale - (36)
Gain on sale of mortgage loans (493) (140)
Gain on sale of real estate acquired through foreclosure - (32)
Loans disbursed for sale in secondary market (42,536) (13,051)
Proceeds from sale of mortgage loans 41,545 15,794
Federal Home Loan Bank stock dividends (108) (85)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (22) (105)
Accrued interest receivable on mortgage-backed securities 6 6
Accrued interest receivable on investments (19) (34)
Prepaid expenses and other assets (243) (120)
Accounts payable on mortgage loans serviced for others 13 48
Other liabilities 41 (1,464)
Federal income taxes
Current (221) (278)
Deferred 126 676
-------- --------
Net cash provided by operating activities 160 2,839
Cash flows from investing activities:
Proceeds from maturity of investment securities 5,800 3,000
Proceeds from sale of investment securities designated as available for sale - 122
Purchase of investment securities designated as held to maturity (6,322) (3,499)
Purchase of investment securities designated as available for sale (1,495) -
Principal repayments on mortgage-backed securities 861 1,225
Loan principal repayments 39,244 32,758
Loan disbursements (61,050) (53,448)
Sale of loan participations 4,499 3,635
Proceeds from sale of real estate acquired through foreclosure - 94
Additions to real estate acquired through foreclosure - (13)
Purchase and renovation of office premises and equipment (209) (70)
Purchase of Federal Home Loan Bank stock (168) (242)
------- -------
Net cash used in investing activities (18,840) (16,438)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (18,680) (13,599)
------ ------
</TABLE>
5
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(18,680) $(13,599)
Cash flows from financing activities:
Net increase in deposit accounts 11,289 8,154
Proceeds from Federal Home Loan Bank advances 41,000 14,000
Repayment of Federal Home Loan Bank advances (34,032) (7,528)
Advances by borrowers for taxes and insurance 28 22
Proceeds from exercise of stock options 274 -
Dividends paid on common stock (503) (437)
------- -------
Net cash provided by financing activities 18,056 14,211
------- -------
Net increase (decrease) in cash and cash equivalents (624) 612
Cash and cash equivalents at beginning of period 2,786 1,504
-------- --------
Cash and cash equivalents at end of period $ 2,162 $ 2,116
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 1,060 $ 400
======== ========
Interest on deposits and borrowings $ 7,867 $ 7,110
======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ - $ 200
======== ========
Unrealized gains on securities designated as available for sale,
net of related tax effects $ 171 $ 17
======== ========
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 140 $ 132
======== ========
</TABLE>
6
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six month periods ended March 31, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Winton
Financial Corporation (the "Corporation" or "Winton Financial")
included in the Annual Report on Form 10-KSB for the year ended
September 30, 1997. However, all adjustments (consisting of only normal
recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have
been included. The results of operations for the three and six month
periods ended March 31, 1998, are not necessarily indicative of the
results which may be expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Winton Financial and The Winton Savings and Loan Co. (the "Company"
or "Winton Savings"). All significant intercompany items have been
eliminated.
3. 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.
7
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended March 31, 1998 and 1997
3. Effects of Recent Accounting Pronouncements (continued)
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.
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 effective
January 1, 1998, as required, without material effect on the
Corporation'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 impact on the Corporation's financial statements.
8
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended March 31, 1998 and 1997
3. Effects of Recent Accounting Pronouncements (continued)
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 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 also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material impact on the Corporation's financial statements.
4. Earnings Per Share
Basic earnings per share for the six and three month periods ended
March 31, 1998 is computed based on 4,010,898 and 4,014,126
weighted-average shares outstanding during the respective periods.
Basic earnings per share for each of the six and three month periods
ended March 31, 1997, is computed based on 3,972,304 weighted-average
shares outstanding.
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 4,174,240 and 4,198,456 for the six and three month
periods ended March 31, 1998, and 3,997,532 and 3,950,664 for the six
and three month periods ended March 31, 1997.
Basic and diluted earnings per share for the six and three month
periods ended March 31, 1997 have been restated to give effect to the
Corporation's two-for-one stock split which was effected on March 31,
1998.
9
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
In the following pages, management presents an analysis of the Corporation's
financial condition as of March 31, 1998, and the results of operations for the
six and three month periods ended March 31, 1998, compared to the same periods
in 1997. 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 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 March 31, 1998" and "Comparison of
Results of Operations for the Six Months Ended March 31, 1998 and 1997."
2. Management's determination of the potential effects of the year 2000 on its
information technology systems as set forth under "Other Matters."
Discussion of Financial Condition Changes from September 30, 1997 to
March 31, 1998
At March 31, 1998, the Corporation had total assets of $344.9 million, an
increase of approximately $20.4 million, or 6.3%, over the level at September
30, 1997. The growth in assets was funded primarily by deposit growth of $11.3
million, an increase in Federal Home Loan Bank advances of $7.0 million and
undistributed net earnings of $1.5 million.
Investment securities totaled approximately $18.5 million at March 31, 1998, an
increase of approximately $2.3 million, or 14.0%, over September 30, 1997
levels, as purchases of $7.8 million exceeded maturities of $5.8 million during
the period.
Mortgage-backed securities totaled approximately $14.5 million at March 31,
1998, a decrease of approximately $869,000, or 5.6%, since September 30, 1997,
primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $299.5 million at March 31,
1998, an increase of approximately $18.9 million, or 6.7%, over the level at
September 30, 1997. Proceeds from loan sales increased by $25.8 million during
the current period to $41.5 million, loan originations totaled $103.6 million,
principal repayments amounted to $39.2 million and sale of participations
totaled $4.5 million.
10
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 1997 to March 31,
1998 (continued)
At March 31, 1998, the allowance for loan losses of Winton Savings totaled
$807,000, a decrease of $20,000 from the level maintained at September 30, 1997.
At March 31, 1998, the allowance represented approximately .28% of the total
loan portfolio and 336% of total nonperforming loans. At March 31, 1998, the
ratio of total nonperforming loans to total loans amounted to .08% as compared
to .16% at September 30, 1997. Although management believes that its allowance
for loan losses at March 31, 1998 is 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 $251.6 million at March 31, 1998, an increase of $11.3 million,
or 4.7%, over September 30, 1997 levels. 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
$27.3 million and $16.3 million at March 31, 1998 and September 30, 1997,
respectively.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At March 31, 1998, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Six Month Periods ended March 31, 1998
and 1997
General
Net earnings totaled $2.0 million for the six months ended March 31, 1998,
compared to $1.6 million for the same period in 1997, an increase of $411,000,
or 26.5%. The increased earnings resulted primarily from a $546,000 increase in
net interest income and a $237,000 increase in other income, which were
partially offset by an $144,000 increase in general, administrative and other
expense, and a $228,000 increase in the provision for federal income taxes.
Net Interest Income
Interest on loans and mortgage-backed securities increased by $1.2 million, or
10.7%, for the six months ended March 31, 1998, compared to the same period in
1997. The increase resulted primarily from a $25.2 million increase in the
weighted-average portfolio outstanding year to year and a 10 basis point
increase in yield, to 8.30% for the six months ended March 31, 1998.
11
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Month Periods ended March 31, 1998
and 1997 (continued)
Net Interest Income (continued)
Interest income on investment securities, interest-bearing deposits and other
increased by $171,000, or 35.3%, for the six months ended March 31, 1998,
compared to the comparable period in 1997. The increase resulted from a $6.1
million increase in the average balance outstanding, which was partially offset
by a decrease in yields due to replacement of called securities at a lower
yield.
Interest expense on deposits increased by $644,000, or 11.1%, for the six months
ended March 31, 1998 compared to the comparable period in 1997. The increase was
primarily attributable to a $22.4 million increase in weighted-average deposits
outstanding year to year, coupled with a five basis point increase in the
weighted-average cost of deposits to 5.21% for the six months ended March 31,
1998.
Interest expense on borrowings increased by $178,000, or 12.7%, during the six
months ended March 31, 1998, compared to the same period in 1997, primarily due
to an increase of $5.8 million in the weighted-average balances of Federal Home
Loan Bank advances outstanding, coupled with an increase in the weighted-average
cost of Federal Home Loan Bank advances.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $546,000, or 12.1%, to a total of $5.1 million
for the six months ended March 31, 1998, compared to the same period in 1997.
The interest rate spread decreased by 10 basis points, to 2.83% for the six
months ended March 31, 1998, while the net interest margin decreased by 7 basis
points, to 3.16% for the six months ended March 31, 1998, compared to 3.23% for
the comparable period in 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, and the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Company's
loan portfolio. As a result of such analysis, management concluded that the
allowance for losses on loans was adequate, and therefore did not provide a
provision for loan losses during the six-month period ended March 31, 1998.
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 increased by $237,000, or 35.1%, for the six months ended March 31,
1998, compared to the 1997 period, primarily due to an increase of $361,000 in
gain on sale of mortgage loans and a $25,000 increase in service fees, charges
and other which were partially offset by an $81,000 decrease in mortgage
servicing fees and the absence of a $32,000 gain on sale of real estate acquired
through foreclosure and a $36,000 gain on sale of investments and
mortgage-backed securities designated as available for sale recorded in 1997.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Month Periods ended March 31, 1998
and 1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $144,000, or 5.1%, for
the six months ended March 31, 1998, compared to the same period in 1997. The
increase consisted primarily of a $93,000, or 6.8%, increase in employee
compensation and benefits, a $48,000, or 8.1%, increase in occupancy and
equipment, a $15,000, or 11.5%, increase in franchise tax expense, a $32,000, or
41.0%, increase in advertising expense and a $16,000 increase in other operating
expenses, which were partially offset by a $60,000, or 44.8%, decrease in
federal deposit insurance premiums. The increase in employee compensation and
benefits resulted primarily from increased staffing levels coupled with normal
merit increases, which were partially offset by an increase in deferred loan
origination costs due to the increased lending volume. The decline in federal
deposit insurance premiums resulted from lower premium rates following the
recapitalization of the Savings Association Insurance Fund in November 1996.
Increases in general, administrative and other expenses generally reflects the
Corporation's overall growth year to year.
Federal Income Taxes
The provision for federal income taxes amounted to $1.0 million for the six
months ended March 31, 1998, an increase of $228,000, or 28.5%, over the same
period in 1997. The increase resulted primarily from a $639,000, or 27.2%,
increase in pretax earnings. The effective tax rates were 34.4% and 34.0% for
the six month periods ended March 31, 1998 and 1997, respectively.
Comparison of Operating Results for the Three Month Periods ended March 31, 1998
and 1997
General
Net earnings totaled $1.0 million for the three months ended March 31, 1998,
compared to $794,000 for the same period in 1997, an increase of $208,000, or
26.2%. The increase in earnings resulted primarily from a $251,000 increase in
net interest income and a $205,000 increase in other income, which were
partially offset by a $134,000 increase in general, administrative and other
expense and a $114,000 increase in the provision for federal income taxes.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $518,000,
or 9.1%, for the three months ended March 31, 1998, compared to the comparable
1997 quarter. The increase resulted primarily from an increase in
weighted-average portfolio balances outstanding year to year.
Interest income on investments and interest-bearing deposits increased by
$86,000, or 35.0%, for the three months ended March 31, 1998, compared to the
same quarter in 1997. The increase resulted primarily from an increase in
weighted-average portfolio balances outstanding.
13
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended March 31, 1998
and 1997 (continued)
Interest expense on deposits totaled $3.2 million for the three months ended
March 31, 1998, an increase of $285,000, or 9.8%, over the comparable quarter in
1997. The increase was primarily attributable to an increase in the
weighted-average cost of deposits and an increase in the average balance of
deposits outstanding.
Interest expense on borrowings totaled $793,000 for the three months ended March
31, 1998, an increase of $68,000, or 9.4%, over the 1997 period. The increase
was primarily attributable to an increase in the weighted-average cost of
advances and an increase in the average balance of borrowings outstanding.
As a result of the foregoing changes in interest income and interest expense,
the Corporation's net interest income increased by $251,000, or 10.8%, for the
three months ended March 31, 1998, compared to the three months ended March 31,
1997.
Other Income
Other income increased by $205,000, or 77.9%, for the 1998 quarter, compared to
the same period in 1997, primarily due to an increase of $328,000 in gain on
sale of mortgage loans and a $12,000 increase in service fees, charges and
other, which were partially offset by a $99,000 decrease in mortgage servicing
fees and a $36,000 gain on sale of real estate acquired through foreclosure
recorded in 1997.
General, Administrative and Other Expense
General, administrative and other expense totaled $1.5 million for the quarter
ended March 31, 1998, an increase of $134,000, or 9.7%, over the 1997 quarter.
The increase was comprised primarily of a $13,000, or 1.9%, increase in employee
compensation and benefits, a $29,000, or 9.6%, increase in occupancy and
equipment expense, a $28,000 increase in federal deposit insurance premiums, an
$11,000, or 16.4%, increase in franchise taxes, a $22,000, or 56.4%, increase in
advertising and a $31,000, or 12.4%, increase in other operating expense. These
increases resulted primarily from an increase in operating costs due to the
Corporation's overall growth year to year.
Federal Income Taxes
The provision for federal income taxes totaled $523,000 for the three months
ended March 31, 1998, an increase of $114,000, or 27.9%, over the comparable
quarter in 1997. The increase resulted primarily from a $322,000, or 26.8%,
increase in pretax earnings. The Corporation's effective tax rates were 34.3%
and 34.0% for the three month periods ended March 31, 1998 and 1997,
respectively.
14
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended March 31, 1998
and 1997 (continued)
Other Matters
As with all providers of financial services, Winton Savings' operations are
heavily dependent on information technology systems. The Company is addressing
the potential problems associated with the possibility that the computers that
control or operate the Company's information technology system and
infrastructure 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. The
Company is working with the companies that supply or service its information
technology systems to identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, the Company has not identified any specific
expenses that are reasonably likely to be incurred by the Company in connection
with this issue and does not expect to incur significant expense to implement
the necessary corrective measures. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the event that
the Company is ultimately required to purchase replacement computer systems,
programs and equipment, or incur substantial expense to make the Company's
current systems, programs and equipment year 2000 compliant, the Company's net
earnings and financial condition could be adversely affected.
In addition to possible expense related to its own systems, the Company could
incur losses if loan payments are delayed due to year 2000 problems affecting
any major borrowers in the Company's primary market area. Because the Company's
loan portfolio is highly diversified with regard to individual borrowers and
types of businesses and the Company's primary market area is not significantly
dependent upon one employer or industry, the Company does not expect any
significant or prolonged difficulties that will affect net earnings or cash
flow.
15
<PAGE>
Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
ITEM 5. Other Materially Important Events
None
ITEM 6. Exhibits and Reports on Form 8-K
There were no Form 8-K's filed by Winton Financial Corporation during
the quarter ended March 31, 1998.
Exhibit 27.1: Financial Data Schedule for the Six Months
Ended March 31, 1998.
Exhibit 27.2: Restated Financial Data Schedule for the Six
Months Ended March 31, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 1998 By: /s/Robert L. Bollin
------------------------------ -------------------
Robert L. Bollin
President
Date: May 8, 1998 By: /s/Jill M. Burke
------------------------------ ----------------
Jill M. Burke
Chief Financial Officer
17
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