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 March 31, 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 May 3, 1999, the latest practicable date, 4,021,304 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 and Subsidiary
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 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
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, September 30,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 1,702 $ 1,607
Interest-bearing deposits in other financial institutions 531 2,607
------- -------
Cash and cash equivalents 2,233 4,214
Investment securities available for sale - at market 5,261 5,579
Investment securities held to maturity - at cost, approximate market
value of $16,472 and $15,185 at March 31,
1999 and September 30, 1998 16,392 14,858
Mortgage-backed securities available for sale - at market 473 565
Mortgage-backed securities held to maturity - at cost, approximate market value
of $11,215 and $12,266 at March 31,
1999 and September 30, 1998 11,361 12,418
Loans receivable - net 334,070 297,055
Loans held for sale - at lower of cost or market 2,678 8,253
Office premises and equipment - net 2,892 2,945
Real estate acquired through foreclosure 486 495
Federal Home Loan Bank stock - at cost 4,175 4,033
Accrued interest receivable on loans 2,339 2,407
Accrued interest receivable on mortgage-
backed securities 79 91
Accrued interest receivable on investments 284 285
Prepaid expenses and other assets 967 488
Intangible assets - net 371 402
Prepaid federal income taxes - 105
------- -------
Total assets $384,061 $354,193
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $274,188 $266,007
Advances from the Federal Home Loan Bank 77,365 56,899
Accounts payable on mortgage loans serviced for others 871 912
Advance payments by borrowers for taxes and insurance 642 610
Other liabilities 1,384 1,342
Accrued federal income taxes 44 -
Deferred federal income taxes 1,347 1,531
------- -------
Total liabilities 355,841 327,301
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; 4,015,304 and 4,014,304 shares issued and outstanding - -
Additional paid-in capital 8,789 8,782
Retained earnings - substantially restricted 18,986 17,520
Unrealized gains on securities designated as available for sale, net 445 590
------- -------
Total shareholders' equity 28,220 26,892
------- -------
Total liabilities and shareholders' equity $384,061 $354,193
======= =======
</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,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $12,814 $11,942 $6,540 $5,991
Mortgage-backed securities 366 460 177 230
Investment securities 600 535 301 272
Interest-bearing deposits and other 223 121 86 60
------ ------ ----- -----
Total interest income 14,003 13,058 7,104 6,553
Interest expense
Deposits 6,606 6,429 3,251 3,186
Borrowings 1,950 1,576 1,046 793
------ ------ ----- -----
Total interest expense 8,556 8,005 4,297 3,979
------ ------ ----- -----
Net interest income 5,447 5,053 2,807 2,574
Provision for losses on loans 45 - 23 -
------ ------ ----- -----
Net interest income after provision
for losses on loans 5,402 5,053 2,784 2,574
Other income
Gain on sale of mortgage loans 999 633 325 385
Mortgage servicing fee income (expense) 28 74 37 (20)
Gain on sale of real estate acquired through foreclosure 34 - 34 -
Other operating 302 206 144 103
------ ------ ----- -----
Total other income 1,363 913 540 468
General, administrative and other expense
Employee compensation and benefits 1,768 1,454 939 714
Occupancy and equipment 737 641 375 331
Federal deposit insurance premiums 77 74 40 37
Franchise taxes 156 146 78 78
Amortization of intangible assets 31 31 15 15
Advertising 128 110 66 61
Other operating 724 521 338 281
------ ------ ----- -----
Total general, administrative and other expense 3,621 2,977 1,851 1,517
------ ------ ----- -----
Earnings before income taxes 3,144 2,989 1,473 1,525
Federal income taxes
Current 1,185 901 494 360
Deferred (110) 126 10 163
------ ------ ------ -----
Total federal income taxes 1,075 1,027 504 523
------ ------ ------ -----
NET EARNINGS $ 2,069 $ 1,962 $ 969 $1,002
====== ====== ====== =====
EARNINGS PER SHARE
Basic $.52 $.49 $.24 $.25
=== === === ===
Diluted $.49 $.47 $.23 $.24
=== === === ===
Dividends per share $.1500 $.1250 $.0750 $.0625
===== ===== ===== =====
</TABLE>
4
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)
Six months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $2,069 $1,962 $969 $1,002
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (145) 171 (95) 26
----- ----- --- -----
Comprehensive income $1,924 $2,133 $874 $1,028
===== ===== === =====
</TABLE>
5
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 2,069 $ 1,962
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments
and mortgage-backed securities 21 14
Amortization of deferred loan origination fees (81) (139)
Depreciation 224 203
Amortization of intangible assets 31 31
Provision for losses on loans 45 -
Gain on sale of mortgage loans (818) (493)
Gain on sale of real estate acquired through foreclosure (34) -
Loans disbursed for sale in secondary market (60,840) (42,536)
Proceeds from sale of mortgage loans 67,233 41,545
Federal Home Loan Bank stock dividends (142) (108)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 68 (22)
Accrued interest receivable on mortgage-backed securities 12 6
Accrued interest receivable on investments 1 (19)
Prepaid expenses and other assets (479) (243)
Accounts payable on mortgage loans serviced for others (41) 13
Other liabilities 42 41
Federal income taxes
Current 149 (221)
Deferred (110) 126
------ ------
Net cash provided by operating activities 7,350 160
Cash flows from investing activities:
Proceeds from maturity of investment securities 5,400 5,800
Purchase of investment securities designated as held to maturity (6,842) (6,322)
Purchase of investment securities designated as available for sale - (1,495)
Principal repayments on mortgage-backed securities 1,135 861
Loan principal repayments 60,125 39,244
Loan disbursements (97,104) (61,050)
Sale of loan participations - 4,499
Proceeds from sale of real estate acquired through foreclosure 69 -
Additions to real estate acquired through foreclosure (35) -
Purchase and renovation of office premises and equipment (162) (209)
Purchase of Federal Home Loan Bank stock - (168)
------ ------
Net cash used in investing activities (37,414) (18,840)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (30,064) (18,680)
------ ------
</TABLE>
6
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<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(30,064) $(18,680)
Cash flows from financing activities:
Net increase in deposit accounts 8,181 11,289
Proceeds from Federal Home Loan Bank advances 27,000 41,000
Repayment of Federal Home Loan Bank advances (6,534) (34,032)
Advances by borrowers for taxes and insurance 32 28
Proceeds from exercise of stock options 7 274
Dividends paid on common stock (603) (503)
------- -------
Net cash provided by financing activities 28,083 18,056
------- -------
Net decrease in cash and cash equivalents (1,981) (624)
Cash and cash equivalents at beginning of period 4,214 2,786
------- -------
Cash and cash equivalents at end of period $ 2,233 $ 2,162
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 1,035 $ 1,060
======= =======
Interest on deposits and borrowings $ 8,560 $ 7,867
======== =======
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ 35 $ -
======== =======
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ (145) $ 171
======== =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 181 $ 140
======== =======
</TABLE>
7
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six and three month periods ended March 31, 1999 and 1998
1. Basis of Presentation
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 Corporation (the "Corporation" or "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 six and three month periods
ended March 31, 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 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 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("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. 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.
8
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended March 31, 1999 and 1998
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. 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 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 could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
9
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended March 31, 1999 and 1998
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
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.
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.
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.
10
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six and three month periods ended March 31, 1999 and 1998
4. Year 2000 Compliance Issues (continued)
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 $47,000
has been expensed at March 31, 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. 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.
5. Earnings Per Share
Basic earnings per share for the six and three month periods ended
March 31, 1999 is computed based on 4,015,073 and 4,015,304
weighted-average shares outstanding.
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.
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 4,182,902 and 4,217,181 for the six and
three month periods ended March 31, 1999, and 4,174,240 and 4,198,456
for the six and three month periods ended March 31, 1998,
respectively.
11
<PAGE>
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, 1999, and the results of operations for the
six and three month periods ended March 31, 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 March 31, 1999" and "Comparison of
Results of Operations for the Six and Three Months Ended March 31, 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
March 31, 1999
At March 31, 1999, the Corporation had total assets of $384.1 million, an
increase of approximately $29.9 million, or 8.4%, over the level at September
30, 1998. The growth in assets was funded primarily by an increase in deposits
of $8.2 million, an increase in Federal Home Loan Bank ("FHLB") advances of
$20.5 million and undistributed net earnings of $1.5 million.
Investment securities totaled approximately $21.7 million at March 31, 1999, an
increase of approximately $1.2 million, or 5.9%, over September 30, 1998 levels,
as purchases of $6.8 million exceeded maturities and called securities of $5.4
million during the period.
Mortgage-backed securities totaled approximately $11.8 million at March 31,
1999, a decrease of approximately $1.2 million, or 8.9%, since September 30,
1998, primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $336.7 million at March 31,
1999, an increase of approximately $31.4 million, or 10.3%, over the level at
September 30, 1998. Proceeds from loan sales increased by $25.7 million during
the current period to $67.2 million, loan originations totaled $157.9 million
and principal repayments amounted to $60.1 million.
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 March 31,
1999 (continued)
At March 31, 1999, the allowance for loan losses of Winton Savings totaled
$848,000, an increase of $6,000 from the level maintained at September 30, 1998.
At March 31, 1999, the allowance represented approximately .24% of the total
loan portfolio and 88% of total nonperforming loans. At March 31, 1999, the
ratio of total nonperforming loans to total loans amounted to .27% compared to
.35% at September 30, 1998. Although management believes that its allowance for
loan losses at March 31, 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 $274.2 million at March 31, 1999, an increase of $8.2 million,
or 3.1%, 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 $23.7 million and
$28.5 million at March 31, 1999 and September 30, 1998, respectively.
Advances from the FHLB totaled $77.4 million at March 31, 1999, an increase of
$20.5 million, or 36.0%, over September 30, 1998 levels. Proceeds from such
advances 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 March 31, 1999, 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, 1999
and 1998
General
Net earnings totaled $2.1 million for the six months ended March 31, 1999,
compared to $2.0 million for the same period in 1998, an increase of $107,000,
or 5.5%. The increased earnings resulted primarily from a $394,000, or 7.8%,
increase in net interest income and a $450,000, or 49.3%, increase in other
income, which were partially offset by an increase of $45,000 in the provision
for losses on loans, a $644,000, or 21.6%, increase in general, administrative
and other expense, and a $48,000, or 4.7%, increase in the provision for federal
income taxes.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $778,000,
or 6.3%, for the six months ended March 31, 1999, compared to the same period in
1998. The increase resulted primarily from a $31.5 million increase in the
weighted-average portfolio outstanding year to year, offset by a 32 basis point
decrease in yield, to 7.98% for six months ended March 31, 1999.
13
<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, 1999
and 1998 (continued)
Net Interest Income (continued)
Interest income on investment securities and interest-bearing deposits and other
increased by $167,000, or 25.5%, for the six months ended March 31, 1999,
compared to the comparable period in 1998. The increase resulted from a $5.3
million increase in the average balance outstanding, and an increase in yield,
to 6.18% for the six months ended March 31, 1999.
Interest expense on deposits increased by $177,000, or 2.8%, for the six months
ended March 31, 1999 compared to the comparable period in 1998. The increase was
primarily attributable to a $19.6 million increase in weighted-average deposits
outstanding year to year. The weighted-average cost of deposits decreased during
the periods, amounting to 4.96% and 5.21% for the six months ended March 31,
1999 and 1998, respectively.
Interest expense on borrowings increased by $374,000, or 23.7%, during the six
months ended March 31, 1999, compared to the same period in 1998, primarily due
to an increase of $13.5 million in the weighted-average balances of FHLB
advances outstanding, while the weighted-average cost of FHLB advances decreased
to 5.80% from 5.87% during the six month periods ended March 31, 1999 and 1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $394,000, or 7.8%, to a total of $5.4 million
for the six months ended March 31, 1999, compared to the same period in 1998.
The interest rate spread decreased by 12 basis points, to 2.71% for the six
months ended March 31, 1999, while the net interest margin decreased by 11 basis
points, to 3.05% for the six months ended March 31, 1999, compared to 3.16% 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
$45,000 provision for loan losses during the six-month period ended March 31,
1999. 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 $450,000, or 49.3%, for the six months ended March 31,
1999, compared to the 1998 period, primarily due to an increase of $366,000, or
57.8%, in gain on sale of mortgage loans, a $34,000 increase in gain on sale of
real estate acquired through foreclosure, and a $96,000, or 8.6%, increase in
other operating income, which were partially offset by a $46,000, or 62.2%,
decrease in mortgage servicing fees.
14
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Month Periods ended March 31, 1999
and 1998 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $644,000, or 21.6%, for
the six months ended March 31, 1999, compared to the same period in 1998. The
increase consisted primarily of a $314,000, or 21.6%, increase in employee
compensation and benefits, a $96,000, or 15.0%, increase in occupancy and
equipment, a $3,000, or 4.1%, increase in federal deposit insurance premiums, a
$10,000, or 6.8%, increase in franchise taxes, an $18,000, or 16.4%, increase in
advertising expense and a $203,000, or 39.0%, 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 $1.1 million for the six
months ended March 31, 1999, an increase of $48,000, or 4.7%, over the same
period in 1998. The increase resulted primarily from a $155,000, or 5.2%,
increase in pretax earnings. The effective tax rates were 34.2% and 34.4% for
the six month periods ended March 31, 1999 and 1998, respectively.
Comparison of Operating Results for the Three Month Periods ended March 31,
1999 and 1998
General
Net earnings totaled $969,000 for the three months ended March 31, 1999,
compared to $1.0 million for the same period in 1998, a decrease of $33,000, or
3.3%. The decreased earnings resulted primarily from a $334,000, or 22.0%,
increase in general, administrative and other expense and a $23,000 increase in
the provision for losses on loans, which were partially offset by a $233,000, or
9.1%, increase in net interest income, a $72,000, or 15.4%, increase in other
income, and a $19,000, or 3.6%, decrease in the provision for federal income
taxes.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $496,000,
or 8.0%, for the three months ended March 31, 1999, compared to the same period
in 1998. The increase resulted primarily from a $36.8 million increase in the
weighted-average portfolio outstanding year to year, offset by a 31 basis point
decrease in yield, to 7.93% for three months ended March 31, 1999.
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 March 31, 1999
and 1998 (continued)
Net Interest Income (continued)
Interest income on investment securities and interest-bearing deposits and other
increased by $55,000, or 16.6%, for the three months ended March 31, 1999,
compared to the comparable period in 1998. The increase resulted from a $4.3
million increase in the average balance outstanding, offset by a decrease in
yield, to 5.95% for the three months ended March 31, 1999.
Interest expense on deposits increased by $65,000, or 2.0%, for the three months
ended March 31, 1999 compared to the comparable period in 1998. The increase was
primarily attributable to an $18.6 million increase in weighted-average deposits
outstanding year to year. The weighted-average cost of deposits decreased during
the periods, amounting to 4.86% and 5.12% for the three months ended March 31,
1999 and 1998, respectively.
Interest expense on borrowings increased by $253,000, or 31.9%, during the three
months ended March 31, 1999, compared to the same period in 1998, primarily due
to an increase of $19.3 million in the weighted-average balances of FHLB
advances outstanding, while the weighted-average cost of FHLB advances decreased
to 5.64% from 5.78% during the three month periods ended March 31, 1999 and
1998.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $233,000, or 9.1%, to a total of $2.8 million
for the three months ended March 31, 1999, compared to the same period in 1998.
The interest rate spread decreased by 11 basis points, to 2.75% for the three
months ended March 31, 1999, while the net interest margin decreased by 10 basis
points, to 3.08% for the three months ended March 31, 1999, compared to 3.18%
for the comparable period in 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 $23,000
provision for loan losses during the three-month period ended March 31, 1999.
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 $72,000, or 15.4%, for the three months ended March
31, 1999, compared to the 1998 period, primarily due to an increase of $57,000
in mortgage servicing fees, a $41,000, or 39.8%, increase in other operating
income and a $34,000 gain on sale of real estate acquired through foreclosure,
which were partially offset by a $60,000, or 15.6%, decrease in gain on sale of
mortgage loans.
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 March 31, 1999
and 1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $334,000, or 22.0%, for
the three months ended March 31, 1999, compared to the same period in 1998. The
increase consisted primarily of a $225,000, or 31.5%, increase in employee
compensation and benefits, a $44,000, or 13.3%, increase in occupancy and
equipment, a $3,000, or 8.1%, increase in federal deposit insurance, a $5,000,
or 8.2%, increase in advertising expense and a $57,000, or 20.3%, 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 $504,000 for the three months
ended March 31, 1999, a decrease of $19,000, or 3.6%, from the same period in
1998. The decrease resulted primarily from a $52,000, or 3.4%, decrease in
pretax earnings. The effective tax rates were 34.2% and 34.3% for the three
month periods ended March 31, 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 Six
Months Ended March 31, 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: May 12, 1999 By: /s/Robert L. Bollin
------------------------------ Robert L. Bollin
President
Date: May 12, 1999 By: /s/Jill M. Burke
------------------------------ Jill M. Burke
Chief Financial Officer
19
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
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0
0
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