FORM 10-Q
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 June 30, 1999
--------------------------------------------
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 August 6, 1999, the latest practicable date, 4,398,514 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 19 pages
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Winton Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of Other Comprehensive
Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION 18
SIGNATURES 19
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 1999 1998
(Restated)
<S> <C> <C>
Cash and due from banks $ 2,032 $ 2,172
Federal funds sold - 25
Interest-bearing deposits in other financial institutions 898 4,879
------- -------
Cash and cash equivalents 2,930 7,076
Investment securities available for sale - at market 5,161 5,579
Investment securities held to maturity - at cost, approximate market
value of $16,012 and $15,200 at June 30, 1999 and
September 30, 1998 16,135 14,873
Mortgage-backed securities available for sale - at market 434 565
Mortgage-backed securities held to maturity - at cost, approximate market
value of $13,719 and $16,023 at June 30, 199 and September 30, 1998 14,089 16,236
Loans receivable - net 399,895 343,116
Loans held for sale - at lower of cost or market 5,030 8,253
Office premises and equipment - net 3,743 3,833
Real estate acquired through foreclosure 482 595
Federal Home Loan Bank stock - at cost 5,339 4,592
Accrued interest receivable on loans 2,717 2,704
Accrued interest receivable on mortgage-
backed securities 96 120
Accrued interest receivable on investments 266 285
Prepaid expenses and other assets 514 565
Intangible assets - net 356 402
Prepaid federal income taxes 563 144
------- -------
Total assets $457,750 $408,938
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $319,312 $306,343
Advances from the Federal Home Loan Bank 102,691 67,404
Accounts payable on mortgage loans serviced for others 876 963
Advance payments by borrowers for taxes and insurance 176 801
Other liabilities 2,051 1,465
Deferred federal income taxes 1,479 1,575
------- -------
Total liabilities 426,585 378,551
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued - -
Common stock - 18,000,000 shares without par value
authorized; 4,397,514 and 4,390,514 shares issued and outstanding - -
Additional paid-in capital 9,873 9,827
Retained earnings - substantially restricted 20,915 19,970
Unrealized gains on securities designated as available for sale, net 377 590
------- -------
Total shareholders' equity 31,165 30,387
------- -------
Total liabilities and shareholders' equity $457,750 $408,938
======= =======
</TABLE>
3
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $22,265 $20,801 $7,685 $7,317
Mortgage-backed securities 676 876 208 272
Investment securities 891 824 291 280
Interest-bearing deposits and other 395 316 111 110
------ ------ ----- -----
Total interest income 24,227 22,817 8,295 7,979
Interest expense
Deposits 11,339 11,144 3,804 3,759
Borrowings 3,556 2,921 1,301 1,185
------ ------ ----- -----
Total interest expense 14,895 14,065 5,105 4,944
------ ------ ----- -----
Net interest income 9,332 8,752 3,190 3,035
Provision for losses on loans 145 31 98 8
------ ------ ----- -----
Net interest income after provision
for losses on loans 9,187 8,721 3,092 3,027
Other income
Gain on sale of mortgage loans 1,211 1,026 210 389
Mortgage-servicing fees 75 90 51 18
Gain on sale of real estate acquired through
foreclosure 70 - 36 -
Other operating 489 356 160 120
------ ------ ----- -----
Total other income 1,845 1,472 457 527
General, administrative and other expense
Employee compensation and benefits 3,210 2,749 1,127 946
Occupancy and equipment 1,367 1,172 478 398
Franchise taxes 271 266 91 95
Federal deposit insurance premiums 133 130 45 44
Amortization of intangible assets 46 46 15 15
Advertising 197 205 60 79
Other operating 1,162 975 331 334
Merger-related expenses 1,574 - 1,574 -
------ ------ ----- -----
Total general, administrative and other expense 7,960 5,543 3,721 1,911
------ ------ ----- -----
Earnings (loss) before income taxes 3,072 4,650 (172) 1,643
Federal income taxes
Current 1,152 1,387 (33) 477
Deferred 14 211 97 85
------ ------ ----- -----
Total federal income taxes 1,166 1,598 64 562
------ ------ ----- -----
NET EARNINGS (LOSS) $ 1,906 $ 3,052 $ (236) $1,081
====== ====== ===== =====
EARNINGS (LOSS) PER SHARE
Basic $.43 $.70 $(.05) $.25
=== === ==== ===
Diluted $.42 $.67 $(.05) $.23
=== === ==== ===
Dividends per share $0.219 $0.181 $0.075 $0.060
===== ===== ===== =====
</TABLE>
4
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands)
Nine months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings (loss) $1,906 $3,052 $(236) $1,081
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities
during the period (213) 223 (68) 52
----- ----- ---- -----
Comprehensive income (loss) $1,693 $3,275 $(304) $1,133
===== ===== ==== =====
</TABLE>
5
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30,
(In thousands)
1999 1998
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,906 $ 3,052
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments and
mortgage-backed securities 48 36
Amortization of deferred loan origination fees (78) (173)
Depreciation 396 352
Amortization of intangible assets 46 46
Gain on sale of mortgage loans (1,022) (797)
Provision for losses on loans 145 31
Loans disbursed for sale in the secondary market (81,481) (69,363)
Proceeds from sale of loans in the secondary market 85,726 68,841
Loss on merger-related disposition of office premises and equipment 174 -
Gain on sale of real estate acquired through foreclosure (70) -
Federal Home Loan Bank stock dividends (248) (203)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (13) (207)
Accrued interest receivable on mortgage-backed securities 24 16
Accrued interest receivable on investments 19 (7)
Prepaid expenses and other assets 51 (317)
Accounts payable on mortgage loans serviced for others (87) (32)
Other liabilities 586 107
Federal income taxes
Current (419) (144)
Deferred 14 211
------- -------
Net cash provided by operating activities 5,717 1,449
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 2,239 2,383
Proceeds from maturity of investment securities 7,800 6,400
Proceeds from maturity of investment securities designated as
available for sale 100 -
Purchase of investment securities designated held to maturity (9,076) (7,669)
Purchase of investment securities designated as available for sale - (1,495)
Loan principal repayments 95,452 69,478
Loan disbursements (152,531) (114,312)
Sale of loan participations - 6,729
Proceeds from the sale of real estate acquired through foreclosure 403 34
Purchase of office premises and equipment (467) (491)
Additions to real estate acquired through foreclosure - (34)
Purchase of Federal Home Loan Bank stock (499) (787)
------- -------
Net cash used in investing activities (56,579) (39,764)
------- -------
Net cash used in operating and investing
activities (balance carried forward) (50,862) (38,315)
------- -------
</TABLE>
6
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended June 30,
(In thousands)
1999 1998
(Restated)
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(50,862) $(38,315)
Cash flows from financing activities:
Net increase in deposit accounts 12,969 15,434
Proceeds from Federal Home Loan Bank advances 49,000 72,539
Repayment of Federal Home Loan Bank advances (13,713) (49,237)
Advances by borrowers for taxes and insurance (625) (325)
Proceeds from exercise of stock options 46 308
Proceeds from issuance of common stock - 93
Dividends paid on common stock (961) (795)
------- -------
Net cash provided by financing activities 46,716 38,017
------- -------
Net decrease in cash and cash equivalents (4,146) (298)
Cash and cash equivalents at beginning of period 7,076 5,643
------- -------
Cash and cash equivalents at end of period $ 2,930 $ 5,345
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,580 $ 1,470
======= =======
Interest on deposits and borrowings $ 14,699 $ 13,782
======= =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 233 $ 52
======= =======
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ (213) $ 223
======= =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 189 $ 232
======= =======
</TABLE>
7
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three month periods ended June 30, 1999 and 1998
1. Basis of Presentation
On December 14, 1998, Winton Financial Corporation ("Winton Financial"
or the "Corporation") entered into an Agreement and Plan of
Reorganization with BenchMark Federal Savings Bank ("BenchMark")
pursuant to which BenchMark would merge with and into Winton Savings
and Loan Co. ("Winton Savings" or the "Company") a wholly-owned
subsidiary of the Company. The merger was consummated on June 11, 1999
and was accounted for using the pooling of interests method of
accounting. Accordingly, the financial statements as of September 30,
1998, and for the periods ending June 30, 1999 and 1998, have been
restated to give effect to the combination.
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q 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 included in the Annual Report on Form 10-K for the year ended
September 30, 1998. 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 nine and three month
periods ended June 30, 1999, 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 Winton Savings. All significant intercompany
items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." SFAS No. 130 established 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.
8
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 1999 and 1998
3. Effects of Recent Accounting Pronouncements (continued)
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. 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. Management adopted SFAS
No. 130 effective October 1, 1998, as required, without material impact
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 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. Management adopted SFAS No. 131
effective October 1, 1998, as required, without material impact on
Winton Financial's financial position or results of operations.
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 contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000. 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.
9
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 1999 and 1998
3. Effects of Recent Accounting Pronouncements (continued)
The foregoing discussion of the effects of recent accounting
pronouncements contains forward-looking statements that involve risks
and uncertainties. Changes in economic circumstances could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
4. Year 2000 Compliance Issues
The Year 2000 issue is a serious operational problem which is
widespread and complex, affecting all industries. The Federal Financial
Institutions 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.
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 its 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 its computer programming
and systems prior to the arrival of the year 2000. All other vendors
and commercial customers have been identified and requests for year
2000 certificates have been forwarded by Winton Savings.
10
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three month periods ended June 30, 1999 and 1998
4. Year 2000 Compliance Issues (continued)
The year 2000 team submits quarterly progress reports to the Board of
Directors and continues to perform 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, of which approximately $67,000
has been expensed at June 30, 1999, 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. Winton
Financial 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.
5. Earnings (Loss) Per Share
Basic earnings (loss) per share for the nine and three month periods
ended June 30, 1999 is computed based on 4,393,052 and 4,396,591
weighted-average shares outstanding during the respective periods.
Basic earnings per share for the nine and three month periods ended
June 30, 1998 is computed based on 4,371,268 and 4,380,234
weighted-average shares outstanding during the respective periods.
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 4,583,924 and 4,396,591 for the nine and three month
periods ended June 30, 1999, and 4,564,340 and 4,611,794 for the nine
and three month periods ended June 30, 1998, respectively.
Incremental shares related to the assumed exercise of stock options
included in the calculation of diluted earnings per share totaled
190,872 for the nine month period ended June 30, 1999, and 193,072 and
231,560 for the nine and three month periods ended June 30, 1998,
respectively.
11
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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 June 30, 1999, and the results of operations for the
nine and three month periods ended June 30, 1999, compared to the same periods
in 1998. 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 Form 10-Q 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, 1998 to June 30, 1999" and "Comparison of
Results of Operations for the Nine and Three Months Ended June 30, 1999 and
1998."
2. 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."
3. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements."
Discussion of Financial Condition Changes from September 30, 1998 to June 30,
1999
At June 30, 1999, the Corporation had total assets of $457.8 million, an
increase of approximately $48.8 million, or 11.9%, over the level at September
30, 1998. The growth in assets was funded primarily by an increase in deposits
of $13.0 million, an increase in Federal Home Loan Bank ("FHLB") advances of
$35.3 million and undistributed net earnings of $945,000.
Cash and cash equivalents decreased by $4.1 million, or 58.6%, during the nine
months ended June 30, 1999, as excess liquidity was used to fund new loan
originations.
Investment securities totaled approximately $21.3 million at June 30, 1999, an
increase of approximately $844,000, or 4.1%, over September 30, 1998 levels, as
purchases of $9.1 million exceeded maturities and called securities of $7.9
million during the period.
Mortgage-backed securities totaled approximately $14.5 million at June 30, 1999,
a decrease of approximately $2.3 million, or 13.6%, since September 30, 1998,
primarily attributable to regular principal repayments during the period.
12
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 1998 to June 30,
1999 (continued)
Loans receivable and loans held for sale totaled $404.9 million at June 30,
1999, an increase of approximately $53.6 million, or 15.2%, over the level at
September 30, 1998. The increase resulted primarily from loan originations of
$234.0 million, which were partially offset by loan sales of $85.7 million
during the current period and principal repayments amounted to $95.5 million.
At June 30, 1999, the allowance for loan losses of Winton Savings totaled
$900,000, a decrease of $16,000 from the level maintained at September 30, 1998.
At June 30, 1999, the allowance represented approximately .21% of the total loan
portfolio and 113.92% of total nonperforming loans. At June 30, 1999, the ratio
of total nonperforming loans to total loans amounted to .19% compared to .31% at
September 30, 1998. Although management believes that its allowance for loan
losses at June 30, 1999 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 $319.3 million at June 30, 1999, an increase of $13.0 million,
or 4.2%, from September 30, 1998 levels. The increase in deposits was primarily
the result of management's decision to increase out of state certificates and
some brokered certificates. Such brokered deposits totaled $25.7 million and
$28.5 million at June 30, 1999 and September 30, 1998, respectively.
Advances from the FHLB totaled $102.7 million at June 30, 1999, an increase of
$35.3 million, or 52.4%, over September 30, 1998 levels. Proceeds from advances
and from deposit growth have generally been utilized to fund the growth in the
loan portfolio.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At June 30, 1999, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Nine Month Periods ended June 30, 1999
and 1998
General
Net earnings totaled $1.9 million for the nine months ended June 30, 1999,
compared to $3.1 million for the same period in 1998, a decrease of $1.1
million, or 37.5%. The decrease in earnings resulted primarily from a $2.4
million increase in general, administrative and other expense and an increase of
$114,000 in the provision for losses on loans, which were partially offset by a
$580,000 increase in net interest income, a $373,000 increase in other income
and a $432,000 decrease in the provision for federal income taxes.
13
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods ended June 30, 1999
and 1998 (continued)
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $1.3
million, or 5.8%, for the nine months ended June 30, 1999, compared to the same
period in 1998. The increase resulted primarily from a $38.3 million increase in
the weighted-average portfolio outstanding year to year, partially offset by a
38 basis point decrease in yield, to 7.84% for nine months ended June 30, 1999.
Interest income on investment securities and interest-bearing deposits and other
increased by $146,000, or 12.8%, for the nine months ended June 30, 1999,
compared to the same period in 1998. The increase resulted from a $4.8 million
increase in the average balance outstanding, offset by a 35 basis point decrease
in yield, to 5.83% for the nine months ended June 30, 1999.
Interest expense on deposits increased by $195,000, or 1.7%, for the nine months
ended June 30, 1999 compared to the nine months ended June 30, 1998. The
increase was primarily attributable to a $21.5 million increase in
weighted-average deposits outstanding year to year. The weighted-average cost of
deposits decreased during the period, amounting to 4.89% and 5.17% for the nine
months ended June 30, 1999 and 1998, respectively.
Interest expense on borrowings increased by $635,000, or 21.7%, during the nine
months ended June 30, 1999, compared to the same period in 1998, primarily due
to an increase of $17.7 million in the weighted-average balances of FHLB
advances outstanding, while the weighted-average cost of FHLB advances decreased
to 5.62% from 5.83% during the nine month periods ended June 30, 1999 and 1998,
respectively.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $580,000, or 6.6%, to a total of $9.3 million
for the nine months ended June 30, 1999, compared to the same period in 1998.
The interest rate spread decreased by 14 basis points, to 2.65% for the nine
months ended June 30, 1999, while the net interest margin decreased by 13 basis
points, to 2.97% for the nine months ended June 30, 1999, compared to 3.10% for
the comparable period in 1998.
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, and general
economic conditions, particularly as such conditions relate to the Company's
loan portfolio. As a result of such analysis, management elected to record a
$145,000 provision for losses on loans during the nine-month period ended June
30, 1999, an increase of $114,000 over the nine month period ended June 30,
1998. The increase was due primarily to the growth in the loan portfolio year to
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.
14
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods ended June 30, 1999
and 1998 (continued)
Other Income
Other income increased by $373,000, or 25.3%, for the nine months ended June 30,
1999, compared to the 1998 period, primarily due to an increase of $185,000, or
18.0%, in gain on sale of mortgage loans, a $70,000 increase in gain on sale of
real estate acquired through foreclosure, and a $133,000, or 37.4%, increase in
other operating income, which were partially offset by a $15,000, or 16.7%,
decrease in mortgage servicing fees.
General, Administrative and Other Expense
General, administrative and other expense increased by $2.4 million, or 43.6%,
for the nine months ended June 30, 1999, compared to the same period in 1998.
The increase consisted primarily of a $1.6 million charge for merger-related
expenses recorded in the third quarter, a $461,000, or 16.8%, increase in
employee compensation and benefits, a $195,000, or 16.6%, increase in occupancy
and equipment and a $187,000, or 19.2%, increase in other operating expenses.
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 increase in occupancy and equipment expense
resulted from costs associated with the new loan production office location in
Western Hills. The increase in other operating expense resulted primarily from
an increase in computer technology costs along with additional training expense
related to implementation of new loan software which will streamline the loan
production process, coupled with costs related to the year 2000 compliance
initiative.
Federal Income Taxes
The provision for federal income taxes amounted to $1.2 million for the nine
months ended June 30, 1999, a decrease of $432,000, or 27.0%, from the same
period in 1998. The decrease resulted primarily from a $1.6 million, or 33.9%,
decrease in pretax earnings, which was partially offset by nondeductible
merger-related expenses. The effective tax rates were 38.0% and 34.4% for the
nine month periods ended June 30, 1999 and 1998, respectively.
Comparison of Operating Results for the Three Month Periods ended June 30, 1999
and 1998
General
The Corporation recorded a net loss for the three months ended June 30, 1999,
totaling $236,000, compared to $1.1 million in net earnings for the same period
in 1998, a decrease of $1.3 million, or 121.8%. The decreased earnings resulted
primarily from a $1.8 million increase in general, administrative and other
expense, a $90,000 increase in the provision for losses on loans and a $70,000
decrease in other income, which were partially offset by a $155,000 increase in
net interest income and a $498,000 decrease in the provision for federal income
taxes.
15
<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 June 30, 1999
and 1998 (continued)
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $304,000,
or 4.0%, for the three months ended June 30, 1999, compared to the same period
in 1998. The increase resulted primarily from a $37.9 million increase in the
weighted-average portfolio outstanding year to year, partially offset by a 46
basis point decrease in yield, to 7.74% for three months ended June 30, 1999.
Interest income on investment securities and interest-bearing deposits and other
increased by $12,000, or 3.1%, for the three months ended June 30, 1999,
compared to the same quarter in 1998. The increase resulted from a $4.1 million
increase in the average balance outstanding, offset by a decrease in yield, to
5.47% for the three months ended June 30, 1999.
Interest expense on deposits increased by $45,000, or 1.2%, for the three months
ended June 30, 1999 compared to the same period in 1998. The increase was
primarily attributable to a $24.0 million increase in weighted-average deposits
outstanding year to year. The weighted-average cost of deposits decreased during
the periods, amounting to 4.82% and 5.16% for the three months ended June 30,
1999 and 1998, respectively.
Interest expense on borrowings increased by $116,000, or 9.8%, during the three
months ended June 30, 1999, compared to the same period in 1998, primarily due
to an increase of $14.9 million in the weighted-average balances of FHLB
advances outstanding, while the weighted-average cost of FHLB advances decreased
to 5.43% from 5.85% during the three month periods ended June 30, 1999 and 1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $155,000, or 5.1%, to $3.2 million for the
three months ended June 30, 1999, compared to $3.0 million for the same period
in 1998. The interest rate spread decreased by 15 basis points, to 2.62% for the
three months ended June 30, 1999, while the net interest margin decreased by 15
basis points, to 2.92% for the three months ended June 30, 1999, compared to
3.07% for the three months ended June 30, 1998.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Company, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to the Company's loan portfolio, management elected to record a $98,000
provision for loan losses during the three-month period ended June 30, 1999,
compared to a provision of $8,000 recorded in the 1998 period. The current
period provision reflects the growth in the loan portfolio year to 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.
16
<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 June 30, 1999
and 1998 (continued)
Other Income
Other income decreased by $70,000, or 13.3%, for the three months ended June 30,
1999, compared to the 1998 period, primarily due to a $179,000, or 46.0%,
decrease in gain on sale of mortgage loans, which was partially offset by an
increase of $33,000 in mortgage servicing fees, a $40,000, or 33.3%, increase in
other operating income and a $36,000 gain on sale of real estate acquired
through foreclosure.
General, Administrative and Other Expense
General, administrative and other expense increased by $1.8 million, or 94.7%,
for the three months ended June 30, 1999, compared to the same period in 1998.
The increase consisted primarily of a $1.6 million charge for merger-related
expenses, a $181,000, or 19.1%, increase in employee compensation and benefits
and an $80,000, or 20.1%, increase in occupancy and equipment, partially offset
by a $4,000, or 4.2%, decrease in franchise taxes, a $19,000, or 24.1%, decrease
in advertising expense and a $3,000 decrease in other operating expense. 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 increase in occupancy and equipment expense resulted from costs
associated with the new loan production office location in Western Hills.
Federal Income Taxes
The provision for federal income taxes amounted to $64,000 for the three months
ended June 30, 1999, a decrease of $498,000, or 88.6%, from the same period in
1998. The decrease resulted primarily from a $1.8 million, or 110.5%, decrease
in pretax earnings, which was partially offset by the effects of nondeductible
merger-related expenses. The effective tax rates were 37.2% and 34.2% for the
three month periods ended June 30, 1999 and 1998, respectively.
17
<PAGE>
Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibit 27: Financial Data Schedule for the Nine
Months Ended June 30, 1999.
18
<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: August 13, 1999 By: /s/Robert L. Bollin
------------------------- --------------------------
Robert L. Bollin
President
Date: August 13, 1999 By: /s/Jill M. Burke
------------------------- --------------------------
Jill M. Burke
Chief Financial Officer
19
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
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