U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year September 30, 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 Number: 0-18993
WINTON FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Ohio 31-1303854
(State or other jurisdication of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road, Cincinnati, Ohio 45247
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (513) 385-3880
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the issuer's revenues for its most recent fiscal year: $35.1 million
Based upon the last sale price quoted by The American Stock Exchange as of
December 17, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant, on that date was $40.3 million.
At December 20, 1999, there were 4,405,214 of the Registrant's Common Shares
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I of Form 10-KSB: Safe Harbor Under the Private Securities Litigation
Reform Act of 1995 in Exhibit 99.1.
Part II of Form 10-KSB: Portions of the Annual Report to Shareholders for
the fiscal year ended September 30, 1999, in
Exhibit 13.
Part III of Form 10-KSB: Proxy Statement for 2000 Annual Meeting of
Shareholders in Exhibit 20.
<PAGE>
PART I
Item 1. Description of Business
General
Winton Financial Corporation ("WFC") was incorporated as an Ohio
corporation in 1989 and, in 1990, acquired all of the issued and outstanding
common shares of The Winton Savings and Loan Co. ("Winton"), a savings and loan
association incorporated under the laws of the State of Ohio. As a unitary
savings and loan holding company, WFC, through Winton, is engaged in the savings
and loan business.
On June 11, 1999, BenchMark Federal Savings Bank ("BMF") merged with and
into Winton (the "Merger"). As a result of the Merger, Winton acquired $54.6
million in assets, $38.9 million in deposits and branch offices in Montgomery
and Finneytown, Ohio. The Merger was accounted for as a pooling of interests
and, accordingly, all financial information herein has been restated to reflect
such merger as of October 1, 1994.
WFC's activities have been limited primarily to holding the common
shares of Winton. Consequently, the following discussion focuses primarily on
the business of Winton.
Winton is principally engaged in the business of making first mortgage
loans to finance the purchase, construction or improvement of one- to
four-family residential real estate or other real property located in Winton's
primary market area. Loan funds are obtained primarily from savings deposits,
which are insured up to applicable limits by the Federal Deposit Insurance
Corporation (the "FDIC") in the Savings Association Insurance Fund ("SAIF"),
loan repayments, Federal Home Loan Bank ("FHLB") advances and the sale of loans.
Interest earned on loans is Winton's primary source of revenue. In addition to
originating loans, Winton invests in U.S. Government and agency obligations,
interest-bearing deposits in other financial institutions and mortgage-backed
securities.
Winton conducts business from its seven full-service offices in Hamilton
County, Ohio, and serves a market area which includes the Ohio counties of
Hamilton, Butler, Clinton, Clermont, Montgomery, Brown, Adams, Franklin and
Warren, the Indiana counties of Ripley, Franklin, Union and Dearborn and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. In August 1998,
Winton opened its first loan production office, located in Western Hills.
As a savings and loan holding company, WFC is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings and loan association
incorporated under the laws of the State of Ohio, Winton is subject to
regulation, supervision and examination by the OTS, the FDIC and the Ohio
Division of Financial Institutions (the "Division"). Winton is also a member of
the FHLB of Cincinnati.
Forward-Looking Statements
When used in this Form 10-K, the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimated," "projected,"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including changes in
economic conditions in Winton's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Winton's market
area and competition. Such risks and uncertainties could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect WFC's financial performance and
could cause WFC's actual results for future periods to differ materially from
any statements expressed with respect to future periods. See Exhibit 99 hereto,
"Safe Harbor Under the Private Securities Litigation Reform Act of 1995," which
is incorporated herein by reference.
WFC does not undertake, and specifically disclaims any obligation, to
publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
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<PAGE>
Lending Activities
General. Winton's principal lending activity is the origination of
conventional fixed-rate and variable-rate mortgage loans for the acquisition or
construction of one- to four-family residences located in Winton's primary
market area, as well as loans secured by nonresidential properties and loans
secured by multifamily properties, including construction and permanent mortgage
loans on condominiums and multi-unit properties. Winton also originates loans
insured by the Federal Housing Administration and guaranteed by the Veterans
Administration, both of which Winton sells into the secondary market. Loans
secured by nonresidential properties, including retail, office and other types
of business facilities, are also originated by Winton. In addition to
residential and nonresidential real estate lending, Winton originates consumer
loans, including passbook, automobile, secured, unsecured, home improvement and
home equity line of credit loans.
Winton maintains a portfolio of mortgage-backed pass-through securities
in the form of Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA") participation certificates. Mortgage-backed pass-through
securities generally entitle Winton to receive a portion of the cash flows from
an identified pool of mortgages and gives Winton an interest in the pool of
mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by their
respective agencies as to principal and interest. See "Mortgage-Backed
Securities."
Winton's portfolio of loans, loans held for sale and mortgage-backed
securities totaled approximately $427.5 million, in the aggregate, at September
30, 1999, and represented 91.7% of total assets.
Loan and Mortgage-Backed Securities Maturity Schedule. The following
table sets forth certain information, as of September 30, 1999, regarding the
dollar amount of loans and mortgage-backed securities maturing in Winton's
portfolio based on their contractual terms to maturity, before giving effect to
net items. Demand loans, loans having no stated schedule of repayments or
without stated maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
Due over Due over
3 years to 5 years to Due over
Due in Due in Due in 5 years after 10 years after 10 years after
2000 2001 2002 9/30/99 9/30/99 9/30/99 Total
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Mortgage loans (1):
One- to-four family
residential (2)(3) $17,581 $ 309 $ 716 $ 2,248 $18,975 $186,757 $226,586
Multifamily residential 955 589 17 3,788 11,814 63,146 80,309
Land and lot 1,769 394 263 735 71 1,314 4,546
Nonresidential 5,034 776 554 1,775 15,974 50,120 74,233
Construction 32,025 630 - - - - 32,655
Mortgage-backed securities -
held to maturity - 1 6 449 186 12,891 13,533
Mortgage-backed securities -
available for sale - - - - - 410 410
Nonmortgage loans:
Consumer and other
loans (4) 5,788 537 945 3,055 816 568 11,709
------ ----- ----- ------ ------ ------- -------
Total loans and mortgage-
backed securities $63,152 $3,236 $2,501 $12,050 $47,836 $315,206 $443,981
====== ===== ===== ====== ====== ======= =======
</TABLE>
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(1) Includes second mortgages.
(2) Includes home equity line of credit loans underwritten on the same basis as
first mortgage loans.
(3) Includes loans held for sale, which are recorded at the lower of cost or
market value.
(4) Includes lines of credit made to businesses which are secured by assets
other than real estate.
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<PAGE>
The following table sets forth, at September 30, 1999, the dollar amount
of all loans and mortgage-backed securities, before net items, which have
predetermined interest rates and floating or adjustable interest rates:
<TABLE>
<CAPTION>
Predetermined Floating or
rates adjustable rates
(In thousands)
<S> <C> <C>
Real estate mortgage loans $281,583 $134,254
Loans held for sale 2,492 -
Consumer and other loans (1) 7,331 4,378
Mortgage-backed securities - held to maturity 280 13,253
Mortgage-backed securities - available for sale - 410
------- -------
Total $291,686 $152,295
======= =======
</TABLE>
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(1) Includes lines of credit in the aggregate amount of $4.1 million made to
businesses which are secured by assets other than real estate.
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<PAGE>
Loan and Mortgage-Backed Securities Portfolio Composition. The
following table sets forth certain information concerning the composition of
Winton's loan and mortgage-backed securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
At September
1999 1998 1997
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of loan or investment:
Conventional real estate loans:
One- to four-family
Interim construction $ 20,312 4.8% $ 18,569 5.0% $ 14,855 4.4%
Loans on existing properties (1) 224,094 52.3 181,662 49.3 178,650 52.9
Loans held for sale 2,492 .6 8,253 2.2 4,210 1.3
Multifamily
Interim construction 2,614 .6 1,715 .5 1,500 .4
Loans on existing properties 80,309 18.8 76,399 20.8 72,757 21.5
Land and lot 4,546 1.1 5,941 1.6 5,024 1.5
Nonresidential real estate
Interim construction 9,729 2.3 9,782 2.7 1,401 .4
Loans on existing properties 74,233 17.4 56,294 15.3 44,671 13.2
Mobile home loans 259 - 134 - 97 -
Consumer and other loans (2) 11,450 2.7 8,269 2.2 5,209 1.6
Mortgage-backed securities - held
to maturity 13,533 3.2 16,236 4.4 19,350 5.7
Mortgage-backed securities - available
for sale 410 .1 565 .2 799 .2
------- ----- ------- ----- ------- -----
443,981 103.9 383,819 104.2 348,523 103.1
Less:
Loans in process (15,070) (3.6) (14,321) (3.9) (8,986) (2.7)
Deferred loan origination fees (486) (.1) (411) (.1) (652) (.1)
Allowance for loan losses (932) (.2) (917) (.2) (906) (.3)
------- ----- ------- ----- ------- -----
Total loans and mortgage-backed
securities $427,493 100.0% $368,170 100.0% $337,979 100.0%
======= ===== ======= ===== ======= =====
Type of security:
Residential
One- to four-family $244,406 57.2% $200,231 54.3% $193,505 57.3%
Multifamily residential 82,923 19.4 78,114 21.3 74,257 21.9
Loans held for sale 2,492 .6 8,253 2.2 4,210 1.3
Nonresidential real estate 83,962 19.6 66,076 17.9 46,072 13.6
Land and lot 4,546 1.1 5,941 1.6 5,024 1.5
Mortgage-backed securities 13,943 3.3 16,801 4.6 20,149 5.9
Deposit accounts 478 .1 390 .1 584 .2
Other 11,231 2.6 8,013 2.2 4,722 1.4
------- ----- ------- ----- ------- -----
443,981 103.9 383,819 104.2 348,523 103.1
Less:
Loans in process (15,070) (3.6) (14,321) (3.9) (8,986) (2.7)
Deferred loan origination fees (486) (.1) (411) (.1) (652) (.1)
Allowance for loan losses (932) (.2) (917) (.2) (906) (.3)
------- ----- ------- ----- ------- -----
Total loans and mortgage-backed securities $427,493 100.0% $368,170 100.0% $337,979 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
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(1) Includes first and second mortgage loans and home equity lines of credit.
(2) Includes lines of credit in the aggregate amount of $4.1 million made to
businesses which are secured by assets other than real estate.
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<PAGE>
One- to Four-Family Residential Real Estate Loans. The primary lending
activity of Winton has been the origination of conventional loans for the
acquisition or construction of one- to four-family residential properties
located within Winton's primary market area. Each of these loans is secured by a
mortgage on the underlying real estate and improvements thereon. At September
30, 1999, $226.6 million, or 52.9% of Winton's total outstanding loans and
mortgage-backed securities, consisted of loans (excluding construction loans)
secured by first and second mortgage loans and home equity lines of credit
secured by one- to four-family residential real estate, including loans held for
sale. Second mortgages and home equity lines of credit are subject to a higher
degree of risk than first mortgage loans, because, in the event of default or
foreclosure, amounts due on first mortgages have a prior claim to available
funds. Most of the second mortgages and home equity lines of credit made by
Winton are secured by property on which Winton holds the first mortgage.
OTS regulations and Ohio law limit the amount which Winton may lend in
relationship to the appraised value of the real estate and improvements thereon
at the time of loan origination. In accordance with such regulations, Winton
makes loans on single-family residences up to 95% of the value of the real
estate and improvements (the "Loan-to-Value Ratio" or "LTV"). Winton also makes
loans over the 95% LTV, though most of those loans are sold in the secondary
market with recourse. Generally, Winton requires private mortgage insurance
and/or charges premium interest rates for loans over 80% LTV.
Winton offers adjustable-rate mortgage loans ("ARMs") with interest rate
adjustment periods of generally one or three years. The interest rates initially
charged on ARMs and the new rate at each adjustment date are determined by
adding a stated margin to the one-year or three-year United States Treasury bill
rate at the time the loan is originated. The initial interest rate for a
three-year ARM is set slightly higher than for the one-year ARM to compensate
Winton for the increased exposure to risk resulting from interest-rate
fluctuations during the adjustment period. The maximum adjustment at each
adjustment date for one-year ARMs is usually 2%, with a maximum adjustment of 6%
over the term of the loan. The maximum adjustment on three-year ARMs presently
originated by Winton is 2% at each adjustment date, with a maximum adjustment of
6% over the life of the loan. None of Winton's ARMs have negative amortization
features. Of the total mortgage loans originated by Winton during the fiscal
year ended September 30, 1999, 11.4% were ARMs and 88.6% were fixed-rate.
Residential mortgage loans offered by Winton are usually for terms of 10
to 30 years. Due to the general long-term nature of an investment in mortgage
loans, such loans could have an adverse effect upon the earnings spread of an
association if such loans do not reprice as quickly as the association's cost of
funds. To minimize such effect, Winton emphasizes the origination of ARMs.
Furthermore, experience during recent years reveals that, as a result of
prepayments in connection with refinancings and sales of the underlying
properties, residential loans generally remain outstanding for periods which are
substantially shorter than the maturity of such loans.
At September 30, 1999, Winton had nonperforming loans totaling $200,000
in its one- to four-family portfolio. Winton considers a loan nonperforming
when, in the opinion of management, the collection of additional interest on the
loan is unlikely, the loan meets non-accrual criteria as established by
regulatory authorities, or the loan is accruing interest but is more than 90
days past due. One- to four-family loans constituted $169.7 million (excluding
construction loans), or 59.2%, of the $286.5 million of loans originated in
fiscal 1999.
Multifamily Residential Real Estate Loans. In addition to loans on one-
to four-family properties, Winton makes adjustable- and fixed-rate loans secured
by multifamily properties containing over four units. At September 30, 1999,
loans secured by multifamily properties (excluding construction loans) totaled
approximately $80.3 million, or 18.8% of total loans and mortgage-backed
securities.
Multifamily lending is generally considered to involve a higher degree
of risk because the loan amounts are larger and the borrower typically depends
upon income generated by the project to cover operating expenses and debt
service. The profitability of a project can be affected by economic conditions,
government policies and other factors beyond the control of the borrower. Winton
attempts to reduce the risk associated with multifamily lending by evaluating
the credit-worthiness of the borrower and the projected income from the project
and by obtaining personal guarantees on loans made to corporations and
partnerships. Winton requires that the borrower agrees to submit rent rolls and
financial statements annually to enable Winton to monitor the loan.
Multifamily loans generally have terms of up to 25 years and a maximum
LTV of 75%, although a higher LTV occasionally is approved for an established
borrower. Adjustable-rate multifamily residential loans are currently made with
the same adjustment schedules, indexes and caps as for one- to four-family
residential ARMs, with a margin of 3% over the index.
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<PAGE>
Winton had no nonperforming loans secured by multifamily properties at
September 30, 1999, which were classified as real estate owned. Multifamily
loans (excluding construction loans) constituted $23.4 million, or 8.2%, of the
$286.5 million of loans originated in fiscal 1999.
Land and Lot Loans. Winton originates loans to individuals and to
builders secured by mortgages on unimproved developed real estate upon which
residential properties will be constructed. The $4.5 million in land loans
outstanding at September 30, 1999, consisted of loans to a large residential
subdivision developer, and loans to individuals and builders used for the
acquisition of residential building lots. Such land and lot loans comprised
approximately 1.1% of the total loans and mortgage-backed securities portfolio
at September 30, 1999. The largest land and lot loan outstanding at September
30, 1999, was a $1.5 million loan secured by property to be developed for
multifamily, condominium and single-family dwellings.
Loans on unimproved developed real estate are generally considered to be
subject to a higher degree of risk because the borrower typically depends on a
sale of the property or the later improvement of the property to cover debt
service. The ability to sell or develop unimproved real estate is affected by
economic conditions, government policies and other factors beyond the control of
the borrower. These risks are increased if the unimproved real estate is for an
entire subdivision rather than a single residential lot. Winton reviews the
viability of the unimproved real estate for improvement and sale and evaluates
the credit-worthiness of the borrowers for these loans.
A developed building lot loan is generally made for a 20-year term with
a five-year balloon payment of principal due upon expiration of the loan term
and generally a maximum LTV of 75%.
Winton had no nonperforming loans secured by unimproved developed real
estate at September 30, 1999. Land and lot loans constituted $2.6 million, or
.9%, of the $286.5 million of loans originated in fiscal 1999.
Nonresidential Real Estate Loans. At September 30, 1999, Winton has
nonresidential real estate loans in its portfolio, all in its primary market
area, including loans secured by retail, office and other types of business
facilities. The largest nonresidential real estate loan outstanding at September
30, 1999, was a $2.2 million loan secured by a golf course. Nonresidential
permanent loans (excluding construction loans) comprised $74.2 million, or 17.4%
of total loans and mortgage-backed securities at September 30, 1999.
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. If the cash flow on the property is
reduced, for example, as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. Winton has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals supporting the property's
valuation.
In recent years, nonresidential real estate loans have been made
primarily on an adjustable-rate basis, with loan terms generally up to a maximum
of 25 years, although Winton has made a limited number of fixed-rate
nonresidential real estate loans during that period. These loans are typically
made at a maximum 75% LTV, although a higher Loan-to-Value Ratio is occasionally
approved for established borrowers. Adjustable-rate nonresidential real estate
loans have the same adjustment schedules, index and caps as the residential ARMs
described above in "One- to Four-Family Residential Real Estate Loans."
Winton had no nonperforming loans in its nonresidential loan portfolio
at September 30, 1999. Nonresidential loans (excluding construction loans)
constituted $20.6 million, or 7.2%, of the $286.5 million of loans originated in
fiscal 1999.
Federal regulations limit the amount of nonresidential mortgage loans
which an association may make to 400% of its capital. At September 30, 1999,
Winton's nonresidential permanent mortgage loans totaled 231.0% of Winton's
capital.
Construction Loans. Winton offers residential construction loans both to
owner-occupants and to builders for loans being built under contract with
owner-occupants. To a very limited extent, Winton also makes construction loans
to persons constructing projects for investment purposes. At September 30, 1999,
a total of $32.7 million, or approximately 7.7%, of Winton's total loans and
mortgage-backed securities, consisted of construction loans.
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<PAGE>
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developments, developers,
managers and builders. In addition, such loans are more difficult to evaluate
and monitor. Loan funds are advanced upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTVs
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Winton would have to take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Almost all of Winton's
construction loans are secured by properties in Hamilton County; the other Ohio
counties of Clinton, Clermont, Warren, Butler, Montgomery, Brown, Adams and
Franklin; the Indiana counties of Ripley, Franklin, Union and Dearborn; and the
Kentucky counties of Boone, Campbell, Gallatin and Kenton. The economy of such
lending area has been relatively stable over the three years ended September 30,
1999.
Generally, construction loans have terms ranging from 6 to 12 months at
fixed rates of interest over the construction period. Residential construction
loans and nonresidential construction loans are interim loans which are replaced
by permanent fixed- or adjustable-rate loans at the end of the construction
period. Such permanent loans may or may not be obtained from Winton.
At September 30, 1999, Winton had no nonperforming construction loans.
Construction loans constituted $42.8 million, or 14.9%, of the $286.5 million of
loans originated in fiscal 1999.
Mobile Home Loans. To a very limited extent, Winton originates loans on
both new and used mobile homes. At September 30, 1999, the aggregate outstanding
principal balance of mobile home loans in Winton's portfolio was approximately
$259,000, or less than .1% of total loans and mortgage-backed securities. Such
loans are generally made at fixed rates of interest, with the rate charged on
loans for used mobile homes generally set higher than for new mobile homes. The
maximum term of mobile home loans is 10 years for new homes and seven years for
used homes. Winton usually obtains a security interest in the mobile home to
which the loan pertains.
Loans that are secured by rapidly depreciating assets such as mobile
homes may entail greater risk than residential loans. The repossessed collateral
may not provide an adequate source of repayment of the outstanding loan balance.
The risk of default on such loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Federal regulations permit an association to invest without limitation
in mobile home loans.
Consumer and Other Loans. Winton makes various types of consumer loans,
including loans made to depositors on the security of their savings deposits,
automobile loans, commercial loans, loans secured by stock of entities other
than WFC, lines of credit to businesses secured by non-real estate assets and
unsecured personal loans. At September 30, 1999, consumer and other loans
constituted $11.5 million, or 2.7%, of Winton's total loans and mortgage-backed
securities and 2.5% of total assets.
Consumer loans are generally made at fixed rates of interest tied to the
prime rate, generally for terms of from 90 days to five years. Consumer loans,
particularly consumer loans that are unsecured or are secured by rapidly
depreciating assets such as automobiles, may entail greater risk than
residential loans. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance. The
risk of default on consumer loans increases during periods of recession, high
unemployment and other adverse economic conditions.
Although Winton has not had significant delinquencies on consumer loans,
no assurance can be provided that delinquencies will not increase. At September
30, 1999, Winton had nonperforming loans totaling $46,000 in its consumer loan
portfolio. Consumer loans constituted $27.4 million, or 9.6%, of the $286.5
million of loans originated in fiscal 1999.
Mortgage-Backed Securities. In the recent past, Winton has purchased
mortgage-backed securities insured or guaranteed by government agencies in order
to improve Winton's asset portfolio yield by profitably investing excess funds.
Winton intends to continue to purchase such mortgage-backed securities when
conditions favor such a portfolio investment. At September 30, 1999,
mortgage-backed securities totaled approximately $13.9 million, or 3.3% of total
loans and mortgage-backed securities. All but $410,000 of Winton's
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<PAGE>
mortgage-backed securities at September 30, 1999, were designated as being held
to maturity. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, those mortgage-backed securities designated as being held to
maturity are carried on Winton's balance sheet at cost. The market value of the
$13.5 million in mortgage-backed securities held to maturity at September 30,
1999, was $13.1 million. The remaining $410,000 in mortgage-backed securities at
September 30, 1999, was designated as available for sale. In accordance with
SFAS No. 115, the mortgage-backed securities available for sale are carried on
Winton's balance sheet at market value, with unrealized gains or losses carried
as an adjustment to shareholders' equity, net of applicable taxes.
Winton maintains a portfolio of mortgage-backed pass-through securities
in the form of FHLMC, FNMA and GNMA participation certificates. Mortgage-backed
pass-through securities generally entitle Winton to receive a portion of the
cash flows from an identified pool of mortgages and gives Winton an interest in
the pool of mortgages. FHLMC, FNMA and GNMA securities are each guaranteed by
their respective agencies as to principal and interest.
Winton has also invested in collateralized mortgage obligations
("CMOs"). CMOs are mortgage derivative products, secured by an underlying pool
of mortgages. Winton has no ownership interest in the mortgages, except to the
extent they serve as collateral. Payment streams from the mortgages serving as
collateral are reconfigured with varying terms and timing of payment to the CMO
investor. Though they can be used for hedging and investment, CMOs can expose
investors to higher risk of loss than direct investments in mortgage-backed
pass-through securities, particularly with respect to price volatility and the
lack of a broad secondary market in such securities. The OTS has deemed certain
CMOs and other mortgage derivative products to be "high-risk." None of Winton's
CMOs are in such "high-risk" category.
Although mortgage-backed securities and CMOs generally yield less than
individual loans originated by Winton, they present less credit risk, because
mortgage-backed securities are guaranteed as to principal repayment by the
issuing agency and CMOs are secured by the underlying collateral. Because CMOs
and other mortgage-backed securities have a lower yield relative to current
market rates, retention of such investments could adversely affect Winton's
earnings, particularly in a rising interest rate environment. Although CMOs and
other mortgage-backed securities designated as available for sale are a
potential source of liquid funds for loan originations and deposit withdrawals,
the prospect of a loss on the sale of such investments limits the usefulness of
these investments for liquidity purposes.
In addition, Winton has purchased adjustable-rate mortgage-backed
securities and CMOs as part of its effort to reduce its interest rate risk. In a
period of declining interest rates, Winton is subject to prepayment risk on such
adjustable-rate mortgage-backed securities and CMOs. Winton attempts to mitigate
this prepayment risk by purchasing mortgage-backed securities at or near par. If
interest rates rise in general, the interest rates on the loans backing the
mortgage-backed securities and CMOs will also adjust upward, subject to the
interest rate caps in the underlying adjustable-rate mortgage loans. However,
Winton is still subject to interest rate risk on such securities if interest
rates rise faster than the 1% to 2% maximum annual interest rate adjustments on
the underlying loans.
At September 30, 1999, $13.7 million, or 98.0%, of Winton's
mortgage-backed securities and CMOs had adjustable rates. Although
adjustable-rate securities generally have a lower yield at the time of
origination than fixed-rate securities, the interest rate risk associated with
adjustable-rate securities is lower. See "Asset/Liability Management." The
following table sets forth certain information regarding Winton's investment in
mortgage-backed securities at the dates indicated:
<TABLE>
<CAPTION>
At September 30, 1999 At September 30, 1998
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair value cost gains losses fair value
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
held to maturity:
FHLMC participation $ 4,589 $ 9 $(228) $ 4,370 $ 6,808 $11 $ (95) $ 6,724
FNMA participation 3,995 - (180) 3,815 4,033 1 (98) 3,936
GNMA participation 655 10 (7) 658 889 9 (1) 897
CMOs 4,294 - (79) 4,215 4,506 - (40) 4,466
------ -- ---- ------ ------ -- ---- ------
13,533 19 (494) 13,058 16,236 21 (234) 16,023
Mortgage-backed securities
available for sale:
GNMA participation 403 7 - 410 561 4 - 565
------ -- ---- ------ ------ -- ---- ------
$13,936 $26 $(494) $13,468 $16,797 $25 $(234) $16,588
====== == ==== ====== ====== == ==== ======
</TABLE>
-9-
<PAGE>
The combined amortized cost of mortgage-backed and related securities
designated as held to maturity or available for sale at September 30, 1999 and
1998, by contractual terms to maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers generally may prepay
obligations without prepayment penalties. Also, the timing of cash flows will be
affected by management's intent to sell securities designated as available for
sale under certain economic conditions.
<TABLE>
<CAPTION>
Amortized cost at Amortized cost at
September 30, 1999 September 30, 1998
(In thousands)
<S> <C> <C>
Due after one through three years $ 7 $ 2
Due after three years through five years 449 62
Due after five years through ten years 186 456
Due after ten years through twenty years 3,754 3,160
Due after twenty years 9,540 13,117
------ ------
$13,936 $16,797
====== ======
</TABLE>
Loan Solicitation and Processing. Loan originations are developed from a
number of sources, including commissioned loan originators, loan brokers,
continuing business with depositors, other borrowers and real estate developers,
solicitations by Winton's directors, officers and lending staff and walk-in
customers.
Loan applications for permanent mortgage loans are taken by loan
personnel. Winton obtains a credit report, verification of employment and other
documentation concerning the credit-worthiness of the borrower. An appraisal of
the fair market value of the real estate which will be given as security for the
loan is generally prepared by an independent fee appraiser approved by the Board
of Directors. An environmental study is conducted only if the appraiser or
management has reason to believe that an environmental problem may exist. For
multifamily and nonresidential mortgage loans, a personal guarantee is generally
required. Winton also obtains information with respect to prior projects
completed by the borrower. Upon the completion of the appraisal and the receipt
of information on the borrower, the application for a loan is submitted either
to the Loan Committee and/or the Board of Directors or to the secondary market
for approval or rejection. Any loan applications which are not accepted by the
secondary market are reviewed and accepted or rejected by Winton's Loan
Committee.
If a mortgage loan application is approved, an attorney's opinion of
title or a title insurance policy is obtained on the real estate which will
secure the mortgage loan. Borrowers are required to carry fire and casualty
insurance and flood insurance, if applicable, and to name Winton as an insured
mortgagee.
The procedure for approval of construction loans is the same as for
permanent mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. Winton also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Winton's loans carry provisions that the entire balance of the loan is
due upon sale of the property securing the loan.
Loan Originations, Purchases and Sales. Winton has been actively
originating new 30-year, 20-year and 15-year fixed-rate and adjustable-rate
loans. Virtually all residential fixed-rate loans made by Winton are originated
on documentation which will permit a possible sale of such loans to FHLMC or
other secondary mortgage market participants. When mortgage loans are sold to
FHLMC or other secondary mortgage market participants, Winton occasionally
retains the servicing on such loans by collecting monthly payments of principal
and interest and forwarding such payments to the FHLMC or other secondary
mortgage market participants, net of a servicing fee; though certain loans
originated with the assistance of loan brokers are sold with the servicing
rights released. Fixed-rate loans not sold in the secondary market and generally
all of the ARMs originated by Winton are held in Winton's loan portfolio.
Management sold $99.3 million of fixed-rate loans during fiscal 1999, as
compared to sales of $104.7 million of fixed-rate loans and $47.3 million of
fixed- and adjustable-rate loans in fiscal 1998 and fiscal 1997, respectively.
-10-
<PAGE>
From time to time, Winton sells participation interests in mortgage
loans originated by Winton or purchases participation interests in loans
originated by other lenders. During the fiscal years ended September 30, 1999,
1998 and 1997, Winton sold participation interests in loans totaling $2.7
million, $6.7 million and $11.4 million, respectively. Winton held
participations in loans originated by other lenders of approximately $2.6
million at September 30, 1999. Loans in which Winton purchases participation
interests must meet or exceed the underwriting standards for the loans which
Winton originates.
The following table presents Winton's mortgage loan origination,
purchase, sale and principal repayment activity for the periods indicated:
<TABLE>
<CAPTION>
Year ended September
1999 1998 1997
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans originated:
Conventional real estate loans:
One- to four-family
Construction (1) $ 33,943 11.8% $ 24,951 10.1% $23,737 14.9%
Fixed-rate loans on existing property 146,704 51.2 124,509 50.5 42,391 26.6
Adjustable-rate loans on existing
property 17,475 6.1 18,168 7.4 19,371 12.1
FHA/VA 5,518 1.9 3,478 1.4 - -
Multifamily
Construction 1,694 0.6 1,000 0.4 1,500 0.9
Fixed-rate loans on existing property 15,477 5.4 15,455 6.3 11,564 7.3
Adjustable-rate loans on existing
property 7,954 2.8 13,886 5.6 23,957 15.0
Nonresidential real estate, land and
loans
Construction 7,206 2.5 5,386 2.2 1,367 0.9
Fixed-rate loans on existing property 15,978 5.6 16,879 6.8 9,801 6.1
Adjustable-rate loans on existing
property 7,129 2.5 6,058 2.5 7.791 4.9
Consumer and other loans (2) 9.6 16,653 6.8 18,003 11.3
------- ----- ------- ----- ------- -----
Total loans originated $286,492 100.0% $246,423 100.0% $159,482 100.0%
======= ===== ======= ===== ======= =====
Loans and mortgage-backed securities sold:
Loans $ 99,255 97.3% $104,704 94.0% $ 47,337 80.6%
Participations 2.7 6,729 6.0 1,385 19.4
------- ----- ------- ----- ------- -----
Total $101,985 100.0% $111,433 100.0% $ 58,722 100.0%
======= ===== ======= ===== ======= =====
Principal Repayments:
Loans $122,174 97.7% $101,551 96.9% $ 74,001 94.1%
Mortgage-backed securities 2,813 2.3 3,288 3.1 4,620 5.9
------- ----- ------- ----- ------- -----
Total $124,987 100.0% $104,839 100.0% $ 78,621 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- ----------------------------
(1) Includes construction loans for which Winton has committed to a permanent
end-loan.
(2) Consists primarily of auto and line of credit disbursements and change in
loans in process.
Federal Lending Limit. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may loan to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
-11-
<PAGE>
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000. In addition,
the OTS, under certain circumstances, may permit exceptions to the lending limit
on a case-by-case basis.
Based on the 15% limit, Winton was able to lend approximately $4.8
million to one borrower at September 30, 1999. Winton had no outstanding loans
in excess of such limit at September 30, 1999.
Loan Origination and Other Fees. Winton realizes loan origination fee
and other fee income from its lending activities and also realizes income from
late payment charges, application fees, and fees for other miscellaneous
services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91, as
an adjustment to yield over the life of the related loan.
Delinquent Loans, Nonperforming Assets and Classified Assets. When a
borrower fails to make a required payment on a loan, Winton attempts to cause
the deficiency to be cured by contacting the borrower. In most cases,
deficiencies are cured promptly.
Winton attempts to minimize loan delinquencies through the assessment of
late charges and adherence to its established collection procedures. After a
mortgage loan payment is 15 days delinquent, a late charge of 5% of the amount
of the payment is assessed and Winton will contact the borrower by mail or phone
to request payment. In certain limited instances, Winton may modify the loan or
grant a limited moratorium on loan payments to enable the borrower to reorganize
his financial affairs. If the loan continues in a delinquent status for 90 days
or more, Winton generally will initiate foreclosure proceedings.
Real estate acquired by Winton as a result of foreclosure or by deed in
lieu of foreclosure is classified as "real estate owned" until it is sold. When
property is so acquired, it is recorded at the lower of the loan's unpaid
principal balance or fair value at the date of foreclosure less estimated
selling expenses. Periodically, real estate owned is reviewed to ensure that
fair value is not less than carrying value, and any allowance resulting
therefrom is charged to earnings as a provision for losses on real estate
acquired through foreclosure. All costs incurred from the date of acquisition
are expensed in the period paid.
The following table reflects the amount of loans in delinquent status as
of the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans delinquent
30 to 59 days $6,259 $7,153 $2,730 $3,620 $2,955
60 to 89 days 384 720 913 1,024 1,356
90 or more days 246 1,144 599 1,845 845
----- ----- ----- ----- -----
Total delinquent loans $6,889 $9,017 $4,242 $6,489 $5,156
===== ===== ===== ===== =====
Ratio of total delinquent loans to total
loans (1) 1.67% 2.57% 1.33% 2.23% 2.17%
==== ==== ==== ==== ====
</TABLE>
- -----------------------------
(1) Includes loans held for sale.
All delinquent loans are reviewed on a regular basis and are placed on
non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Residential mortgage loans are placed on
non-accrual status when either principal or interest is considered
uncollectible. Consumer loans generally are charged off when the loan becomes
over 120 days delinquent. Nonresidential real estate loans are evaluated for
non-accrual status when the loan is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. The amount of interest which would have
been earned on nonaccruing loans, had such loans been current, for the year
ended September 30, 1999, is approximately $8,000.
-12-
<PAGE>
The following table sets forth information with respect to Winton's
nonperforming assets for the periods indicated. During the periods shown, Winton
had no restructured loans within the meaning of SFAS No. 15. In addition, as of
September 30, 1999, Winton had no loans which were not reflected in the table as
non-accrual, 90 days past due or restructured, which may become so in the near
future because management has concerns as to the ability of the borrowers to
comply with repayment terms.
<TABLE>
<CAPTION>
At September 30,
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual
basis: (1)
Real estate:
Construction $ - $ 859 $ - $ - $ -
Residential 104 150 264 1,416 209
Nonresidential and land - - 179 57 591
Consumer and other - - - 3 5
--- ----- --- ----- ---
Total 104 1,009 443 1,476 805
Accruing loans which are
contractually past due 90 days or
more:
Real estate:
Construction - - - - -
Residential 96 127 154 173 -
Nonresidential - - - 182 24
Consumer and other 46 8 2 14 16
--- ----- --- ----- ---
Total 142 135 156 369 40
--- ----- --- ----- ---
Total of non-accrual and 90 days past
due loans $246 $1,144 $599 $1,845 $834
=== ===== === ===== ===
Percentage of total loans .06% .33% .19% .63% .35%
=== === === === ===
Other nonperforming assets(2) $492 $ 595 $647 $ 745 $398
=== ===== === ===== ===
</TABLE>
- ----------------------------
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely, or loans that meet
non-accrual criteria as established by regulatory authorities. Payments
received on a non-accrual loan are either applied to the outstanding
principal balance or recorded as interest income, depending on management's
assessment of the collectibility of the loan.
(2) Consists of real estate acquired through foreclosure and other repossessed
assets which are carried at the lower of cost or fair value less estimated
selling expenses.
The 118.3% increase in nonperforming loans at the end of fiscal 1996 resulted
from the increased size of the loan portfolio and increased loan delinquencies.
The 67.5% decline in nonperforming loans during fiscal 1997 resulted primarily
from collections on loan accounts acquired through the Blue Chip merger and BMF
resolving non-accrual multi-family and investment property loans. The 91.0%
increase in nonperforming loans at the end of fiscal 1998 resulted primarily
from construction loans to one borrower of approximately $859,000. The 78.5%
decrease in non-performing loans at the end of fiscal 1999 resulted primarily
from the resolution of the construction loans to one borrower.
OTS regulations require that each thrift institution classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. "Doubtful" assets
-13-
<PAGE>
have the same weaknesses as "substandard" assets, with the additional
characteristics that (i) the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable and
(ii) there is a high possibility of loss. An asset classified "loss" is
considered uncollectible and of such little value that its continuance as an
asset of the institution is not warranted. The regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an institution to a sufficient degree of risk to warrant classification but
which possess credit deficiencies or potential weaknesses deserving management's
close attention. At September 30, 1999, Winton had approximately $630,000 of
loans designated as special mention.
Generally, Winton classifies as "substandard" all loans that are
delinquent more than 60 days, unless management believes the delinquency status
is short-term due to unusual circumstances. Loans delinquent fewer than 60 days
may also be classified if the loans have the characteristics described above
rendering classification appropriate.
The aggregate amount of Winton's classified assets at September 30,
1999, was as follows:
<TABLE>
<CAPTION>
At September 30, 1999
(In thousands)
<S> <C>
Substandard $680,824
Doubtful 51,088
Loss -
-------
Total classified assets $731,912
=======
</TABLE>
Federal examiners are authorized to classify an association's assets. If
an association does not agree with an examiner's classification of an asset, it
may appeal this determination to the appropriate Regional Director of the OTS.
Winton had no disagreements with the examiners regarding the classification of
assets at the time of the last examination.
OTS regulations require that Winton establish prudent general allowances
for loan losses for any loan classified as substandard or doubtful. If an asset,
or portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.
Allowance for Loan Losses. The Board of Directors reviews on a quarterly
basis the allowance for loan losses as it relates to a number of relevant
factors, including, but not limited to, trends in the level of nonperforming
assets and classified loans, current and anticipated economic conditions in the
primary lending area, past loss experience and possible losses arising from
specific problem assets. To a lesser extent, management also considers loan
concentrations to single borrowers and changes in the composition of the loan
portfolio. While the Board of Directors believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments, and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. At September 30, 1999,
Winton's allowance for loan losses totaled $932,000.
-14-
<PAGE>
The following table sets forth an analysis of Winton's allowance for
losses on loans for the periods indicated.
<TABLE>
<CAPTION>
Year ended September 30,
1999 1998 1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $917 $905 $954 $764 $723
Charge-offs:
One- to four-family (48) (64) (72) (71) (45)
Multifamily and nonresidential
real estate (35) - - (12) (104)
Construction (81) (4) - - -
Consumer (24) (8) (5) (10) (4)
--- --- --- --- ---
Total (188) (76) (77) (93) (153)
Total recoveries 43 2 22 4 106
--- --- --- --- ---
Net charge-offs (145) (74) (55) (89) (47)
Provision for loan losses 160 86 6 279 88
--- --- --- --- ---
Balance at end of period $932 $917 $905 $954 $764
=== === === === ===
Ratio of net charge-offs during the
period to average loans
outstanding during the period (1) .04% .02% .02% .03% .02%
=== === === === ===
</TABLE>
- --------------------------
(1) During the respective periods there were $382.7 million, $342.1 million,
$302.5 million, $260.6 million and $233.0 million in average loans
outstanding.
The following table provides an allocation of Winton's allowance for
loan losses as of each of the following dates:
<TABLE>
<CAPTION>
At September 30,
1999 1998 1997 1996 1995
(In thousands)
<S> <C> <C> <C> <C> <C>
Specific allowances
One- to four-family $ 48 $ 53 $ 40 $ 80 $ -
Commercial business - - 24 25 -
--- --- --- --- ---
Total specific allowances 48 53 64 105 -
General allowances
One- to four-family 379 396 388 405 378
Multifamily and nonresidential
real estate 375 350 346 339 308
Construction and development 15 10 - - -
Consumer 110 100 100 100 75
Commercial business 5 8 7 5 3
--- --- --- --- ---
Total general allowances 884 864 841 849 764
--- --- --- --- ---
Total allowance for
possible loan losses $932 $917 $905 $954 $764
=== === === === ===
</TABLE>
-15-
<PAGE>
Investment Activities
The OTS requires minimum levels of liquid assets. OTS regulations
presently require Winton to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of Winton's average daily balance of
net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which Winton may rely if necessary to fund deposit
withdrawals and other short-term funding needs.
The liquidity of Winton, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year was
13.8% at September 30, 1999. At September 30, 1999, Winton's "liquid" assets
totaled approximately $37.5 million, which was approximately $26.1 million in
excess of the current OTS minimum requirement. Winton believes that its
liquidity posture at September 30, 1999, was adequate to meet outstanding loan
commitments and other cash requirements.
The following table presents the amortized cost and market values of
Winton's investment securities, including those designated as available for
sale, at the dates indicated:
<TABLE>
<CAPTION>
September 30,
1999 1998 1997
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity:
U.S. government and agency
obligations $16,882 $16,774 $14,858 $15,185 $12,585 $12,679
Available for sale:
U.S. government and agency
obligations 4,491 4,528 4,587 4,855 3,088 3,149
Corporate equity securities 103 975 103 724 103 482
------ ------ ------ ------ ------ ------
4,594 5,503 4,690 5,579 3,191 3,631
------ ------ ------ ------ ------ ------
Total $21,476 $22,277 $19,548 $20,764 $15,776 $16,310
====== ====== ====== ====== ====== ======
</TABLE>
The following table presents the contractual maturities or terms to
repricing of U.S. Government and agency obligations at carrying value and the
weighted-average yields at September 30, 1999:
<TABLE>
<CAPTION>
Maturing within Maturing within
one year after one to five years
September 30, 1999 after September 30, 1999 Total
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held to maturity $2,355 5.38% $14,527 5.56% $16,882 5.53%
Available for sale 750 7.00 3,741 6.05 4,491 6.22
----- ---- ------ ---- ------ ----
Total $3,105 5.77% $18,268 5.66% $21,373 5.68%
===== ==== ====== ==== ====== ====
</TABLE>
-16-
<PAGE>
Deposits and Borrowings
General. Deposits have traditionally been the primary source of Winton's
funds for use in lending and other investment activities. In addition to
deposits, Winton derives funds from interest payments and principal repayments
on loans and mortgage-backed securities, advances from the FHLB, income on
earning assets, service charges and gains on the sale of assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions. FHLB advances are used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a longer term
basis for general business purposes.
Deposits. Historically, deposits have been attracted principally from
within Winton's primary market area through the offering of a broad selection of
deposit instruments, including negotiable order of withdrawal ("NOW") accounts,
regular passbook savings accounts, Christmas Club accounts, term certificate
accounts and individual retirement accounts. In the recent past Winton has
utilized the services of deposit brokers to market certificates of deposit. At
September 30, 1999, the total amount of brokered deposits equaled approximately
$27.3 million, or 8.7% of total deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties for the various types of accounts are established periodically by
management of Winton based on Winton's liquidity requirements, growth goals and
interest rates paid by competitors. In a rising interest rate environment,
Winton attempts to manage its interest rate risk by lengthening the term to
maturity or repricing of more of its deposit liabilities.
At September 30, 1999, Winton's certificates of deposit totaled $233.6
million, or 74.9% of total deposits. Of such amount, approximately $153.9
million in certificates of deposit mature within one year. Based on past
experience and Winton's prevailing pricing strategies, management believes that
a substantial percentage of such certificates will renew with Winton at
maturity, although brokered deposits are less likely to renew than other
certificates of deposit. If there is a significant deviation from historical
experience, Winton can, to a limited extent, utilize additional borrowings from
the FHLB as an alternative to this source of funds. See "Borrowings" and
"REGULATION - Federal Home Loan Banks."
During fiscal 1999, 1998 and 1997, Winton offered certificates of
deposit with terms from 18 months to five years at rates which adjust monthly
with designated market indices, which were the prime rate or the three-year
Treasury rate. Approximately $6.6 million of these certificates of deposit were
outstanding at September 30, 1999. Because these certificates of deposit are
market rate sensitive, they increase Winton's interest rate risk. See
"Asset/Liability Management."
-17-
<PAGE>
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by Winton at September 30, 1999:
<TABLE>
<CAPTION>
Percent
of total
Amount deposits
(In thousands)
<S> <C> <C>
Transaction accounts:
Passbook accounts (1) $ 60,102 19.26%
Christmas Club accounts (2) 209 .07
NOW accounts (3) 18,129 5.81
------- ------
Total transaction accounts 78,440 25.14
Certificates of deposit (4):
2.00 - 3.99% 206 .07
4.00 - 5.99% 163,446 52.37
6.00 - 7.99% 69,713 22.34
8.00 - 9.99% 267 .08
------- ------
Total certificates of deposit 233,632 74.86
------- ------
Total deposits $312,072 100.00%
======= ======
</TABLE>
- -----------------------------
(1) Winton's weighted average interest rate on passbook accounts fluctuates
with the general movement of interest rates. The weighted average interest
rate on passbook accounts was 3.36% at September 30, 1999.
(2) Winton's weighted average interest rate paid on Christmas Club accounts
fluctuates with the general movement of interest rates. At September 30,
1999, the weighted average rate on club accounts was 3.25%.
(3) Winton's weighted average interest rate paid on NOW accounts fluctuates
with the general movement of interest rates. At September 30, 1999, the
weighted average rate on NOW accounts was 1.07%.
(4) Includes Individual Retirement Accounts and jumbo certificates of deposit
(those with balances in excess of $100,000). Terms of certificates of
deposit offered range from 30 days to 15 years, with the average accounts
ranging from 90 days to 5 years.
The following table shows rate and maturity information for Winton's
certificates of deposit as of September 30, 1999:
<TABLE>
<CAPTION>
Amount Due
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
(In thousands)
<S> <C> <C> <C> <C> <C>
2.00 - 3.99% $ 180 $ 12 $ - $ 14 $ 206
4.00 - 5.99 120,147 27,370 12,852 3,077 163,446
6.00 - 7.99 33,272 26,446 6,353 3,642 69,713
8.00 - 9.99 259 - - 8 267
------- ------ ------ ----- -------
Total certificates
of deposit $153,858 $53,828 $19,205 $6,741 $233,632
======= ====== ====== ===== =======
</TABLE>
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<PAGE>
The following table presents the amount of Winton's certificates of
deposit of $100,000 or more, by the time remaining until maturity at September
30, 1999:
<TABLE>
<CAPTION>
Maturity At September 30, 1999
(In thousands)
<S> <C>
Three months or less $12,205
Over 3 months to 6 months 13,548
Over 6 months to 12 months 19,995
Over twelve months 23,020
------
Total $68,768
======
</TABLE>
Borrowings. During the year ended September 30, 1999, Winton's only
borrowings were FHLB advances. See "REGULATION - Federal Home Loan Banks." The
following table sets forth the maximum amount of Winton's FHLB advances
outstanding at any month-end, during the periods shown, and the average
aggregate balances of FHLB advances for such periods:
<TABLE>
<CAPTION>
Year ended September 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Maximum amount of FHLB advances $116,532 $87,129 $62,761
======= ====== ======
Average amount of FHLB advances outstanding during period $ 90,365 $68,824 $55,705
======= ====== ======
</TABLE>
The following table sets forth certain information as to Winton's FHLB
advances at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
FHLB advances $116,532 $67,404 $61,754
======= ====== ======
Weighted average interest cost of FHLB advances during
period based on month end balances 5.62% 5.89% 5.91%
==== ==== ====
</TABLE>
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<PAGE>
Yields Earned and Rates Paid
The following table sets forth at the date indicated, the weighted
average yields on Winton's interest-earning assets, the weighted average
interest rates on interest-bearing liabilities, the interest rate spread and the
net interest margin on interest-earning assets. See also the information in
those portions of the 1999 Annual Report under the captions "AVERAGE BALANCE,
YIELD, RATE AND VOLUME DATA" "ASSET AND LIABILITY MANAGEMENT."
<TABLE>
<CAPTION>
At September 30,
1999 1998 1997
<S> <C> <C> <C>
Weighted average yield on loan portfolio 7.85% 8.17% 8.30%
Weighted average yield on mortgage-backed securities 5.99 6.45 6.48
Weighted average yield on investment securities 5.73 6.11 6.50
Weighted average yield on other interest-earning assets 6.86 6.18 6.48
Weighted average yield on all interest-earning assets 7.68 7.77 7.93
Weighted average interest rate paid on deposits 4.88 5.11 5.26
Weighted average interest rate paid on borrowings 5.91 5.89 6.20
Weighted average interest rate paid on all interest-bearing 5.16 5.26 5.42
Interest rate spread (spread between weighted average interest rate
on all interest-earning assets and all interest-bearing liabilities) 2.52 2.52 2.51
</TABLE>
Competition
Winton competes for deposits with other savings associations, commercial
banks and credit unions and with the issuers of commercial paper and other
securities, such as shares in money market mutual funds. The primary factors in
competing for deposits are interest rates and convenience of office location. In
making loans, Winton competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage brokers
and other lenders. Winton competes for loan originations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable.
Due to Winton's size relative to the many other financial institutions
in its market area, management believes that Winton does not have a substantial
share of the deposit and loan markets.
The size of financial institutions competing with Winton is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon Winton.
Subsidiary Activities
Winton has no subsidiaries. WFC's only subsidiary is Winton.
Personnel
As of September 30, 1999, Winton had 109 full-time equivalent employees.
Winton believes that relations with its employees are excellent. Winton offers
health, disability, life and dependent care benefits. None of the employees of
Winton are represented by a collective bargaining unit.
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<PAGE>
REGULATION
General
WFC is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, WFC is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, WFC is subject to
provisions of the Ohio Revised Code applicable to corporations generally.
As a savings and loan association chartered under the laws of Ohio,
Winton is subject to regulation, examination and oversight by the Superintendent
of the Division (the "Ohio Superintendent"). Because Winton's deposits are
insured by the FDIC, Winton also is subject to regulatory oversight by the FDIC.
Winton must file periodic reports with the OTS concerning its activities and
financial condition. Examinations are conducted periodically by federal and
state regulators to determine whether Winton is in compliance with various
regulatory requirements and is operating in a safe and sound manner. Winton is a
member of the FHLB and is subject to certain regulations promulgated by the
Board of Governors of the Federal Reserve System (the "FRB").
New Federal Legislation
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. The GLB Act makes sweeping changes in the financial services
in which various types of financial institutions may engage. The Glass-Steagall
Act, which had generally prevented banks from affiliating with securities and
insurance firms, was repealed. A new "financial holding company," which owns
only well capitalized and well managed depository institutions, will be
permitted to engage in a variety of financial activities, including insurance
and securities underwriting and agency activities.
The GLB Act permits unitary savings and loan holding companies in
existence on May 4, 1999, including WFC, to continue to engage in all activities
that they were permitted to engage in prior to the enactment of the Act. Such
activities are essentially unlimited, provided that the thrift subsidiary
remains a qualified thrift lender. Any thrift holding company formed after May
4, 1999, will be subject to the same restrictions as a multiple thrift holding
company. In addition, a unitary thrift holding company in existence on May 4,
1999, may be sold only to a financial holding company engaged in activities
permissible for multiple savings and loan holding companies.
The GLB Act is not expected to have a material effect on the activities
in which the WFC and Winton currently engage, except to the extent that
competition with other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
Ohio Corporation Law
Merger Moratorium Statute. Chapter 1704 of the Ohio Revised Code
regulates certain takeover bids affecting certain public corporations which have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination
may not occur unless (1) one of the specified exceptions applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
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<PAGE>
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. Neither
WFC nor Winton has opted out of the protection afforded by Chapter 1704.
Control Share Acquisition. Section 1701.831 of the Ohio Revised Code
(the "Control Share Acquisition Statute") requires that, with certain
exceptions, acquisitions of voting securities which would result in the
acquiring shareholder owning 20%, 33-1/3% or 50% of the outstanding voting
securities of an Ohio corporation (a "Control Share Acquisition") must be
approved in advance by the holders of at least a majority of the outstanding
voting shares of such corporation represented at a meeting at which a quorum is
present and a majority of the portion of the outstanding voting shares
represented at such a meeting excluding the voting shares owned by the acquiring
shareholder, by certain other persons who acquire or transfer voting shares
after public announcement of the acquisition or by certain officers of the
corporation or directors of the corporation who are employees of the
corporation. The Control Share Acquisition Statute was intended, in part, to
protect shareholders of Ohio corporations from coercive tender offers.
Takeover Bid Statute. Ohio law provides that an offeror may not make
not make a tender offer or request or invitation for tenders that would result
in the offeror beneficially owning more than ten percent of any class of the
target company's equity securities unless such offeror files certain information
with the Ohio Division of Securities (the "Securities Division") and provides
such information to the target company and the offerees within Ohio. The
Securities Division may suspend the continuation of the control bid if the
Securities Division determines that the offeror's filed information does not
provide full disclosure to the offerees of all material information concerning
the control bid. The statue also provides that an offeror may not acquire any
equity security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
Ohio Savings and Loan Regulation
The Ohio Superintendent is responsible for the regulation and
supervision of Ohio savings and loan associations in accordance with the laws of
the State of Ohio and imposes assessments on Ohio associations based on their
asset size to cover the costs of supervision and examination. Ohio law
prescribes the permissible investments and activities of Ohio savings and loan
associations, including the types of lending that such associations may engage
in and the investments in real estate, subsidiaries and corporate or government
securities that such associations may make. The ability of Ohio associations to
engage in these state-authorized investments and activities is subject to
oversight and approval by the FDIC, if such investments or activities are not
permissible for a federally-chartered savings association. The Ohio
Superintendent also has approval authority over any mergers involving, or
acquisitions of control of, Ohio savings and loan associations. The Ohio
Superintendent may initiate certain supervisory measures or formal enforcement
actions against Ohio associations. Ultimately, if the grounds provided by law
exist, the Superintendent may place an Ohio association in conservatorship or
receivership.
In addition to being governed by the laws of Ohio specifically
governing savings and loan associations, Winton is also governed by Ohio
corporate law, to the extent such law does not conflict with the laws
specifically governing savings and loan associations.
Office of Thrift Supervision
General. The OTS is an office of the Department of the Treasury and is
responsible for the regulation and supervision of all federally-chartered
savings associations and all other savings associations the deposits of which
are insured by the FDIC in the SAIF. The OTS issues regulations governing the
operation of savings associations, regularly examines such associations and
imposes assessments on savings associations based on their asset size to cover
the costs of general supervision and examination. The OTS also may initiate
enforcement actions against savings associations and certain persons affiliated
with them for violations of laws or regulations or for engaging in unsafe or
unsound practices. If the grounds provided by law exist, the OTS may appoint a
conservator or receiver for a savings association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
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<PAGE>
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community reinvestment
regulations evaluate how well and to what extent an institution lends and
invests in its designated service area, with particular emphasis on low- to
moderate-income communities and borrowers in that area.
Regulatory Capital Requirements. Winton is required by OTS regulations
to meet certain minimum capital requirements. The tangible capital requirement
requires savings associations to maintain "tangible capital" of not less than
1.5% of their adjusted total assets. Tangible capital is defined in OTS
regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged deposits of mutual associations. OTS regulations require savings
associations to maintain core capital of at least 3% of their total assets. The
OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and exceed an
acceptable level of risk will be required to maintain core capital of from 4% to
5%, depending on the association's examination rating and overall risk. Winton
does not anticipate that it will be adversely affected if the core capital
requirement regulation is amended as proposed.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of Winton includes a general loan loss allowance of $884,000
at September 30, 1999.
Winton met all of its capital requirements at September 30, 1999. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to the interest rate risk component, a savings association
will have to measure the effect of an immediate 200 basis point change in
interest rates on the value of its portfolio as determined under the methodology
of the OTS. If the measured interest rate risk is above the level deemed normal
under the regulation, the association will be required to deduct one-half of
such excess exposure from its total capital when determining its risk-based
capital. In general, an association with less than $300 million in assets and a
risk-based capital ratio in excess of 12% will not be subject to the interest
rate risk component. Pending implementation of the interest rate risk component,
the OTS has the authority to impose a higher individualized capital requirement
on any savings association it deems to have excess interest rate risk. The OTS
also may adjust the risk-based capital requirement on an individualized basis to
take into account risks due to concentrations of credit and non-traditional
activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. All undercapitalized associations must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. Such associations will be subject to increased monitoring and
asset growth restrictions and will be required to obtain prior approval for
acquisitions, branching and engaging in new lines of business. Furthermore,
critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. Under such regulations, unless an association has
received the highest possible examination rating, the association will be
subject to restrictive action by the OTS if it does not maintain core capital of
at least 4%. Winton's capital at September 30, 1998, met the standards for the
highest category, a "well-capitalized" institution.
Federal law prohibits a savings association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (a) an amount equal to 5% of the association's total assets at the
time the institution became undercapitalized and (b) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.
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<PAGE>
Liquidity. OTS regulations require that a savings association maintain
an average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than 4.0% of its net
withdrawable savings deposits payable in one year plus borrowings payable in one
year or less. Monetary penalties may be imposed upon associations failing to
meet these liquidity requirements. The eligible liquidity of Winton at September
30, 1999, was approximately $37.5 million, or 13.8%, and exceeded the 4.0%
liquidity requirement by approximately $26.1 million.
Qualified Thrift Lender Test. Savings associations are required to meet
the QTL test. Prior to September 30, 1996, the QTL test required savings
associations to maintain a specified level of investments in assets that are
designated as qualifying thrift investments ("QTI"), which are generally related
to domestic residential real estate and manufactured housing and include credit
card, student and small business loans and stock issued by any FHLB, the FHLMC
or the FNMA. Under such test, 65% of an institution's "portfolio assets" (total
assets less goodwill and other intangibles, property used to conduct business
and 20% of liquid assets) must consist of QTI on a monthly average basis in nine
out of every 12 months. Effective September 30, 1996, a savings association may
also qualify as a QTL by meeting the definition of "domestic building and loan
association" under the Internal Revenue Code of 1986, as amended (the "Code").
In order for an institution to meet the definition of a "domestic building and
loan association" under the Code, at least 60% of such institution's assets must
consist of specified types of property, including cash loans secured by
residential real estate or deposits, educational loans and certain governmental
obligations. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings association fails to meet the QTL test, the
association and its holding company become subject to certain operating and
regulatory restrictions. A savings association that fails to meet the QTL test
will not be eligible for new FHLB advances. At September 30, 1999, Winton met
the QTL test.
Lending Limit. OTS regulations generally limit the aggregate amount
that a savings association can lend to one borrower to an amount equal to 15% of
the association's Lending Limit Capital. A savings association may lend to one
borrower an additional amount not to exceed 10% of the association's Lending
Limit Capital, if the additional amount is fully secured by certain forms of
"readily marketable collateral." Real estate is not considered "readily
marketable collateral." Certain types of loans are not subject to the lending
limit. A general exception to the 15% limit provides that an association may
lend to one borrower up to $500,000, for any purpose. In applying the limit on
loans to one borrower, the regulations require that loans to certain related
borrowers be aggregated. At September 30, 1999, Winton was in compliance with
this lending limit.
Transactions with Insiders and Affiliates. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. Winton was in compliance with such
restrictions at September 30, 1999.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls, is
controlled by or is under common control with the savings association. WFC is an
affiliate of Winton. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings association or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchasing of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. Winton was in
compliance with these requirements and restrictions at September 30, 1999.
Limitations on Capital Distributions. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
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<PAGE>
distributions, including dividend payments. An association which has converted
from mutual to stock form is prohibited from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the net worth of the
association would be reduced below the amount required to be maintained for the
liquidation account established in connection with its mutual to stock
conversion. OTS regulations also establish a three-tier system limiting capital
distributions according to ratings of associations based on their capital level
and supervisory condition.
Tier 1 consists of associations that, before and after the proposed
distribution, meet their fully phased-in capital requirements. Associations in
this category may make capital distributions during any calendar year up to the
greater of (i) 100% of net income, current year-to-date, plus 50% of the amount
by which the lesser of the association's tangible, core or risk-based capital
exceeds its fully phased-in capital requirement for such capital component, as
measured at the beginning of the calendar year, and (ii) the amount authorized
for a Tier 2 association. A Tier 1 association deemed to be in need of more than
normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3
association. Winton meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision.
As a subsidiary of WFC, Winton is required to give the OTS 30 days'
notice prior to declaring any dividend on its stock. The OTS may object to the
distribution during such 30-day period based on safety and soundness concerns.
Holding Company Regulation. WFC is a savings and loan holding company
within the meaning of the HOLA. As such, WFC has registered with the OTS and is
subject to OTS regulations, examination, supervision and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by WFC.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
As a unitary savings and loan holding company, WFC generally has no
restrictions on its activities. Such companies are the only financial
institution holding companies which may engage in any commercial, securities and
insurance activities without restriction. Congress is considering legislation
which may limit WFC's ability to engage in these activities. It cannot be
predicted whether and in what form these proposals might become law. However,
such limits would not impact WFC's current activities, which consist solely of
holding stock of Winton. The broad latitude to engage in activities under
current law can be restricted. If the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings association, the OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings association, (ii) transactions between the
savings association and its affiliates, and (iii) any activities of the savings
association that might create a serious risk that the liabilities of WFC and its
affiliates may be imposed on the savings association. Notwithstanding the
foregoing rules as to permissible business activities of a unitary savings and
loan holding company, if the savings association subsidiary of a holding company
fails to meet the QTL test, then such unitary holding company would become
subject to the activities restrictions applicable to multiple holding companies.
At September 30, 1999, Winton met both those tests.
If WFC acquired control of another savings institution, other than
through a merger or other business combination with Winton, WFC would become a
multiple savings and loan holding company. Unless the acquisition was an
emergency thrift acquisition and each subsidiary savings association met the QTL
test, the activities of WFC and any of its subsidiaries (other than Winton or
other subsidiary savings associations) would thereafter be subject to activity
restrictions. The HOLA provides that, among other things, no multiple savings
and loan holding company or subsidiary thereof that is not a savings institution
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for a
subsidiary savings institution, (ii) conducting an insurance agency or escrow
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business, (iii) holding, managing or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by federal
regulation as of March 5, 1987, to be engaged in by multiple holding companies,
or (vii) those activities authorized by the FRB as permissible for bank holding
companies, unless the OTS by regulation prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
must also be approved by the OTS prior to being engaged in by a multiple holding
company.
The OTS may approve acquisitions resulting in the formation of a
multiple savings and loan holding company that controls savings associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings association that operated a home or branch office in
the state of the association to be acquired as of March 5, 1987, or if the laws
of the state in which the institution to be acquired is located specifically
permit institutions to be acquired by state-chartered institutions or savings
and loan holding companies located in the state where the acquiring entity is
located (or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings associations
in more than one state in the case of certain emergency thrift acquisitions.
Bank holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
Federal Regulation of Acquisitions of Control of WFC and Winton. In
addition to the Ohio law limitations on the merger and acquisition of Winton and
WFC, federal limitations generally require regulatory approval of acquisitions
at specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
Winton or WFC without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition as a savings and loan
holding company.
In addition, any merger of Winton must be approved by the OTS as well
as the Superintendent. Further, any merger of WFC in which WFC is not the
resulting company must also be approved by both the OTS and the Superintendent.
Federal Deposit Insurance Corporation
Deposit Insurance and Assessments. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
Winton is a member of the SAIF and its deposit accounts are insured by the FDIC
up to the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including Winton, and has authority to initiate
enforcement actions against federally-insured savings associations if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in the
SAIF and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system for
both SAIF and BIF members. Under this system, assessments vary based on the risk
the institution poses to its deposit insurance fund. The risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
State-Chartered Association Activities. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or subject to
different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of Winton's
activities and investments at September 30, 1999, were permissible for a federal
association.
FRB Reserve Requirements
Effective December 1, 1998, FRB regulations require savings
associations to maintain reserves of 3% of net transaction accounts (primarily
NOW accounts) up to $46.5 million (subject to an exemption of up to $4.9
million), and of 10% of net transaction accounts in excess of $46.5 million. At
September 30, 1999, Winton was in compliance with the present reserve
requirements and the requirements then in effect.
-26-
<PAGE>
Federal Home Loan Banks
The FHLBs provide credit to their members in the form of advances.
Winton is a member of the FHLB of Cincinnati and must maintain an investment in
the capital stock of the FHLB of Cincinnati in an amount equal to the greater of
1.0% of the aggregate outstanding principal amount of Winton's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or 5% of its advances from the FHLB of Cincinnati. Winton was in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $5.9 million at September 30, 1999.
FHLB advances to member institutions who meet the QTL Test are
generally limited to the lower of (i) 50% of the member's assets or (ii) 20
times the member's investment in FHLB stock. The granting of advances is also
subject to the FHLB's collateral and credit underwriting guidelines.
Upon the origination or renewal of a loan or advance, the FHLB is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully-disbursed, whole first mortgage loans
on improved residential property or securities representing a whole interest in
such loans; securities issued, insured or guaranteed by the United States
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the FHLB, if such collateral has a readily ascertainable value and the FHLB can
perfect its security interest in the collateral.
The FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances. The standards take into account a member's performance under the
Community Reinvestment Act and its record of lending to first-time home buyers.
All long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
Federal Taxation
WFC and Winton are each subject to the federal tax laws and regulations
which apply to corporations generally. In addition to the regular income tax,
WFC and Winton may be subject to an alternative minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Winton's average gross receipts for the three tax years ending on
September 30, 1999, is $32.6 million and as a result, Winton does not qualify as
a small corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act"), which was signed into law on August 21, 1996, certain thrift
institutions, such as Winton, were allowed deductions for bad debts under
methods more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the specific
charge-off method of Section 166 of the Code or one of two reserve methods of
Section 593 of the Code. The reserve methods under Section 593 of the Code
-27-
<PAGE>
permitted a thrift institution annually to elect to deduct bad debts under
either (i) the "percentage of taxable income" method applicable only to thrift
institutions, or (ii) the "experience" method that also was available to small
banks. Under the "percentage of taxable income" method, a thrift institution
generally was allowed a deduction for an addition to its bad debt reserve equal
to 8% of its taxable income (determined without regard to this deduction and
with additional adjustments). Under the "experience" method, a thrift
institution was generally allowed a deduction for an addition to its bad debt
reserve equal to the greater of (i) an amount based on its actual average
experience for losses in the current and five preceding taxable years, or (ii)
an amount necessary to restore the reserve to its balance as of the close of the
base year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans either under the experience
method or the percentage of taxable income method. For tax years 1995, 1994, and
1993, Winton used the percentage of taxable income method.
The Act eliminated the percentage of taxable income method of
accounting for bad debts by thrift institutions, effective for taxable years
beginning after 1995. Thrift institutions that are treated as small banks are
allowed to utilize the experience method applicable to such institutions, while
thrift institutions that are treated as large banks are required to use only the
specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debt will treat such change as a change in the method of
accounting, initiated by the taxpayer and having been made with the consent of
the Secretary of the Treasury. Section 481(a) of the Code requires certain
amounts to be recaptured with respect to such change. Generally, the amounts to
be recaptured will be determined solely with respect to the "applicable excess
reserves" of the taxpayer. The amount of the applicable excess reserves will be
taken into account ratably over a six-taxable year period, beginning with the
first taxable year beginning after 1995, subject to the residential loan
requirement described below. In the case of a thrift institution that is treated
as a large bank, the amount of the institution's applicable excess reserves
generally is the excess of (i) the balances of its reserve for losses on
qualifying real property loans (generally loans secured by improved real estate)
and its reserve for losses on nonqualifying loans (all other types of loans) as
of the close of its last taxable year beginning before January 1, 1996, over
(ii) the balances of such reserves as of the close of its last taxable year
beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of
a thrift institution that is treated as a small bank, like Winton, the amount of
the institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
For taxable years that begin after December 31, 1995, and before
January 1, 1998, if a thrift meets the residential loan requirement for a tax
year, the recapture of the applicable excess reserves otherwise required to be
taken into account as a Code Section 481(a) adjustment for the year will be
suspended. A thrift meets the residential loan requirement if, for the tax year,
the principal amount of residential loans made by the thrift during the year is
not less than its base amount. The "base amount" generally is the average of the
principal amounts of the residential loans made by the thrift during the six
most recent tax years beginning before January 1, 1996. A residential loan is a
loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by
residential or church property and certain mobile homes), but only to the extent
that the loan is made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by Winton to WFC is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and the gross
income of Winton for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of September 30, 1999, the pre-1988 reserves of Winton for tax purposes
totaled approximately $1.3 million. Winton believes it had approximately $23.6
million of accumulated earnings and profits for tax purposes as of September 30,
1999, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether Winton will have current or accumulated earnings and
profits in subsequent years.
The tax returns of Winton have been audited or closed without audit
through fiscal year 1995. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of Winton.
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<PAGE>
Ohio Taxation
WFC is subject to the Ohio corporation franchise tax, which, as applied
to WFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable income in excess of $50,000 or (ii) 0.582% times
taxable net worth. For tax years beginning after December 31, 1998, the rate of
tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable
income and 8.5% of computed Ohio taxable income in excess of $50,000 or (ii)
.400% times taxable net worth.
A special litter tax is also applicable to all corporations, including
WFC, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
Winton is a "financial institution" for State of Ohio tax purposes. As
such, it is subject to the Ohio corporate franchise tax on "financial
institutions," which is imposed annually at a rate of 1.5% of the taxable book
net worth of Winton determined in accordance with generally accepted accounting
principles. For tax year 1999, however, the franchise tax on financial
institutions was 1.4% of the taxable book net worth and for tax year 2000 and
years thereafter the tax will be 1.3% of the taxable book net worth. As a
"financial institution," Winton is not subject to any tax based upon net income
or net profits imposed by the State of Ohio.
Item 2. Description of Property
The following table sets forth certain information at September 30,
1999, regarding the properties on which the main office and each branch office
of Winton is located:
<TABLE>
<CAPTION>
Owned Date Square Net
or leased acquired footage book value (1)
(In thousands)
<S> <C> <C> <C> <C>
Main office:
5511 Cheviot Road owned/leased (2) 1967 8,600 $1,214
Cincinnati, Ohio 45247
Branch offices:
101 W. Central Pkwy owned 1973 3,613 129
Cincinnati, Ohio 45202
4517 Vine Street
Cincinnati, Ohio 45202 owned 1932 2,600 91
10575 Harrison Avenue
Harrison, Ohio 45030 owned 1981 4,800 569
7014 Vine Street
Cincinnati, Ohio 45216 owned 1897 3,200 119
8670 Winton Road owned 1993 5,062 367
Cincinnati, Ohio 45231
9409 Montgomery Road leased N/A 2,530 -
Cincinnati, Ohio 45242
</TABLE>
- -----------------------------
(1) Net book value amounts are for land, building and improvements.
(2) In January 1990, Winton entered into a lease agreement pursuant to which it
leases a building containing approximately 3,750 square feet adjacent to
Winton's main office on Cheviot Road. The initial term of the lease was
three years, renewable for seven successive three year periods. Winton has
the right to purchase the building during the term of the lease. In January
1999 the lease was renewed for an additional three year period.
-29-
<PAGE>
Winton also owns furniture, fixtures and various bookkeeping and
accounting equipment. The net book value of Winton's investment in office
premises and equipment totaled $3.7 million at September 30, 1999.
Item 3. Legal Proceedings
A class action complaint was filed against Winton on September 28, 1998,
in the Court of Common Pleas of Hamilton County Ohio. The case is styled Spencer
v. Winton Savings & Loan Co., et al., Case # A9805495 and alleges that Winton
violated Ohio Revised Code ss. 5301.36 by failing to record mortgage
satisfactions within 90 days from the date of satisfaction. The case was
consolidated with 17 other substantially identical cases involving other Ohio
lending institutions. Currently, only David and Kellie Spencer, a single
mortgagor of Winton's, have sued; however, there are class action allegations in
the complaint. A motion for class certification has been filed; however, the
court has yet to certify the class.
Ohio Revised Code ss.5301.35 states that a mortgagor may recover $250 in
a civil action if the 90-day provision is violated, but does not preclude any
other legal remedies to which an aggrieved mortgagor may be entitled. In this
case, plaintiffs seek statutory damages in the amount of $250, and all other
relief to which they may be entitled. At this early state, it appears that
Winton had between 600 and 800 violation. Settlement discussions are currently
well underway. Any class settlement would be on a claims-made basis.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders of WFC
during the last quarter of fiscal year ended September 30, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The information contained in those portions of the Annual Report to
Shareholders for the fiscal year ended September 30, 1999 (the "Annual Report"),
which are included in Exhibit 13 hereto under the caption "MARKET PRICE OF
WINTON FINANCIAL'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS" is
incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
The information contained in those portions of the Annual Report
included in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated
herein by reference.
Item 7. Consolidated Financial Statements
The Consolidated Financial Statements contained in those portions of the
Annual Report included in Exhibit 13 hereto are incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
This information in those portions of the Annual Report included in
Exhibit 13 hereto under the captions "AVERAGE BALANCE, YIELD, RATE AND VOLUME
DATA" "ASSET AND LIABILITY MANAGEMENT" is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The information contained in the definitive Proxy Statement for the 2000
Annual Meeting of Shareholders of Winton Financial Corporation (the "Proxy
Statement"), which is included in Exhibit 20 hereto, under the captions "BOARD
OF DIRECTORS," "EXECUTIVE OFFICERS" and "VOTING SECURITIES AND OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
Item 10. Executive Compensation
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS" is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Proxy Statement, which is included in
Exhibit 20 hereto, under the caption "VOTING SECURITIES AND OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
Not applicable
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 3 Amended Articles of Incorporation and Code
of Regulations
Item 10 Material Contracts
Item 13 Portions of the 1999 Annual Report to
Shareholders
Item 20 Proxy Statement for 2000 Meeting of
Shareholders
Item 21 Subsidiaries of the Registrant
Item 23 Consent of Grant Thornton LLP regarding
WFC's Consolidated Financial Statements and
Forms S-8 for WFC's 1988 Stock Option Plan
and 401(k) Profit Sharing Plan
Item 27 Financial Data Schedules
Item 99.1 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995
Item 99.2 Form 5500 for fiscal year ended September 30,
1998, for the Winton Savings & Loan
Company 401(k) Profit Sharing Plan
(b) No current report on Form 8-K was filed by WFC during
the last quarter of the fiscal year covered by this
Report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on December 17, 1999.
WINTON FINANCIAL CORPORATION
By /s/ Robert L. Bollin
Robert L. Bollin,
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Jill M. Burke By /s/ Thomas H. Humes
Jill M. Burke, Thomas H. Humes,
Principal Financial Officer Director
and Principal Accounting
Officer
Date: December 17, 1999 Date: December 17, 1999
By By
Robert E. Hoeweler, William J. Parchman,
Director Director
By /s/ Timothy M. Mooney By /s/ J. Clay Stinnett
Timothy M. Mooney, J. Clay Stinnett,
Director Director
Date: December 17, 1999 Date: December 17, 1999
By /s/ Henry L. Schulhoff
Henry L. Schulhoff,
Director
Date: December 17, 1999
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
<S> <C> <C>
3.1 Articles of Incorporation, as amended through February 1, Incorporated by reference to the Current
1994, of Winton Financial Corporation Report on Form 8-K dated June 21, 1995
and filed by WFC (the "8-K") with the
Securities and Exchange Commission (the
"SEC"), Exhibit 4a
3.2 Regulations of Winton Financial Corporation Incorporated by reference to the current
annual report on the 8-K filed by WFC
with the SEC, Exhibit 4b
10.1 The Winton Savings and Loan Co. Employee Incorporated by reference to the Form S-4
Stock Ownership Plan Registration Statement filed by WFC with
the SEC on November 30, 1989 (the "1989
Form S-4")
10.2 Amendment No. 1 to the Winton Savings and Incorporated by reference to the Annual
Loan Co. Employee Stock Ownership Plan Report on Form 10-K for the fiscal year
ended September 30, 1998, filed by WFC
with the SEC on December 23, 1998 (the
"1998 10-K"), Exhibit 10.2
10.3 Amendment No. 2 to The Winton Savings and Incorporated by reference to the 1998 10-K,
Loan Co. Employee Stock Ownership Plan Exhibit 10.3
10.4 The Winton Savings and Loan Co. 1988 Incorporated by reference to the definitive
Employee Stock Option and Incentive Plan Proxy Statement for the 1995 Annual
Meeting of Shareholders filed by WFC
with the SEC on January 6, 1995
10.5 The Winton Financial Corporation 1999 Stock Option and Incorporated by reference to the definitive
Incentive Plan Proxy Statement for the 1999 Annual
Meeting of Shareholders filed by WFC
with the SEC on December 18, 1998
10.6 Employment Agreement between WFC, Winton and Robert L. Incorporated by reference to Quarterly
L. Bollin, dated May 22, 1998 Report on Form 10-QSB for the quarter
ended June 30, 1998, filed by WFC with
the SEC in August 1998 (the "6/98 10-
QSB"), Exhibit 10.2
10.7 Employment Agreement between WFC, Winton and Gregory J. Incorporated by reference to the 6/98
Bollin, dated May 22, 1998 10-QSB, Exhibit 10.1
10.8 Severance Agreement between WFC and Jill M. Burke, dated Incorporated by reference to the 6/98
May 22, 1998 10-QSB, Exhibit 10.3
13 Portions of the Winton Financial Corporation 1999 Annual
Report to Shareholders
20 Proxy Statement for the 2000 Annual Meeting of Shareholders
of Winton Financial Corporation
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
21 Subsidiaries of the Registrant Incorporated by reference to the Annual
Report on Form 10-KSB for the fiscal year
ended September 30, 1996, filed by WFC
with the SEC on December 24, 1996,
Exhibit 21
23.1 Consent of Grant Thornton LLP regarding WFC's
Consolidated Financial Statements and Forms S-8 for
WFC's 1988 Stock Option Plan and 401(k) Profit Sharing
Plan
27.1 1999 Financial Data Schedule
27.2 1998 Restated Financial Data Schedule
27.3 1997 Restated Financial Data Schedule
99.1 Safe Harbor Under the Private Securities Litigation
Reform Act of 1995
99.2 Form 5500 for fiscal year ended September 30, 1998, for To be filed by paper amendment
the Winton Savings & Loan Company 401(k) Plan
</TABLE>
-34-
Winton Financial Corporation
BUSINESS OF WINTON FINANCIAL
Winton Financial Corporation, an Ohio corporation ("Winton Financial" or the
"Corporation"), is a unitary savings and loan holding company which owns all of
the outstanding common shares of The Winton Savings and Loan Co., an Ohio
savings and loan association ("Winton Savings" or the "Company").
The activities of Winton Financial have been limited primarily to holding the
stock of Winton Savings. Organized in 1887 under the laws of the state of Ohio
as a mutual savings and loan association, Winton Savings completed its
conversion to stock form in fiscal 1988 and completed merger transactions with
BenchMark Federal Savings Bank ("BenchMark") and Blue Chip Savings Bank ("Blue
Chip") in June 1999 and January 1996, respectively, in transactions accounted
for as pooling of interests. Winton Savings conducts business from its principal
office in the Monfort Heights area of Cincinnati, Ohio, and its six branch
offices in Hamilton County, Ohio, and is principally engaged in the business of
making first mortgage loans to finance the purchase, construction or improvement
of residential or other real property. In August 1998, Winton Savings opened its
first loan production office in the Western Hills area of Cincinnati. Winton
Savings' primary business activity, mortgage lending, had another year of strong
growth in fiscal 1999, which can be attributed to its strong lending operation,
to an aggressive marketing and selling effort of its lending products and
services to the communities in its market area and to the continued development
of innovative lending programs that give Winton Savings a more competitive
advantage. Looking ahead, Winton Savings believes that this lending office
concept will provide a great opportunity to enhance its already strong lending
operation.
Winton Savings also invests in U.S. government guaranteed mortgage-backed
securities and investment securities issued by the U.S. government and agencies
thereof. Funds for lending and investment are obtained primarily from savings
deposits, loan principal and interest repayments, mortgage sales and borrowings
from the Federal Home Loan Bank (the "FHLB") of Cincinnati, of which Winton
Savings is a member.
Winton Financial is subject to regulation, supervision and examination by the
Office of Thrift Supervision of the U.S. Department of Treasury (the "OTS").
Winton Savings is subject to regulation, supervision and examination by the OTS,
the Federal Deposit Insurance Corporation (the "FDIC") and the Ohio Division of
Financial Institutions. Deposits in Winton Savings are insured up to applicable
limits by the FDIC.
MARKET PRICE OF WINTON FINANCIAL'S COMMON SHARES
AND RELATED SECURITY HOLDER MATTERS
As of December 1, 1999, Winton Financial had 4,405,214 common shares outstanding
and held of record by approximately 441 shareholders. The number of shareholders
does not reflect the number of persons or entities who may hold stock in nominee
or "street" name through brokerage firms or others. From 1993 to July 1997,
Winton Financial's common shares were listed on The Nasdaq SmallCap Market
("Nasdaq"). In July 1997, Winton Financial's common shares were listed on the
American Stock Exchange, Inc. ("Amex") under the symbol "WFI".
Presented on the next page are the high and low sales prices for Winton
Financial's common shares, as well as the amount of cash dividends paid on the
common shares for each quarter of fiscal 1999 and 1998. Such sales prices do not
include retail financial markups, markdowns, or commissions. Information
relating to sales prices has been obtained from Amex.
1
<PAGE>
Winton Financial Corporation
MARKET PRICE OF WINTON FINANCIAL'S COMMON SHARES
AND RELATED SECURITY HOLDER MATTERS (CONTINUED)
<TABLE>
<CAPTION>
Cash
Fiscal Year Ending September 30, High Low dividends
1999
<S> <C> <C> <C>
Quarter ending December 31, 1998 $14.75 $10.88 $.0750
Quarter ending March 31, 1999 15.50 12.50 .0750
Quarter ending June 30, 1999 13.88 11.00 .0750
Quarter ending September 30, 1999 15.50 10.38 .0750
1998
Quarter ending December 31, 1997 $10.31 $ 8.81 $.0625
Quarter ending March 31, 1998 15.13 10.19 .0625
Quarter ending June 30, 1998 20.63 14.75 .0625
Quarter ending September 30, 1998 16.44 9.75 .0625
</TABLE>
The earnings of Winton Financial consist primarily of dividends from Winton
Savings. In addition to certain federal income tax considerations, regulations
issued by the OTS impose limitations on the payment of dividends and other
capital distributions by savings associations. Under the regulations, a savings
association that, immediately prior to, and on a pro-forma basis after giving
effect to a proposed capital distribution, has total capital (as defined by OTS
regulations) that is equal to or greater than the amount of its
"well-capitalized" capital requirement, is generally permitted, without OTS
approval (but subsequent to 30 days' prior notice of the planned dividend to the
OTS) to make capital distributions during a calendar year in an amount not to
exceed its net income for that year to date plus its retained income for the
preceding two years. Savings associations which have total capital in excess of
the "well-capitalized" capital requirement, and which have been notified by the
OTS that they are in need of more than normal supervision will be subject to
greater restrictions on dividends. In addition, a savings association that fails
to meet current minimum capital requirements is prohibited from making any
capital distributions without the prior approval of the OTS. Winton Savings
currently meets the definition of a "well-capitalized" institution and, unless
the OTS determines that Winton Savings is an institution requiring more than
normal supervision, may pay dividends in accordance with the foregoing
provisions of the OTS regulations.
2
<PAGE>
Winton Financial Corporation
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain information concerning Winton Financial's
consolidated financial position and results of operations at the dates and for
the periods indicated. This selected financial data should be read in
conjunction with the consolidated financial statements appearing elsewhere in
this report.
<TABLE>
<CAPTION>
At September 30,
Statement of Financial Condition Data: (1) 1999 1998 1997 1996 1995
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $466,278 $408,938 $371,233 $341,680 $293,483
Interest-bearing deposits in other financial
institutions 434 4,879 3,782 1,046 4,483
Investment securities (2) 22,385 20,437 16,231 12,309 13,080
Mortgage-backed securities (2) 13,943 16,801 20,149 24,780 26,098
Loans receivable, net (3) 413,550 351,369 317,830 290,885 238,087
Deposits 312,072 306,343 279,034 261,548 235,316
FHLB advances 116,532 67,404 61,754 51,889 31,089
Shareholders' equity - net, restricted 32,140 30,387 26,610 23,915 23,753
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
Statement of Earnings Data: (1) 1999 1998 1997 1996 1995
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Total interest income $32,896 $30,793 $27,746 $24,131 $21,869
Total interest expense (20,313) (19,112) (17,157) (14,825) (12,761)
------ ------ ------ ------ ------
Net interest income 12,583 11,681 10,589 9,306 9,108
Provision for losses on loans (160) (86) (6) (279) (88)
------ ------ ------ ------ ------
Net interest income after provision for
losses on loans 12,423 11,595 10,583 9,027 9,020
Other income 2,234 2,233 1,756 1,600 717
General, administrative and other expense (10,077) (7,606) (7,153) (9,051) (6,708)
------ ------ ------ ------ ------
Earnings before income taxes 4,580 6,222 5,186 1,576 3,029
Federal income taxes (1,640) (2,092) (1,709) (536) (1,001)
------ ------ ------ ------ ------
Net earnings $ 2,940 $ 4,130 $ 3,477 $ 1,040 $ 2,028
====== ====== ====== ====== ======
Earnings per share
Basic (1) $0.67 $0.94 $0.80 $0.24 $0.47
==== ==== ==== ==== ====
Diluted (1) $0.64 $0.90 $0.79 $0.24 $0.47
==== ==== ==== ==== ====
</TABLE>
(1) The financial data as of and for the fiscal years ended September 30, 1995
through 1998, inclusive, have been restated to give effect to the
combination with BenchMark. The merger has been accounted for using the
pooling-of-interests method of accounting.
(2) Includes securities designated as available for sale. See Note A-2 of the
Consolidated Financial Statements for additional information regarding
Statement of Financial Accounting Standards ("SFAS") No. 115.
(3) Includes loans held for sale.
3
<PAGE>
Winton Financial Corporation
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONTINUED)
<TABLE>
<CAPTION>
Year ended September 30,
Other Data: (1) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Interest rate spread 2.63% 2.65% 2.75% 2.72% 3.02%
Return on average equity 9.32 14.42 13.76 4.31 8.79
Return on average assets .67 1.05 .98 .33 .62
Shareholders' equity to assets 6.89 7.43 7.17 7.00 8.09
Number of:
Loans outstanding 7,065 6,936 6,616 6,449 5,504
Deposit accounts 26,058 26,503 25,495 25,587 24,694
Full service offices 7 8 8 8 7
</TABLE>
4
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Winton Financial's activities primarily have been limited to owning the
outstanding common shares of Winton Savings. Therefore, the discussion that
follows focuses on the comparison of Winton Savings' operations in fiscal 1999,
1998 and 1997.
Forward-Looking Statements
In the following pages, management presents an analysis of Winton Financial's
financial condition as of September 30, 1999, and the results of operations for
fiscal 1999, compared to prior years. In addition to this historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, Winton Financial's
operations and Winton Financial's actual results could differ significantly from
those discussed in the forward-looking statements. Some of the factors that
could cause or contribute to such differences are discussed herein but also
include changes in the economy and interest rates in the nation and in Winton
Financial's general market area.
Without limiting the foregoing, some of the statements in the following
referenced sections of this discussion and analysis are forward-looking and are
therefore, subject to such risks and uncertainties:
1. Management's analysis of the interest rate risk of Winton Savings as set
forth under "Asset/Liability Management;"
2. Management's discussion of the liquidity of Winton Savings' assets and the
regulatory capital of Winton Savings as set forth under "Liquidity and
Capital Resources;"
3. The discussion of legislation enacted under the "Gramm-Leach-Bliley Act,"
as set forth under "Potential Impact of Current Legislation on Future
Results of Operations;"
4. Management's determination of the amount and adequacy of the allowance for
loan losses as set forth under "Discussion of Changes in Financial
Condition from September 30, 1998 to September 30, 1999," "Comparison of
Results of Operations for the Fiscal Years Ended September 30, 1999 and
1998" and "Comparison of Results of Operations for the Fiscal Years Ended
September 30, 1998 and 1997;"
5. Management's determination of the effects of the year 2000 on Winton
Financial's information technology systems as set forth under "Year 2000
Compliance Matters;" and
6. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements."
5
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1998 to
September 30, 1999
Winton Financial's consolidated assets totaled $466.3 million at September 30,
1999, an increase of $57.3 million, or 14.0%, over September 30, 1998 levels.
The current year's growth followed an increase in assets of $37.7 million, or
10.2%, during fiscal 1998. Winton Financial's growth over the last two years is
generally indicative of management's efforts to increase net interest income
levels by effectively leveraging the capital base. Fiscal 1999 growth was
primarily funded by an increase in advances from the FHLB of $49.1 million, by
growth in deposits of $5.7 million and an increase in shareholders' equity of
$1.8 million.
Cash and interest-bearing deposits decreased during fiscal 1999 by $5.0 million,
or 70.6%, to a total of $2.1 million at September 30, 1999. Investment
securities totaled $22.4 million at September 30, 1999, an increase of $1.9
million, or 9.5%, over 1998 levels. This increase resulted from purchases
totaling $10.1 million during fiscal 1999, which were offset by maturities of
$8.2 million.
Loans receivable, including loans held for sale, increased by $62.2 million, or
17.7%, during fiscal 1999 to a total of $413.6 million. This increase is
generally indicative of the favorable interest rate spreads that were available
on the Company's portfolio loans during the year ended September 30, 1999.
During fiscal 1999, loan origination volume totaled $286.5 million, an increase
of $40.1 million, or 16.3%, over fiscal 1998. The growth in the loan portfolio
consisted primarily of $42.8 million in one- to four-family residential loans,
$3.9 million in multi-family residential loans, $3.3 million in residential
construction, $16.5 million in nonresidential real estate, construction and land
loans and $2.2 million in consumer loans, offset by a $749,000 increase in the
level of undisbursed loans in process and a decrease of $5.8 million in loans
held for sale. Loan sales volume totaled $99.3 million during fiscal 1999, a
decrease of $5.4 million, or 5.2%, from fiscal 1998 levels.
At September 30, 1999, the allowance for loan losses of Winton Savings totaled
$932,000, an increase of $15,000 over the level maintained at September 30,
1998. At September 30, 1999, the allowance represented approximately .23% of the
total loan portfolio and 378.9% of total non-performing loans. At that date, the
ratio of total non-performing loans to total loans amounted to .06% compared to
.34% at September 30, 1998. Although management believes that its allowance for
loan losses at September 30, 1999 was adequate based on the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect Winton
Financial's results of operations.
Deposits totaled $312.1 million at September 30, 1999, an increase of $5.7
million, or 1.9%, over 1998 levels. This increase was comprised of $6.6 million
of growth in certificates of deposit, partially offset by a decrease of
approximately $888,000 in transaction accounts. During fiscal 1997, management
elected to employ a strategy to achieve growth in the deposit portfolio that
included acquisition of brokered certificates of deposit. Such brokered deposits
totaled $27.3 million and $28.5 million at September 30, 1999 and 1998,
respectively.
6
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Changes in Financial Condition from September 30, 1998 to
September 30, 1999 (continued)
Advances from the FHLB totaled $116.5 million at September 30, 1999, an increase
of $49.1 million, or 72.9%, over the amount outstanding at September 30, 1998.
Management generally utilizes such advances as an alternative source of funding
for loan origination volume.
Shareholders' equity totaled $32.1 million at September 30, 1999, an increase of
$1.8 million, or 5.8%, over the September 30, 1998 total. The increase resulted
from net earnings of $2.9 million, coupled with $90,000 in proceeds from the
exercise of stock options, which were partially offset by dividends on common
shares totaling $1.3 million.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1999 and 1998
General
Net earnings for fiscal 1999 totaled $2.9 million, a decrease of $1.2 million,
or 28.8%, from the $4.1 million in net earnings recorded in fiscal 1998. The
decrease in net earnings was primarily attributable to a $1.6 million charge for
merger related costs, an increase of $74,000 in the provision for losses on
loans and an increase of $897,000 in general, administrative and other expense
net of the merger related costs, which were partially offset by an increase of
$902,000 in net interest income and a decrease of $452,000 in the provision for
federal income taxes.
Net Interest Income
Total interest income amounted to $32.9 million for fiscal 1999, an increase of
$2.1 million, or 6.8%, over fiscal 1998. The increase resulted primarily from a
$40.4 million, or 10.4%, increase in average interest-earning assets year to
year, which was partially offset by a 26 basis point decline in the
weighted-average yield, to 7.70% in fiscal 1999. Interest income on loans and
mortgage-backed securities totaled $31.2 million in fiscal 1999, an increase of
$2.0 million, or 6.8%, over fiscal 1998. This increase resulted primarily from a
$37.4 million, or 10.4%, increase in the average balance outstanding, offset by
a decrease in yield, from 8.11% in 1998 to 7.84% in 1999. Interest income on
investment securities and interest-bearing deposits totaled $1.7 million, a
$121,000, or 7.8%, increase over fiscal 1998, due primarily to a $3.0 million
increase in the average balance outstanding, offset by a decrease in yield from
6.00% in 1998 to 5.80% in 1999.
Interest expense on deposits totaled $15.2 million for fiscal 1999, an increase
of $176,000, or 1.2%, over fiscal 1998. The increase resulted primarily from a
$19.4 million, or 6.7%, increase in the average balance outstanding, partially
offset by a decrease in the average cost of deposits, from 5.17% in fiscal 1998
to 4.91% in fiscal 1999. Interest expense on borrowings totaled $5.1 million for
fiscal 1999, an increase of $1.0 million, or 25.3%, over fiscal 1998, due
primarily to a $21.5 million, or 31.3%, increase in the average balance
outstanding, partially offset by a decrease of 27 basis points in the average
cost of borrowings, to 5.62% in fiscal 1999.
7
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1999 and 1998 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $902,000, or 7.7%, to a total of $12.6 million
for fiscal 1999, compared to $11.7 million for fiscal 1998. The interest rate
spread declined by two basis points, from 2.65% for fiscal 1998 to 2.63% for
fiscal 1999. The net interest margin amounted to 2.95% for fiscal 1999, compared
to 3.02% for fiscal 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, general
economic conditions, particularly as such conditions relate to the Company's
market area, and other factors related to the collectibility of the Company's
loan portfolio. As a result of such analysis, management recorded a $160,000
provision for losses on loans during fiscal 1999, an increase of $74,000, or
86.0%, over fiscal 1998. The current year provision was due primarily to growth
in the loan portfolio during the year. There can be no assurance that the
allowance for loan losses of the Company will be adequate to cover losses on
nonperforming assets in the future.
Other Income
Other income totaled $2.2 million for each of the fiscal years ended September
30, 1999 and September 30, 1998. During fiscal 1999, the Company realized a
$70,000 increase in gain on sale of real estate acquired through foreclosure and
a $148,000, or 29.2%, increase in other operating income due primarily to an
increase in ATM surcharge income, which were partially offset by a decrease of
$205,000, or 13.0%, in gain on sale of mortgage loans and a $12,000, or 7.8%,
decrease in net mortgage servicing fees. The decrease in gain on sale of
mortgage loans was due to decreased sales volume year to year.
General, Administrative and Other Expense
General, administrative and other expense totaled $10.1 million for fiscal 1999,
an increase of $2.5 million, or 32.5%, over fiscal 1998. The increase was due
primarily to merger related costs of $1.6 million, coupled with a $576,000, or
15.3%, increase in employee compensation and benefits, a $176,000, or 11.0%,
increase in occupancy and equipment and a $130,000, or 9.3%, increase in other
operating expense.
8
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1999 and 1998 (continued)
General, Administrative and Other Expense (continued)
The Corporation incurred merger related costs as a result of the combination
with BenchMark during fiscal 1999. The increase in employee compensation and
benefits resulted primarily from normal merit increases coupled with an increase
in staffing levels year to year. The increase in occupancy and equipment expense
was due primarily to an increase in depreciation expense associated with the
renovation of the main office which was completed in early fiscal 1999. The
increase in other operating expenses was due primarily to an increase in costs
generally related to the increased loan origination volume and an increase in
overall operating costs related to the Corporation's growth year to year.
Federal Income Taxes
The provision for federal income taxes decreased by $452,000, or 21.6%, for
fiscal 1999, compared to fiscal 1998. This decrease resulted primarily from the
decrease in net earnings before taxes of $1.6 million, or 26.4%, which was
partially offset by the effects of nondeductible merger costs. Winton
Financial's effective tax rates were 35.8% and 33.6% for the fiscal years ended
September 30, 1999 and 1998, respectively.
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997
General
Net earnings for fiscal 1998 totaled $4.1 million, an increase of $653,000, or
18.8%, over the $3.5 million in net earnings recorded in fiscal 1997. The
increase in net earnings was primarily attributable to a $1.1 million increase
in net interest income and a $477,000 increase in other income, which were
partially offset by an increase of $80,000 in the provision for losses on loans,
an increase of $453,000 in general, administrative and other expense and an
increase of $383,000 in the provision for federal income taxes.
Net Interest Income
Total interest income amounted to $30.8 million for fiscal 1998, an increase of
$3.0 million, or 11.0%, over fiscal 1997. The increase resulted primarily from a
$41.1 million, or 11.9%, increase in average interest-earning assets year to
year. Interest income on loans and mortgage-backed securities totaled $29.2
million in fiscal 1998, an increase of $2.7 million, or 10.3%, over fiscal 1997.
This increase resulted primarily from a $35.7 million, or 11.0%, increase in the
average balance outstanding, offset by a decrease in yield, from 8.15% in 1997
to 8.11% in 1998. Interest income on investment securities and interest-bearing
deposits totaled $1.6 million, a $307,000, or 24.5%, increase over fiscal 1997,
due primarily to a $5.4 million increase in the average balance outstanding,
offset by a decrease in yield from 6.09% in 1997 to 6.00% in 1998.
9
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
Net Interest Income (continued)
Interest expense on deposits totaled $15.1 million for fiscal 1998, an increase
of $1.2 million, or 8.6%, over fiscal 1997. The increase resulted primarily from
a $21.8 million, or 8.1%, increase in the average balance outstanding. Interest
expense on borrowings totaled $4.1 million, an increase of $761,000, or 23.1%,
over fiscal 1997, due primarily to a $13.1 million, or 23.6%, increase in the
average balance outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.1 million, or 10.3%, to a total of $11.7
million for fiscal 1998, compared to fiscal 1997. The interest rate spread
declined by 10 basis points, from 2.75% for fiscal 1997 to 2.65% for fiscal
1998. The net interest margin amounted to 3.02% for fiscal 1998, compared to
3.07% for fiscal 1997.
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 loans, general economic
conditions, particularly as such conditions relate to the Company's market area,
and other factors related to the collectibility of the Company's loan portfolio,
management recorded an $86,000 provision for losses on loans during fiscal 1998.
The fiscal 1998 provision was primarily attributable to growth in the loan
portfolio during the year.
Other Income
Other income totaled $2.2 million for the fiscal year ended September 30, 1998,
an increase of $477,000, or 27.2%, compared to fiscal 1997, due primarily to a
$673,000 increase in gain on sale of loans and a $37,000, or 7.9%, increase in
other operating income, which were partially offset by a $167,000 decrease in
net mortgage servicing fees, a $36,000 decrease in the gain on sale of
investment securities designated as available for sale and a $30,000 decrease in
the gain on sale of real estate acquired through foreclosure. The increase in
the gain on sale of loans was due primarily to the increase in the volume of
loan sales during fiscal 1998.
General, Administrative and Other Expense
General, administrative and other expense totaled $7.6 million for fiscal 1998,
an increase of $453,000, or 6.3%, over fiscal 1997. The increase resulted
primarily from an increase of $169,000, or 4.7%, in employee compensation and
benefits, a $129,000, or 8.8%, increase in occupancy and equipment, a $48,000,
or 15.6%, increase in franchise taxes, a $68,000, or 34.2%, increase in
advertising and a $107,000, or 8.3%, increase in other operating expense, which
were partially offset by a $68,000, or 28.0%, decrease in federal deposit
insurance premiums.
10
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Results of Operations for the Fiscal Years Ended September 30,
1998 and 1997 (continued)
General, Administrative and Other Expense (continued)
The increase in employee compensation and benefits resulted primarily from
normal merit increases coupled with an increase in staffing levels year to year.
The increase in other operating expenses was due primarily to an increase in
costs generally related to the increased loan origination volume and an increase
in overall operating costs related to the Corporation's growth year to year.
Federal Income Taxes
The provision for federal income taxes increased by $383,000, or 22.4%, for the
fiscal year ended September 30, 1998, compared to fiscal 1997. This increase
resulted primarily from the increase in net earnings before taxes of $1.0
million, or 20.0%. Winton Financial's effective tax rates amounted to 33.6% and
33.0% for the fiscal years ended September 30, 1998 and 1997, respectively.
11
<PAGE>
AVERAGE BALANCE, YIELD, RATE AND VOLUME DATA
The following table sets forth certain information relating to Winton
Financial's average balance sheet information and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities for
the years indicated. Such yields and costs are derived by dividing income or
expense by the average monthly balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from month-end balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loan losses. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material differences in the information presented.
<TABLE>
<CAPTION>
Year ended September 30,
1999 1998
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $382,745 $30,343 7.93% $342,109 $28,102 8.21%
Mortgage-backed securities - available for sale 478 31 6.49 687 46 6.70
Mortgage-backed securities - held to maturity 14,839 843 5.68 17,840 1,087 6.09
Investment securities - available for sale 5,364 303 5.65 4,889 279 5.71
Investment securities - held to maturity 15,911 882 5.54 13,590 835 6.14
Interest-bearing deposits and other 7,671 494 6.44 7,495 444 5.92
--------- -------- -------- --------- -------- ----
Total interest-earning assets 427,008 32,896 7.70 386,610 30,793 7.96
Non-interest-earning assets 10,816 6,483
-------- ---------
Total assets $437,824 $393,093
======= =======
Interest-bearing liabilities:
Deposits $310,471 15,235 4.91 $291,038 15,059 5.17
FHLB advances 90,365 5,078 5.62 68,824 4,053 5.89
-------- ------- -------- -------- ------- ----
Total interest-bearing liabilities 400,836 20,313 5.07 359,862 19,112 5.31
------ -------- ------ ----
Non-interest-bearing liabilities 5,455 4,589
--------- ---------
Total liabilities 406,291 364,451
Shareholders' equity 31,533 28,642
-------- --------
Total liabilities and shareholders' equity $437,824 $393,093
======= =======
Net interest income/Interest rate spread $12,583 2.63% $11,681 2.65%
====== ==== ====== ====
Net interest margin (net interest income as a
percent of average interest-earning assets) 2.95% 3.02%
==== ====
Average interest-earning assets to interest-bearing liabilities 106.53% 107.43%
====== ======
Year ended September 30,
1997
Average Interest
outstanding earned/ Yield/
balance paid rate
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $302,496 $25,127 8.31%
Mortgage-backed securities - available for sale 1,948 119 6.11
Mortgage-backed securities - held to maturity 20,470 1,249 6.10
Investment securities - available for sale 2,007 122 6.08
Investment securities - held to maturity 11,785 757 6.42
Interest-bearing deposits and other 6,760 372 5.50
--------- -------- ----
Total interest-earning assets 345,466 27,746 8.03
Non-interest-earning assets 9,412
---------
Total assets $354,878
=======
Interest-bearing liabilities:
Deposits $269,266 13,865 5.15
FHLB advances 55,705 3,292 5.91
-------- ------- ----
Total interest-bearing liabilities 324,971 17,157 5.28
------ ----
Non-interest-bearing liabilities 4,633
---------
Total liabilities 329,604
Shareholders' equity 25,274
--------
Total liabilities and shareholders' equity $354,878
=======
Net interest income/Interest rate spread $10,589 2.75%
====== ====
Net interest margin (net interest income as a
percent of average interest-earning assets) 3.07%
====
Average interest-earning assets to interest-bearing liabilities 106.31%
======
</TABLE>
- ---------------------------
(1) Includes loans held for sale and nonaccrual loans.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Rate/Volume Table
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected Winton Financial's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended September 30,
1999 vs. 1998 1998 vs. 1997
Increase Increase
(decrease) (decrease)
due to due to
Volume Rate Total Volume Rate Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans receivable (1) $3,230 $ (989) $2,241 $3,257 $(282) $2,975
Mortgage-backed securities - available
for sale (14) (1) (15) (81) 8 (73)
Mortgage-backed securities - held to
maturity (174) (70) (244) (160) (2) (162)
Investment securities - available for sale 27 (3) 24 165 (8) 157
Investment securities - held to maturity 135 (88) 47 111 (33) 78
Other interest-earning assets (2) 10 40 50 42 30 72
----- ----- ----- ----- ---- -----
Total interest income 3,214 (1,111) 2,103 3,334 (287) 3,047
Interest expense attributable to:
Deposits 963 (787) 176 1,139 55 1,194
Borrowings 1,218 (193) 1,025 774 (13) 761
----- ----- ----- ----- ---- -----
Total interest expense 2,181 (980) 1,201 1,913 42 1,955
----- ----- ----- ----- ---- -----
Increase in net interest income $1,033 $ (131) $ 902 $1,421 $(329) $1,092
===== ===== ===== ===== ==== =====
</TABLE>
- ------------------------------
(1) Includes loans held for sale.
(2) Includes interest-bearing deposits and certificates of deposit in other
financial institutions.
13
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset/Liability Management
Winton Financial's earnings depend primarily upon its net interest income, which
is the difference between its interest income on interest-earning assets, such
as mortgage loans, investment securities and mortgage-backed securities, and its
interest expense paid on interest-bearing liabilities, consisting of deposits
and borrowings. As market interest rates change, asset yields and liability
costs do not change simultaneously. Due to maturity, repricing and timing
differences between interest-earning assets and interest-bearing liabilities,
Winton Financial's earnings will be affected differently under various interest
rate scenarios. Management believes that the steps which Winton Financial has
taken in asset/liability management may reduce the overall vulnerability of
Winton Financial's interest rate risk. For example, Winton Savings has sought to
limit these net earnings fluctuations and manage interest rate risk by
originating adjustable-rate loans and by purchasing relatively short-term and
variable-rate investments and securities. In order to better compete for
deposits, however, Winton Savings has offered market-sensitive certificates of
deposit, which result in increased interest expense in rising rate environments.
At September 30, 1999, approximately $152.3 million, or 34.3%, of Winton
Savings' portfolio of interest-earning assets had adjustable rates.
Winton Financial's principal financial objective is to enhance long-term
profitability while reducing exposure to increases in interest rates. To
accomplish this objective, Winton Financial has formulated an asset and
liability management policy, the principal elements of which are (1) to increase
the interest-rate sensitivity of the assets of Winton Savings by emphasizing the
origination of adjustable-rate mortgage loans, (2) to maintain an investment
portfolio with a relatively short term to maturity, (3) to shorten asset
maturities, (4) to lengthen the maturities of liabilities to the extent
practicable by marketing longer term certificates of deposit, and (5) to meet
the consumer preference for fixed-rate loans in periods of low interest rates by
selling the preponderance of such loans in the secondary market. Because
interest-rate-sensitive liabilities continue to exceed interest-rate-sensitive
assets, subject to repricing within a three-year time frame, Winton Savings
would be negatively affected by a rising or protracted high interest rate
environment and would be beneficially affected by a declining interest rate
environment.
The management and Board of Directors of Winton Savings attempt to manage Winton
Savings' exposure to interest rate risk (the sensitivity of an institution's
earnings and net asset values to changes in interest rates) in a manner to
maintain the projected four-quarter percentage change in net interest income and
the projected change in the market value of portfolio equity within the limits
established by the Board of Directors, assuming a permanent and instantaneous
parallel shift in interest rates.
As a part of its effort to monitor its interest rate risk, Winton Savings
reviews the reports of the OTS which set forth the application of the "net
portfolio value" ("NPV") methodology, adopted by the OTS as part of its capital
regulations, to the assets and liabilities of Winton Savings. Although Winton
Savings is not currently subject to the NPV regulation, because its
implementation has been delayed by the OTS, the application of the NPV
methodology may illustrate Winton Savings' level of interest rate risk.
14
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing liabilities. The application of the methodology attempts to
quantify interest rate risk as the change in the NPV which would result from a
theoretical 200 basis point (100 basis points equals 1%) change in market
interest rates. Both a 200 basis point increase in market interest rates and a
200 basis point decrease in market interest rates are considered. If the NPV
would decrease more than 2% of the present value of the institution's assets
with either an increase or a decrease in market rates, the institution would
have to deduct 50% of the amount of the decrease in excess of such 2% in the
calculation of the institution's risk-based capital, if the regulations were in
effect. Even before the regulation is in effect, OTS could increase Winton
Savings' risk-based capital requirement on an individualized basis to address
excess interest rate risk.
At September 30, 1999, 2% of the present value of Winton Savings' assets was
approximately $9.3 million. Because the interest rate risk of a 200 basis point
increase in market interest rates (which was greater than the interest rate risk
of a 200 basis point decrease) was $15.1 million at September 30, 1999, Winton
Savings would have been required to reduce its capital by approximately $2.9
million in determining whether Winton Savings met its risk-based capital
requirement, if the regulation had been in effect for Winton Savings.
Presented below, as of September 30, 1999 and 1998, is an analysis of Winton
Savings' interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates.
<TABLE>
<CAPTION>
September 30, 1999
Change in interest rate Board limit $ Change % Change
(Basis Points) % change in NPV in NPV
(In thousands)
<S> <C> <C> <C>
+300 (65)% $(23,037) (69)%
+200 (40) (15,145) (46)
+100 (20) (7,272) (22)
- - - -
-100 (10) 5,917 (18)
-200 (20) 11,593 (35)
-300 (30) 17,486 (53)
</TABLE>
15
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Asset and Liability Management (continued)
<TABLE>
<CAPTION>
September 30, 1998
Change in interest rate Board limit $ Change % Change
(Basis Points) % change in NPV in NPV
(In thousands)
<S> <C> <C> <C>
+300 (65)% $(10,498) (32)%
+200 (40) (6,229) (19)
+100 (20) (2,707) (8)
- - - -
-100 (10) 2,050 6
-200 (20) 4,273 13
-300 (30) 7,352 18
</TABLE>
The Company has operated within the Board's percentage change limitation for NPV
the last three years. Subsequent to the BenchMark combination in June 1999, the
Company briefly fell out of compliance due to the mix of BenchMark assets. This
deviation from the Board's predetermined limits was eliminated in October 1999.
As further illustrated in the table, the Company's NPV is more sensitive to
rising rates than declining rates. Such difference in sensitivity occurs
principally because, as rates rise, borrowers do not prepay fixed-rate loans as
quickly as they do when interest rates are declining. Thus, in a rising interest
rate environment, the amount of interest Winton Savings would receive on its
loans would increase relatively slowly as loans are slowly prepaid and new loans
at higher rates are made. Moreover, the interest Winton Savings would pay on its
deposits would increase rapidly because Winton Savings' deposits generally have
shorter periods to repricing. Assumptions used in calculating the amounts in the
above table are OTS assumptions.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
In the event that interest rates rise, Winton Savings' net interest income could
be expected to be negatively affected. Moreover, rising interest rates could
negatively affect Winton Savings' earnings due to diminished loan demand.
16
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
Winton Savings, like other financial institutions, is required under applicable
federal regulations to maintain sufficient funds to meet deposit withdrawals,
loan commitments and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary sources
of funds are deposits, borrowings, principal and interest repayments on loans
and proceeds from the sale of mortgage loans.
At September 30, 1999, Winton Savings had $153.9 million of certificates of
deposit maturing within one year. It has been the Company's historic experience
that such certificates of deposit will be renewed at market rates of interest.
It is management's belief that maturing certificates of deposit over the next
year will similarly be renewed at market rates of interest without a material
adverse effect on results of operations.
In the event that certificates of deposit cannot be renewed at prevailing market
rates, the Company can obtain additional advances from the FHLB of Cincinnati.
At September 30, 1999, the Company had $116.5 million of outstanding FHLB
advances. The Company also obtains brokered deposits as a supplement to its
local deposits when such funds are attractively priced in relation to the local
market. As of September 30, 1999, the Company had $27.3 million in brokered
deposits.
The Company's liquidity, represented by cash and cash-equivalents, is a function
of its operating, investing and financing activities. These activities are
summarized below for the periods indicated.
<TABLE>
<CAPTION>
For the year ended September 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Net earnings $ 2,940 $ 4,130 $ 3,477
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities 6,722 (3,744) (2,235)
------ ------ ------
Net cash provided by operating activities 9,662 386 1,242
Net cash used in investing activities (68,535) (31,507) (25,051)
Net cash provided by financing activities 53,878 32,554 26,392
------ ------ ------
Net increase (decrease) in cash and
cash equivalents (4,995) 1,433 2,583
Cash and cash equivalents at beginning of year 7,076 5,643 3,060
------ ------ ------
Cash and cash equivalents at end of year $ 2,081 $ 7,076 $ 5,643
====== ====== ======
</TABLE>
The OTS requires minimum levels of liquid assets. OTS regulations presently
require Winton Savings to maintain specified levels of "liquid" investments in
qualifying types of United States Government and agency obligations and other
permissible investments having certain maturity limitations and marketability
requirements. Such minimum requirement, which was revised by the OTS in fiscal
1998, is an amount equal to 4% of the sum of the Company's average daily balance
of net withdrawable deposit accounts and borrowings payable in one year or less.
The liquidity requirement, which may be changed from time to time by the OTS to
reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which the Company may rely, if necessary, to fund
deposit withdrawals and other short-term funding needs.
17
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
The liquidity of Winton Savings, as measured by the ratio of cash, cash
equivalents (not committed, pledged or required to liquidate specific
liabilities) and qualifying investments, mortgage-backed securities and loans to
the sum of net withdrawable savings plus borrowings payable within one year, was
13.8% at September 30, 1999. At September 30, 1999, the Company's "liquid"
assets totaled approximately $37.5 million, which was approximately $26.1
million in excess of the current OTS minimum requirement. Winton Financial
believes that the Company's liquidity posture at September 30, 1999, was
adequate to meet outstanding loan commitments and other cash requirements.
Winton Savings is subject to minimum capital standards promulgated by the OTS.
Such capital standards generally require the maintenance of regulatory capital
sufficient to meet each of the following three requirements: the tangible
capital requirement, the core capital requirement and the risk-based capital
requirement. At September 30, 1999, Winton Savings' tangible capital of $30.8
million, or 6.6% of adjusted total assets, exceeded the 1.5% requirement by
$23.9 million; its core capital of $30.8 million, or 6.6% of adjusted total
assets, exceeded the minimum 3.0% requirement by $16.9 million; and its
risk-based capital of $31.7 million, or 10.0% of risk-weighted assets, exceeded
the 8% requirement by $6.3 million.
In fiscal 1993, the OTS adopted an amendment to the regulatory risk-based
capital requirement to include an interest rate risk component, though
implementation of the component has been delayed.
Potential Impact of Current Legislation on Future Results of Operations
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted
into law. The GLB Act makes sweeping changes in the financial services in which
various types of financial institutions may engage. The Glass-Steagall Act,
which had generally prevented banks from affiliating with securities and
insurance firms, was repealed. A new "financial holding company," which owns
only well capitalized and well managed depository institutions, will be
permitted to engage in a variety of financial activities, including insurance
and securities underwriting and agency activities.
The GLB Act permits unitary savings and loan holding companies in existence on
May 4, 1999, including Winton Financial, to continue to engage in all activities
that they were permitted to engage in prior to the enactment of the Act. Such
activities are essentially unlimited, provided that the thrift subsidiary
remains a qualified thrift lender. Any thrift holding company formed after May
4, 1999, will be subject to the same restrictions as a multiple thrift holding
company. In addition, a unitary thrift holding company in existence on May 4,
1999, may be sold only to a financial holding company engaged in activities
permissible for multiple savings and loan holding companies.
The GLB Act is not expected to have a material effect on the activities in which
Winton Financial and Winton Savings currently engage, except to the extent that
competition with other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.
18
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued 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.
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 effect on Winton Financial's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about an
enterprise's reportable operating segments which is based on reporting
information the way that management organizes the segments within the enterprise
for making operating decisions and assessing performance. For many enterprises,
the management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. Management adopted SFAS No. 131
effective October 1, 1998, as required, without material effect 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.
19
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Effects of Recent Accounting Pronouncements (continued)
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.
The foregoing discussion of the effects of recent accounting pronouncements
contains forward-looking statements that involve risks and uncertainties.
Changes in economic circumstances or interest rates could cause the effects of
the accounting pronouncements to differ from management's foregoing assessment.
Year 2000 Compliance Matters
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,
which is a new calculation challenge 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.
20
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
Winton Savings established a Year 2000 team in 1997, 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 indicated 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,
Intrieve, Inc. ("Intrieve"). Intrieve has converted its hardware to a new Year
2000 compliant system. Winton Savings' conversion to this new system was
completed during the fourth calendar quarter of 1998. Intrieve successfully
performed Year 2000 proxy testing with several of its larger users during early
October 1998. Winton Savings performed final testing of its unique equipment
configuration and communications link to Intrieve during November 1998.
All other vendors and commercial customers have been identified and requests for
year 2000 certificates have been forwarded by Winton Savings. Winton Savings has
determined that the other vendors and customers will not materially affect its
operations.
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 $79,000 has been expensed at
September 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. Winton Financial has determined that the risk
of business interruption is minimal.
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Winton Financial Corporation
We have audited the accompanying consolidated statements of financial condition
of Winton Financial Corporation as of September 30, 1999 and 1998, and the
related consolidated statements of earnings, comprehensive income, shareholders'
equity and cash flows for each of the years in the three year period ended
September 30, 1999. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Winton Financial
Corporation as of September 30, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
/s/GRANT THORNTON LLP
Cincinnati, Ohio
November 19, 1999
22
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
(In thousands, except share data)
ASSETS 1999 1998
(Restated)
<S> <C> <C>
Cash and due from banks $ 1,647 $ 2,172
Federal funds sold - 25
Interest-bearing deposits in other financial institutions 434 4,879
------- -------
Cash and cash equivalents 2,081 7,076
Investment securities available for sale - at market 5,503 5,579
Investment securities held to maturity - at amortized cost, approximate market
value of $16,774 and $15,185 at September 30, 1999 and 1998 16,882 14,858
Mortgage-backed securities available for sale - at market 410 565
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $13,058 and $16,023 at September 30, 1999 and 1998 13,533 16,236
Loans receivable - net 411,058 343,116
Loans held for sale - at lower of cost or market 2,492 8,253
Office premises and equipment - at depreciated cost 3,708 3,833
Real estate acquired through foreclosure 492 595
Federal Home Loan Bank stock - at cost 5,925 4,592
Accrued interest receivable on loans 2,890 2,704
Accrued interest receivable on mortgage-backed securities 90 120
Accrued interest receivable on investments and interest-bearing deposits 247 285
Prepaid expenses and other assets 433 580
Intangible assets - net of amortization 341 402
Prepaid federal income taxes 193 144
------- -------
Total assets $466,278 $408,938
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $312,072 $306,343
Advances from the Federal Home Loan Bank 116,532 67,404
Accounts payable on mortgage loans serviced for others 838 963
Advance payments by borrowers for taxes and insurance 1,023 801
Other liabilities 1,990 1,465
Deferred federal income taxes 1,683 1,575
------- -------
Total liabilities 434,138 378,551
Commitments - -
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;
4,403,714 and 4,390,514 shares issued and outstanding - -
Additional paid-in capital 9,917 9,827
Retained earnings - restricted 21,619 19,970
Accumulated other comprehensive income, unrealized gains on
securities designated as available for sale, net of related tax effects 604 590
------- -------
Total shareholders' equity 32,140 30,387
------- -------
Total liabilities and shareholders' equity $466,278 $408,938
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
(In thousands, except share data)
1999 1998 1997
(Restated) (Restated)
<S> <C> <C> <C>
Interest income
Loans $30,343 $28,102 $25,127
Mortgage-backed securities 874 1,133 1,368
Investment securities 1,185 1,114 879
Interest-bearing deposits and other 494 444 372
------ ------ ------
Total interest income 32,896 30,793 27,746
Interest expense
Deposits 15,235 15,059 13,865
Borrowings 5,078 4,053 3,292
------ ------ ------
Total interest expense 20,313 19,112 17,157
------ ------ ------
Net interest income 12,583 11,681 10,589
Provision for losses on loans 160 86 6
------ ------ ------
Net interest income after provision for losses on loans 12,423 11,595 10,583
Other income
Gain on sale of mortgage loans 1,368 1,573 900
Gain on sale of investment securities designated as available for sale - - 36
Gain on sale of real estate acquired through foreclosure 70 - 30
Mortgage servicing fees, net 142 154 321
Other operating 654 506 469
------ ------ ------
Total other income 2,234 2,233 1,756
General, administrative and other expense
Employee compensation and benefits 4,331 3,755 3,586
Occupancy and equipment 1,774 1,598 1,469
Federal deposit insurance premiums 178 175 243
Franchise taxes 361 356 308
Amortization of intangible assets 61 61 61
Advertising 274 267 199
Other operating 1,524 1,394 1,287
Merger related costs 1,574 - -
------ ------ ------
Total general, administrative and other expense 10,077 7,606 7,153
------ ------ ------
Earnings before income taxes 4,580 6,222 5,186
Federal income taxes
Current 1,541 1,702 998
Deferred 99 390 711
------ ------ ------
Total federal income taxes 1,640 2,092 1,709
------ ------ ------
NET EARNINGS $ 2,940 $ 4,130 $ 3,477
====== ====== ======
EARNINGS PER SHARE
Basic $.67 $.94 $.80
=== === ===
Diluted $.64 $.90 $.79
=== === ===
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended September 30,
(In thousands)
1999 1998 1997
<S> <C> <C> <C>
Net earnings $2,940 $4,130 $3,477
Other comprehensive income, net of tax:
Unrealized holding gains on securities during
the period, net of tax of $7, $148 and $71 in
1999, 1998 and 1997, respectively 14 288 138
Reclassification adjustment for realized gains
included in earnings, net of tax of $12 in 1997 - - (24)
----- ----- -----
Comprehensive income $2,954 $4,418 $3,591
===== ===== =====
Accumulated comprehensive income $ 604 $ 590 $ 302
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended September 30, 1999, 1998 and 1997
(In thousands, except share data)
Required Unrealized
contributions gains on
Additional for shares securities
Preferred Common paid-in acquired by available Retained
stock stock capital ESOP for sale earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996 (as restated for business
combination) $ - $ - $7,356 $ (5) $188 $16,376 $23,915
Net earnings for the year ended September 30, 1997 - - - - - 3,477 3,477
Proceeds from exercise of stock options - - 46 - - - 46
Principal payments on loan to ESOP - - - 5 - - 5
Unrealized gains on securities designated as available
for sale, net of related tax effects - - - - 114 - 114
Cash dividends paid of $.2177 per share - - - - - (947) (947)
--- --- ----- --- --- ------ ------
Balance at September 30, 1997 - - 7,402 - 302 18,906 26,610
Stock dividend effected in the form of a 2-for-1
stock split - - 2,007 - - (2,007) -
Proceeds from shares issued under stock option and
compensation plans - - 418 - - - 418
Net earnings for the year ended September 30, 1998 - - - - - 4,130 4,130
Unrealized gains on securities designated as available
for sale, net of related tax effects - - - - 288 - 288
Cash dividends of $.2414 per share - - - - - (1,059) (1,059)
--- --- ----- --- --- ------ ------
Balance at September 30, 1998 - - 9,827 - 590 19,970 30,387
Proceeds from exercise of stock options - - 90 - - - 90
Net earnings for the year ended September 30, 1999 - - - - - 2,940 2,940
Unrealized gains on securities designated as available
for sale, net of related tax effects - - - - 14 - 14
Cash dividends of $.2936 per share - - - - - (1,291) (1,291)
--- --- ----- --- --- ------ ------
Balance at September 30, 1999 $ - $ - $9,917 $ - $604 $21,619 $32,140
=== === ===== === === ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
(In thousands)
1999 1998 1997
(Restated) (Restated)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year $ 2,940 $ 4,130 $ 3,477
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Amortization of premiums on investments and mortgage-backed
securities 65 48 35
Amortization of deferred loan origination fees (87) (186) (229)
Depreciation and amortization 525 470 452
Amortization of intangible assets 61 61 61
Gain on sale of investment securities designated as available for sale - - (36)
Loss on merger-related disposition of office premises and equipment 174 - -
Gain on sale of real estate acquired through foreclosure (70) - (30)
Provision for losses on loans 160 86 6
Gain on sale of mortgage loans (1,179) (1,204) (522)
Loans disbursed for sale in the secondary market (93,494) (108,747) (48,812)
Proceeds from sale of loans in the secondary market 100,434 105,908 47,859
Federal Home Loan Bank stock dividends (346) (286) (224)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (186) (225) (296)
Accrued interest receivable on mortgage-backed securities 30 24 24
Accrued interest receivable on investments and interest-bearing
deposits 38 (44) (78)
Prepaid expenses and other assets 147 (91) 45
Accounts payable on mortgage loans serviced for others (125) 59 84
Other liabilities 525 168 (1,315)
Federal income taxes
Current (49) (175) 30
Deferred 99 390 711
------- ------- -------
Net cash provided by operating activities 9,662 386 1,242
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 2,813 3,288 4,620
Proceeds from maturity of investment securities 8,150 7,150 4,027
Proceeds from sale of investment securities designated as
available for sale - - 122
Purchase of investment securities designated as held to maturity (10,095) (9,428) (2,898)
Purchase of investment securities designated as available for sale - (1,495) (4,988)
Loan principal repayments 122,174 101,551 74,001
Loan disbursements (192,998) (137,676) (110,670)
Sale of loan participations 2,730 6,729 11,385
Proceeds from sale of real estate acquired through foreclosure 249 34 153
Purchase and renovation of office premises and equipment (556) (873) (339)
Additions to real estate acquired through foreclosure (15) - (13)
Purchase of Federal Home Loan Bank stock (987) (787) (451)
------- ------- -------
Net cash used in investing activities (68,535) (31,507) (25,051)
------- ------- -------
Net cash used in operating and investing activities
(subtotal carried forward) (58,873) (31,121) (23,809)
------- ------- -------
</TABLE>
27
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
(In thousands)
1999 1998 1997
(Restated) (Restated)
<S> <C> <C> <C>
Net cash used in operating and investing activities
(balance brought forward) $(58,873) $(31,121) $(23,809)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts, including
purchased deposits 5,729 27,309 17,486
Proceeds from Federal Home Loan Bank advances 66,000 79,539 39,857
Repayment of Federal Home Loan Bank advances (16,872) (73,889) (29,992)
Advances by borrowers for taxes and insurance 222 236 (58)
Proceeds from issuance of shares under stock option and
compensation plans 90 418 46
Dividends paid on common stock (1,291) (1,059) (947)
------- ------- -------
Net cash provided by financing activities 53,878 32,554 26,392
------- ------- -------
Net increase (decrease) in cash and cash equivalents (4,995) 1,433 2,583
Cash and cash equivalents at beginning of year 7,076 5,643 3,060
------- ------- -------
Cash and cash equivalents at end of year $ 2,081 $ 7,076 $ 5,643
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,581 $ 1,805 $ 894
======= ======= =======
Interest on deposits and borrowings $ 20,157 $ 18,984 $ 16,668
======= ======= =======
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through
foreclosure $ 567 $ 52 $ 236
======= ======= =======
Issuance of mortgage loans upon sale of real estate
acquired through foreclosure $ 488 $ 74 $ 25
======= ======= =======
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 14 $ 288 $ 114
======= ======= =======
Recognition of mortgage servicing rights in
accordance with SFAS No. 125 $ 189 $ 369 $ 378
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Winton Financial Corporation ("Winton Financial", or the "Corporation") is a
savings and loan holding company whose activities are primarily limited to
holding the stock of The Winton Savings and Loan Company ("Winton Savings",
or the "Company"). The Company conducts a general banking business in
southwestern Ohio which consists of attracting deposits from the general
public and applying those funds to the origination of loans for residential,
consumer and nonresidential purposes. The Company's profitability is
significantly dependent on its net interest income, which is the difference
between interest income generated from interest-earning assets (i.e. loans
and investments) and the interest expense paid on interest-bearing
liabilities (i.e. customer deposits and borrowed funds). Net interest income
is affected by the relative amount of interest-earning assets and
interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Company can be
significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general
accounting practices within the financial services industry. In preparing
consolidated financial statements in accordance with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
revenues and expenses during the reporting period. Actual results could
differ from such estimates.
During fiscal 1999, Winton Financial merged BenchMark Federal Savings Bank
("BenchMark") with and into its subsidiary, Winton Savings, in a transaction
which was accounted for as a pooling-of-interests. Accordingly, the
consolidated financial statements have been restated to reflect the effects
of the business combination as of October 1, 1996. In connection with the
business combination, Winton Financial issued 376,210 shares of common
stock.
The following is a summary of the significant accounting policies which have
been consistently applied in the preparation of the accompanying
consolidated financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and the Company. Condensed financial statements of the
Corporation are presented in Note L as of September 30, 1999 and 1998, and
for the fiscal years ended September 30, 1999, 1998 and 1997. All
significant intercompany balances and transactions have been eliminated in
the accompanying consolidated financial statements.
29
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires that investments be categorized as held-to-maturity,
trading, or available for sale. Securities classified as held-to-maturity
are carried at cost only if the Corporation has the positive intent and
ability to hold these securities to maturity. Trading securities and
securities available for sale are carried at fair value with resulting
unrealized gains or losses recorded to operations or shareholders' equity,
respectively. At September 30, 1999 and 1998, the Corporation's
shareholders' equity reflected net unrealized gains on securities designated
as available for sale totaling $604,000 and $590,000, respectively.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses
and premiums and discounts on loans purchased and sold. Premiums and
discounts on loans purchased and sold are amortized and accreted to
operations using the interest method over the average life of the underlying
loans.
Interest is accrued as earned unless the collectibility of the loan is in
doubt. Uncollectible interest on loans that are contractually past due is
charged off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status. If the ultimate collectibility of principal is
in doubt, in whole or in part, all payments received on nonaccrual loans are
applied to reduce principal until such doubt is eliminated.
Loans held for sale are carried at the lower of cost or market, determined
in the aggregate. In computing cost, deferred loan origination fees are
deducted from the principal balances of the related loans. At September 30,
1999 and 1998, loans held for sale were carried at cost.
Winton Savings accounts for mortgage servicing rights pursuant to the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which requires that
Winton Savings recognize as separate assets, rights to service mortgage
loans for others, regardless of how those servicing rights are acquired. An
institution that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells those loans with
servicing rights retained must allocate some of the cost of the loans to
mortgage servicing rights.
30
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3. Loans Receivable (continued)
SFAS No. 125 requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables be assessed for impairment.
Impairment is measured based on fair value. The mortgage servicing rights
recorded by the Company, calculated in accordance with the provisions of
SFAS No. 125, were segregated into pools for valuation purposes, using as
pooling criteria the loan term and coupon rate. Once pooled, each grouping
of loans was evaluated on a discounted earnings basis to determine the
present value of future earnings that a purchaser could expect to realize
from each portfolio. Earnings were projected from a variety of sources
including loan servicing fees, interest earned on float, net interest earned
on escrows, miscellaneous income, and costs to service the loans. The
present value of future earnings is the "economic" value for the pool, i.e.,
the net realizable present value to an acquirer of the acquired servicing.
The Company recorded amortization related to mortgage servicing rights
totaling approximately $254,000, $247,000 and $40,000 for the years ended
September 30, 1999, 1998 and 1997, respectively. At September 30, 1999, the
fair value and the carrying value of the Company's mortgage servicing rights
totaled approximately $1.0 million and $756,000, respectively. At September
30, 1998, the fair value and the carrying value of the Company's mortgage
servicing rights totaled approximately $1.0 million and $845,000,
respectively.
4. Loan Origination and Commitment Fees
The Company accounts for loan origination fees in accordance with the
provisions of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Pursuant to the provisions of SFAS No. 91, origination fees
received from loans, net of certain direct origination costs, are deferred
and amortized to interest income using the interest method, giving effect to
actual loan prepayments. Additionally, SFAS No. 91 generally limits the
definition of loan origination costs to the direct costs attributable to
originating a loan, i.e., principally actual personnel costs. Fees received
for loan commitments that are expected to be drawn upon, based on the
Company's experience with similar commitments, are deferred and amortized
over the life of the related loan using the interest method. Fees for other
commitments are deferred and amortized over the loan commitment period on a
straight-line basis.
5. Allowance for Loan Losses
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level
of delinquent and problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current and anticipated economic conditions in its
primary lending areas. When the collection of a loan becomes doubtful, or
otherwise troubled, the Company
31
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
records a charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans,
including development projects, and major lending areas are reviewed
periodically to determine potential problems at an early date. The allowance
for loan losses is increased by charges to earnings and decreased by
charge-offs (net of recoveries).
The Company accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
that impaired loans be measured based upon the present value of expected
future cash flows discounted at the loan's effective interest rate or, as an
alternative, at the loan's observable market price or fair value of the
collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company considers
its investment in one- to four-family residential loans and consumer
installment loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. With respect to the Company's
investment in nonresidential and multi-family residential real estate loans,
and its evaluation of impairment thereof, such loans are generally
collateral dependent and, as a result, are carried as a practical expedient
at the lower of cost or fair value.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
At September 30, 1999 and 1998, the Company had no loans that would be
defined as impaired under SFAS No. 114.
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided on the straight-line and
accelerated methods over the useful lives of the assets, estimated to be
thirty to forty years for buildings, five to fifteen years for building
improvements and three to fifteen years for furniture and equipment. An
accelerated depreciation method is used for tax reporting purposes.
32
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. Real estate loss provisions are
recorded if the properties' fair value subsequently declines below the value
determined at the recording date. In determining the lower of cost or fair
value at acquisition, costs relating to development and improvement of
property are considered. Costs relating to holding real estate acquired
through foreclosure, net of rental income, are charged against earnings as
incurred.
8. Federal Income Taxes
The Corporation accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes." In accordance with SFAS No. 109, a deferred
tax liability or deferred tax asset is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences
between the tax basis of an asset or liability and its reported amount in
the consolidated financial statements that will result in net taxable or
deductible amounts in future periods. Deferred tax assets are recorded only
to the extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable temporary
differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net
deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of income taxes results primarily from different methods of
accounting for deferred loan origination fees and costs, Federal Home Loan
Bank stock dividends, mortgage servicing rights, the general loan loss
allowance and the percentage of earnings bad debt deduction. Additionally, a
temporary difference is recognized for depreciation utilizing accelerated
methods for federal income tax purposes.
9. Amortization of Intangible Assets
Intangible assets arising from the acquisition of deposits from another
financial institution are being amortized on the straight-line method over a
ten year period.
10. Employee Benefit Plans
The Corporation has an Employee Stock Ownership Plan ("ESOP") which provides
retirement benefits for substantially all employees who have completed one
year of service. Contributions of $125,000, $115,000 and $103,000 were made
to the ESOP for the years ended September 30, 1999, 1998 and 1997,
respectively. At September 30, 1999, the ESOP held 349,089 shares (adjusted)
of the Corporation's common stock, all of which had been allocated to
participants as of that date.
33
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
10. Employee Benefit Plans (continued)
The Company has a contributory 401(k) plan covering all employees who have
attained the age of 21 and have completed one year of service. Contributions
to the plan are voluntary and are matched at the discretion of the Board of
Directors. Contributions to the plan totaled $44,000, $40,000 and $37,000,
for the years ended September 30, 1999, 1998 and 1997, respectively.
11. Earnings Per Share
Basic earnings per share is computed based upon 4,395,166, 4,375,685 and
4,348,514 weighted-average shares outstanding for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
4,583,738, 4,568,110 and 4,403,206 for the fiscal years ended September 30,
1999, 1998 and 1997, respectively. Incremental shares related to the assumed
exercise of stock options included in the calculation of diluted earnings
per share totaled 188,572, 192,425 and 54,692 for the fiscal years ended
September 30, 1999, 1998 and 1997, respectively.
12. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks and interest-bearing deposits due from other
financial institutions with original maturities of less than ninety days.
13. Comprehensive Income
The Corporation adopted SFAS No. 130, "Reporting Comprehensive Income," as
of October 1, 1998. SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
general-purpose financial statements. It 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 presented
with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital. The Corporation's only component of
comprehensive income consisted of the unrecognized gain on securities
designated as available for sale in accordance with SFAS No. 115.
34
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments, both assets
and liabilities whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value.
When quoted market prices are not available for financial instruments, fair
values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at September
30, 1999 and 1998:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statements of financial condition for cash
and cash equivalents are deemed to approximate fair value.
Investments and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one- to
four-family residential, multi-family residential and
nonresidential real estate. These loan categories were further
delineated into fixed-rate and adjustable-rate loans. The fair
values for the resultant loan categories were computed via
discounted cash flow analysis, using current interest rates
offered for loans with similar terms to borrowers of similar
credit quality. For loans on deposit accounts, and consumer
and other loans, fair values were deemed to equal the historic
carrying values. The historical carrying amount of accrued
interest on loans is deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statements of financial condition is deemed
to approximate fair value.
Deposits: The fair value of NOW accounts, passbook and club
accounts, advance payments and amounts due on loans serviced
for others are deemed to approximate the amount payable on
demand. Fair values for fixed-rate certificates of deposit
have been estimated using a discounted cash flow calculation
using the interest rates currently offered for deposits of
similar remaining maturities.
Advances from the Federal Home Loan Bank: The fair value of
these advances is estimated using the interest rates currently
offered for advances of similar remaining maturities or, when
available, quoted market prices.
35
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
14. Fair Value of Financial Instruments (continued)
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates. The difference between the fair
value and notional amount of outstanding loan commitments at
September 30, 1999 and 1998, was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at September
30:
<TABLE>
<CAPTION>
1999 1998
Carrying Fair Carrying Fair
value value value value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 2,081 $ 2,081 $ 7,076 $ 7,076
Investment securities designated
as available for sale 5,503 5,503 5,579 5,579
Investment securities - at cost 16,882 16,774 14,858 15,185
Mortgage-backed securities designated
as available for sale 410 410 565 565
Mortgage-backed securities - at cost 13,533 13,058 16,236 16,023
Loans receivable - net 413,550 409,693 351,369 365,074
Federal Home Loan Bank stock 5,925 5,925 4,592 4,592
------- ------- ------- -------
$457,884 $453,444 $400,275 $414,094
======= ======= ======= =======
Financial liabilities
Deposits $312,072 $312,375 $306,343 $306,975
Advances from Federal Home Loan Bank 116,532 111,618 67,404 67,411
Advance payments and amounts due on loans
serviced for others 1,861 1,861 1,764 1,764
------- ------- ------- -------
$430,465 $425,854 $375,511 $376,150
======= ======= ======= =======
</TABLE>
15. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
consolidated financial statement presentation.
36
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of investment securities at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and agency
obligations $16,882 $16,774 $14,858 $15,185
Available for sale:
U.S. Government and agency obligations 4,491 4,528 4,587 4,855
Corporate equity securities 103 975 103 724
------ ------ ------ ------
Total securities available for sale 4,594 5,503 4,690 5,579
------ ------ ------ ------
Total investment securities $21,476 $22,277 $19,548 $20,764
====== ====== ====== ======
</TABLE>
At September 30, 1999, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $801,000, which was
comprised of gross unrealized gains totaling approximately $952,000 and
gross unrealized losses totaling approximately $151,000.
At September 30, 1998, the fair value appreciation of the Corporation's
investment securities in excess of cost totaled $1.2 million, which was
comprised solely of gross unrealized gains.
The amortized cost and estimated fair value of U.S. Government and agency
obligations, including those designated as available for sale, at September
30, 1999, by term to maturity are shown below.
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
(In thousands)
<S> <C> <C>
Due in one year or less $ 3,105 $ 3,099
Due in one to three years 15,923 15,867
Due in three to five years 2,345 2,336
------ ------
$21,373 $21,302
====== ======
</TABLE>
37
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses, and
estimated fair values of mortgage-backed securities at September 30, 1999
and 1998, are shown below.
<TABLE>
<CAPTION>
1999
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Federal Home Loan Mortgage Corporation
Participation certificates $ 4,589 $ 9 $(228) $ 4,370
Government National Mortgage Association
Participation certificates 655 10 (7) 658
Federal National Mortgage Association
Participation certificates 3,995 - (180) 3,815
Collateralized mortgage obligations 969 - (79) 890
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - - 3,137
Residential Funding Corporation
Collateralized mortgage obligations 188 - - 188
------ ---- ---- ------
Total mortgage-backed securities
held to maturity 13,533 19 (494) 13,058
Available for sale:
Government National Mortgage Corporation
Participation Certificates 403 7 - 410
------ ---- ---- ------
Total mortgage-backed securities $13,936 $ 26 $(494) $13,468
====== ==== ==== ======
</TABLE>
38
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
(In thousands)
<S> <C> <C> <C> <C>
Held to maturity:
Federal Home Loan Mortgage Corporation
Participation certificates $ 6,808 $ 11 $ (95) $ 6,724
Government National Mortgage Association
Participation certificates 889 9 (1) 897
Federal National Mortgage Association
Participation certificates 4,033 1 (98) 3,936
Collateralized mortgage obligations 1,181 - (12) 1,169
CMC Securities Corporation
Collateralized mortgage obligations 3,137 - (24) 3,113
Residential Funding Corporation
Collateralized mortgage obligations 188 - (4) 184
------ ---- ---- ------
Total mortgage-backed securities
held to maturity 16,236 21 (234) 16,023
Available for sale:
Government National Mortgage Corporation
Participation Certificates 561 4 - 565
------ ---- ---- ------
Total mortgage-backed securities $16,797 $ 25 $(234) $16,588
====== ==== ==== ======
</TABLE>
39
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities, including those designated
as available for sale at September 30, 1999, by contractual terms to
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations without
prepayment penalties.
<TABLE>
<CAPTION>
Amortized cost
(In thousands)
<S> <C>
Due within three years $ 7
Due after three years through five years 449
Due after five years through ten years 186
Due after ten years through twenty years 3,754
Due after twenty years 9,540
------
$13,936
======
</TABLE>
Mortgage-backed securities with an approximate carrying value of $1.5
million were pledged to secure public deposits at September 30, 1999.
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at September 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Residential real estate
One- to four-family residential $224,094 $181,285
Multi-family residential 80,309 76,399
Construction 22,926 19,579
Nonresidential real estate and land 78,779 62,235
Nonresidential construction 9,729 9,782
Consumer and other 11,709 9,485
------- -------
427,546 358,765
Less:
Undisbursed portion of loans in process 15,070 14,321
Deferred loan origination fees 486 411
Allowance for loan losses 932 917
------- -------
$411,058 $343,116
======= =======
</TABLE>
40
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE C - LOANS RECEIVABLE (continued)
The Company's lending efforts have historically focused on one- to
four-family residential and multi-family residential real estate loans,
which comprise approximately $312.3 million, or 76%, of the total loan
portfolio at September 30, 1999, and $262.9 million, or 77%, of the total
loan portfolio at September 30, 1998. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Company with adequate collateral coverage in
the event of default. Nevertheless, the Company, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending area of southwestern Ohio, thereby
impairing collateral values. However, management is of the belief that
residential real estate values in the Company's primary lending area are
presently stable.
As discussed previously, the Company has sold whole loans and participating
interests in loans in the secondary market, generally retaining servicing on
the loans sold. Loans sold and serviced for others totaled approximately
$149.8 million and $176.8 million at September 30, 1999 and 1998,
respectively. At September 30, 1999, loans sold with recourse totaled $9.3
million.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is summarized as follows for
the years ended September 30:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Beginning balance $917 $905 $954
Provision for losses on loans 160 86 6
Charge-off of loans (188) (76) (77)
Recoveries of loan losses 43 2 22
--- --- ---
Ending balance $932 $917 $905
=== === ===
</TABLE>
41
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE D - ALLOWANCE FOR LOAN LOSSES (continued)
At September 30, 1999, the Company's allowance for loan losses was comprised
of a general loan loss allowance of $884,000, which is includible as a
component of regulatory risk-based capital, and a specific loan loss
allowance totaling $48,000.
Nonperforming and nonaccrual loans at September 30, 1999, 1998 and 1997,
totaled $246,000, $1.2 million and $599,000, respectively. Interest income
that would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $8,000, $38,200 and $28,500 for the
years ended September 30, 1999, 1998 and 1997, respectively.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at September 30:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Land $ 597 $ 597
Office buildings and improvements 3,006 3,077
Furniture, fixtures and equipment 3,543 3,514
----- -----
7,146 7,188
Less accumulated depreciation and
amortization 3,438 3,355
----- -----
$3,708 $3,833
===== =====
</TABLE>
The Company leases part of the main office facility and the adjacent real
property under three-year operating lease agreements at an annual cost of
approximately $70,000 per year. The leases for the main office facility and
the adjacent real property are renewable for four additional three-year
terms at market rates. The Company may purchase the land and property at any
time for total consideration of $500,000. Further, the Company had entered
into a lease agreement during fiscal 1998 on a new loan origination office,
which provides for annual lease payments of $21,000 through fiscal 2002 and
a commitment of $18,000 for fiscal 2003. The Company has an option to extend
the lease term for an additional five year period at market rates. The
Company also leases a branch office for approximately $43,000 per year under
a two year lease commitment which began on July 1, 1999, with one two year
renewable option at market rates.
42
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE F - DEPOSITS
Deposits consist of the following major classifications at September 30:
<TABLE>
<CAPTION>
Deposit type and weighted-average interest rate 1999 1998
(In thousands)
<S> <C> <C>
NOW accounts and money market deposits
1999 - 1.07% $ 18,129
1998 - 1.31% $ 24,241
Passbook and Club accounts
1999 - 3.36% 60,311
1998 - 3.95% 55,087
------- -------
Total demand, transaction and passbook deposits 78,440 79,328
Certificates of deposit
Original maturities of:
Less than 12 months
1999 - 5.05% 78,589
1998 - 5.65% 71,059
12 months to 36 months
1999 - 5.76% 98,142
1998 - 5.94% 99,357
More than 36 months
1999 - 6.19% 20,836
1998 - 6.19% 20,130
Individual Retirement and Keogh
1999 - 5.84% 36,065
1998 - 6.04% 36,469
------- -------
Total certificates of deposit 233,632 227,015
------- -------
Total deposit accounts $312,072 $306,343
======= =======
</TABLE>
The Company had certificate of deposit accounts with balances equal to or
in excess of $100,000 totaling $68.8 million and $67.4 million at September
30, 1999 and 1998, respectively.
43
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE F - DEPOSITS (continued)
Interest expense on deposits at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Passbook and money market deposit accounts $ 1,991 $ 2,203 $ 2,264
NOW accounts 234 217 244
Certificates of deposit 13,010 12,639 11,357
------ ------ ------
$15,235 $15,059 $13,865
====== ====== ======
</TABLE>
Maturities of outstanding certificates of deposit at September 30 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
(In thousands)
<S> <C> <C>
Less than one year $153,858 $136,748
One year to three years 73,033 83,463
More than three years 6,741 6,804
------- -------
$233,632 $227,015
======= =======
</TABLE>
NOTE G - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at September 30,
1999, by pledges of certain residential mortgage loans totaling $174.8
million, and the Company's investment in Federal Home Loan Bank stock, are
summarized as follows:
<TABLE>
<CAPTION>
Maturing fiscal
Interest rate year ending in 1999 1998
(Dollars in thousands)
<S> <C> <C> <C>
5.67% - 6.70% 1999 $ - $ 8,750
5.77% - 8.35% 2000 37,500 11,000
6.23% - 6.28% 2001 4,000 4,000
6.05% - 7.20% 2002 10,190 10,256
5.54% - 6.58% 2003 17,452 16,455
2.50% - 6.97% Thereafter 47,390 16,943
------- ------
$116,532 $67,404
======= ======
Weighted-average interest rate 5.94% 5.91%
==== ====
</TABLE>
44
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE H - FEDERAL INCOME TAXES
Federal income taxes differ from the amounts computed at the statutory
corporate tax rate for the years ended September 30 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate $1,557 $2,115 $1,763
Increase (decrease) in taxes resulting from:
Nondeductible expenses 142 11 11
Nontaxable dividend income (4) (4) (4)
Low income housing investment tax credits (42) (42) (42)
Other (13) 12 (19)
----- ----- -----
Federal income tax provision per consolidated
financial statements $1,640 $2,092 $1,709
===== ===== =====
Effective tax rate 35.8% 33.6% 33.0%
==== ==== ====
</TABLE>
The composition of the Corporation's net deferred tax liability at
September 30 is as follows:
<TABLE>
<CAPTION>
Taxes (payable) refundable on temporary 1999 1998
differences at statutory rate: (In thousands)
<S> <C> <C>
Deferred tax assets:
General loan loss allowance $ 317 $ 286
Amortization of intangible assets 35 42
Other 6 -
------ ------
Total deferred tax assets 358 328
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (757) (528)
Difference between book and tax depreciation (81) (50)
Percentage of earnings bad debt deduction (282) (331)
Unrealized gains on securities designated as available for sale (312) (303)
Deferred loan origination costs (352) (366)
Mortgage servicing rights (257) (268)
Other - (57)
------ ------
Total deferred tax liabilities (2,041) (1,903)
------ ------
Net deferred tax liability $(1,683) $(1,575)
====== ======
</TABLE>
45
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE H - FEDERAL INCOME TAXES (continued)
The Company was allowed a special bad debt deduction generally limited to 8%
of otherwise taxable income, subject to certain limitations based on
aggregate loans and savings account balances at the end of the year. If the
amounts that qualify as deductions for federal income taxes are later used
for purposes other than for bad debt losses, including distributions in
liquidation, such distributions will be subject to federal income taxes at
the then current corporate income tax rate. This percentage of earnings bad
debt deduction had accumulated to approximately $2.2 million as of September
30, 1999. The amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction was approximately $500,000 at September
30, 1999.
Winton Savings is required to recapture as taxable income approximately $1.0
million of its tax bad debt reserve, which represents the post-1987
additions to the reserve, and will be unable to utilize the percentage of
earnings method to compute its bad debt deduction in the future. Winton
Savings has provided deferred taxes for this amount and will amortize the
recapture of the bad debt reserve in taxable income over a six year period
commencing in fiscal 1999.
NOTE I - LOAN COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Company's involvement in such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At September 30, 1999, the Company had total outstanding commitments of
approximately $7.0 million to originate residential one- to four-family and
multi-family real estate loans on the basis of an 80% loan-to-value ratio,
of which $1.7 million were comprised of adjustable-rate loans at rates
ranging from 5.875% to 9.50%, and $5.3 million were comprised of fixed-rate
loans at rates ranging from 6.625% to 14.00%. The Company also had total
outstanding commitments of approximately $915,000 to originate
nonresidential real estate and land loans, of which $341,000 were comprised
of fixed-rate loans at interest rates ranging from 7.75% to 8.25%, and
$574,000 were comprised of adjustable rate loans at rates ranging from 7.50%
to 7.75%. Additionally, the Company had unused lines of credit related to
home
46
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE I - LOAN COMMITMENTS (continued)
equity loans and commercial loans totaling $14.1 million and $7.0 million,
respectively. In the opinion of management, all loan commitments equaled or
exceeded prevalent market interest rates as of September 30, 1999, and such
commitments have been underwritten on the same basis as that of the existing
loan portfolio. Management believes that all loan commitments are able to be
funded through cash flow from operations and existing excess liquidity. Fees
received in connection with these commitments have not been recognized in
earnings.
NOTE J - REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on its financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Winton
Savings must meet specific capital guidelines that involve quantitative
measures of Winton Savings' assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. Winton
Savings' capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
The minimum capital standards of the OTS generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement
and the risk-based capital requirement. The tangible capital requirement
provides for minimum tangible capital (defined as shareholders' equity less
all intangible assets) equal to 1.5% of adjusted total assets. The core
capital requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. The risk-based capital
requirement currently provides for the maintenance of core capital plus
general loan loss allowances equal to 8.0% of risk-weighted assets as of
September 30, 1999. In computing risk-weighted assets, Winton Savings
multiplies the value of each asset on its statement of financial condition
by a defined risk-weighted factor, e.g., one- to four-family residential
loans carry a risk-weighted factor of 50%.
The OTS has proposed an amendment to the core capital requirement that would
increase the minimum requirement to a range of 4.0% - 5.0% of adjusted total
assets for substantially all savings associations. Management anticipates no
material change to the Company's excess regulatory capital position if the
proposal is adopted in its present form.
47
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE J - REGULATORY CAPITAL (continued)
As of September 30, 1999 and 1998, management believes that the Company met
all capital adequacy requirements to which it was subject.
<TABLE>
<CAPTION>
As of September 30, 1999
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $30,838 6.6% =>$ 6,971 =>1.5% =>$23,237 => 5.0%
Core capital $30,838 6.6% =>$13,942 =>3.0% =>$27,885 => 6.0%
Risk-based capital $31,722 10.0% =>$25,378 =>8.0% =>$31,722 =>10.0%
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1998
To be "well-
capitalized" under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $29,122 7.2% =>$ 6,112 =>1.5% =>$20,374 => 5.0%
Core capital $29,122 7.2% =>$12,224 =>3.0% =>$24,449 => 6.0%
Risk-based capital $29,985 10.8% =>$22,262 =>8.0% =>$27,828 =>10.0%
</TABLE>
The Company's management believes that under the current regulatory capital
regulations, the Company will continue to meet its minimum capital
requirements in the foreseeable future. However, events beyond the control
of the Company, such as increased interest rates or a downturn in the
economy in the Company's market area, could adversely affect future earnings
and consequently, the ability to meet future regulatory capital
requirements.
48
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE K - STOCK OPTION PLANS
Shareholders of the Corporation have approved stock option plans that have
provided for the issuance of up to 1,051,210 common shares to be granted at
the discretion of the Board of Directors. Under the 1988 Stock Option Plan,
649,680 common shares were reserved for issuance to directors, officers, and
key employees of the Corporation and its subsidiary. At September 30, 1999,
523,000 options under the 1988 Plan were subject to exercise at the
discretion of the grantees through fiscal 2001, while 126,680 options
remained ungranted at the Plan's expiration date. The 1999 Stock Option Plan
reserved 401,530 common shares for issuance to directors, officers, and key
employees of the Corporation and its subsidiary. At September 30, 1999,
247,030 options were ungranted.
The Corporation accounts for its stock option plan in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," which contains a fair
value-based method for valuing stock-based compensation that entities may
use, which measures compensation cost at the grant date based on the fair
value of the award. Compensation is then recognized over the service period,
which is usually the vesting period. Alternatively, SFAS No. 123 permits
entities to continue to account for stock options and similar equity
instruments under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities that continue to
account for stock options using APB Opinion No. 25 are required to make pro
forma disclosures of net earnings and earnings per share, as if the fair
value-based method of accounting defined in SFAS No. 123 had been applied.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for the plans. Had compensation cost for the Corporation's
stock option plans been determined based on the fair value at the grant
dates for awards under the plans consistent with the accounting method
utilized in SFAS No. 123, the Corporation's net earnings and earnings per
share would have been reduced to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C> <C>
Net earnings (In thousands) As reported $2,940 $4,130 $3,477
===== ===== =====
Pro-forma $2,566 $4,039 $3,477
===== ===== =====
Earnings per share
Basic As reported $.67 $.94 $.80
=== === ===
Pro-forma $.58 $.92 $.80
=== === ===
Diluted As reported $.64 $.90 $.79
=== === ===
Pro-forma $.56 $.88 $.79
=== === ===
</TABLE>
49
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE K - STOCK OPTION PLANS (continued)
The fair value of each option grant is estimated on the date of grant using
the modified Black-Scholes options-pricing model with the following
assumptions used for grants in fiscal 1999 and 1998: dividend yield of 2.3%
and 3.4%, respectively, expected volatility of 20.0% for both years,
risk-free interest rate of 6.0% for both years, and expected lives of seven
years and ten years, respectively.
A summary of the status of the Corporation's stock option plans as of
September 30, 1999, 1998 and 1997, and changes during the periods ending on
those dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 481,000 $ 6.13 501,375 $5.78 513,559 $5.72
Granted 154,500 13.21 30,000 9.94 - -
Exercised (13,200) 6.09 (50,375) 4.93 (12,184) 2.99
Forfeited - - - - -
------- ----- ------- ---- ------- ----
-
Outstanding at end of year 622,300 $ 7.89 481,000 $6.13 501,375 $5.78
======= ===== ======= ==== ======= ====
Options exercisable at year-end 622,300 $ 7.89 481,000 $6.13 501,375 $5.78
======= ===== ======= ==== ======= ====
Weighted-average fair value of
options granted during the year $ 3.54 $1.99 N/A
===== ==== ===
</TABLE>
The following information applies to options outstanding at September 30,
1999:
<TABLE>
<CAPTION>
<S> <C>
Number outstanding 622,300
Range of exercise prices $5.00 - $13.25
Weighted-average exercise price $7.89
Weighted-average remaining contractual life 6.63 years
</TABLE>
50
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION
The following condensed financial statements summarize the financial
position of the Corporation as of September 30, 1999 and 1998, and the
results of its operations and its cash flows for each of the years ended
September 30, 1999, 1998 and 1997.
Winton Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF FINANCIAL CONDITION
September 30,
ASSETS 1999 1998
(In thousands)
<S> <C> <C>
Cash $ 421 $ 265
Investment in The Winton Savings and Loan Co. 31,284 29,789
Corporate equity securities - at fair value 975 724
Prepaid expenses and other assets 16 9
Prepaid federal income tax 71 61
------ ------
Total assets $32,767 $30,848
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 331 $ 250
Deferred federal income taxes 296 211
------ ------
Total liabilities 627 461
Shareholders' equity
Additional paid-in capital 9,917 9,827
Retained earnings 21,619 19,970
Unrealized gains on securities designated as
available for sale, net of related tax effects 604 590
------ ------
Total shareholders' equity 32,140 30,387
------ ------
Total liabilities and shareholders' equity $32,767 $30,848
====== ======
</TABLE>
51
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
Winton Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Year ended September 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Revenue
Interest and dividends on investments $ 18 $ 15 $ 13
Gain on sale of investment securities
designated as available for sale - - 36
Dividends received from subsidiary 1,311 773 894
Equity in undistributed earnings of subsidiary 1,675 3,408 2,651
----- ----- -----
3,004 4,196 3,594
Expenses
General and administrative 64 66 117
----- ----- -----
Net earnings $2,940 $4,130 $3,477
===== ===== =====
</TABLE>
Winton Financial Corporation
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended September 30,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the year $2,940 $4,130 $3,477
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Undistributed earnings of consolidated subsidiary (1,675) (3,408) (2,651)
Gain on sale of investment securities
designated as available for sale - - (36)
Increases (decreases) in cash due to changes in:
Prepaid expenses and other assets (17) (61) 23
Other 109 42 27
----- ----- -----
Net cash provided by operating activities 1,357 703 840
Cash flows provided by investing activities:
Proceeds from sale of investment securities
designated as available for sale - - 122
Cash flows provided by (used in) financing activities:
Payment of dividends on common stock (1,291) (1,059) (947)
Proceeds from exercise of stock options 90 308 46
----- ----- -----
Net cash used in financing activities (1,201) (751) (901)
----- ----- -----
Net increase (decrease) in cash and cash equivalents 156 (48) 61
Cash and cash equivalents at beginning of year 265 313 252
----- ----- -----
Cash and cash equivalents at end of year $ 421 $ 265 $ 313
===== ===== =====
</TABLE>
52
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999, 1998 and 1997
NOTE L - CONDENSED FINANCIAL STATEMENTS OF WINTON FINANCIAL
CORPORATION (continued)
Winton Savings is subject to regulations imposed by the OTS regarding the
amount of capital distributions payable by the Company to the Corporation.
Generally, Winton Savings' payment of dividends is limited, without prior
OTS approval, to net income for the current calendar year plus the two
preceding calendar years, less capital distributions paid over the
comparable time period. Insured institutions are required to file an
application with the OTS for capital distributions in excess of this
limitation. During November 1999, Winton Savings received OTS approval to
make up to $1.3 million in capital distributions during fiscal 2000.
53
<PAGE>
Winton Financial Corporation
SHAREHOLDER SERVICES. Firstar, N.A. serves as primary transfer agent and as
dividend disbursing agent for the common shares of Winton Financial.
Communications regarding changes of address, transfer of shares, lost
certificates and dividends should be sent to:
Firstar, N.A.
Corporate Trust Services
425 Walnut Street
Cincinnati, Ohio 45201-1118
MARKET SPECIALIST. Cohen Specialists L.L.C./Palbro Partners L.L.C. serve as
market specialists for Winton Financial's common shares.
ANNUAL MEETING. The Annual Meeting of Shareholders of Winton Financial will be
held on January 28, 2000, at 10:00 a.m. Eastern Standard Time, at Shuller's
Wigwam, 6210 Hamilton Avenue, Cincinnati, Ohio 45224.
FORM 10-K ANNUAL REPORT. A copy of Winton Financial's Annual Report on Form
10-K, as filed with the Securities and Exchange Commission, will be available at
no charge to shareholders upon request to:
Winton Financial Corporation
5511 Cheviot Road
Cincinnati, Ohio 45247
Attention: Jill M. Burke, Treasurer
54
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
<S> <C>
WINTON FINANCIAL CORPORATION THE WINTON SAVINGS AND LOAN CO.
Board of Directors Board of Directors
William J. Parchman William J. Parchman
Chairman of the Board Chairman of the Board
Retired real estate executive
Robert L. Bollin
Robert L. Bollin President
President of Winton Financial Corporation
and The Winton Savings and Loan Co. Robert E. Hoeweler
Robert E. Hoeweler Henry L. Schulhoff
President, Hoeweler Group, Inc.
Thomas H. Humes
Henry L. Schulhoff
President, Schulhoff and Company, Inc. Timothy M. Mooney
Thomas H. Humes J. Clay Stinnett
President, Great Traditions Land &
Development Co.
Officers
Timothy M. Mooney
Vice President and Chief Financial Officer Robert L. Bollin
of Kendle International Inc. President
J. Clay Stinnett Gregory J. Bollin
President, J.R. Concepts, Inc. Executive Vice President
Mary Ellen Lovett
Officers Senior Vice President/Savings
Robert L. Bollin Jill M. Burke
President Treasurer and Chief Financial Officer
James W. Brigger James W. Brigger
Secretary Vice President/Secretary
Jill M. Burke Marianne B. Kenner
Treasurer and Chief Financial Officer Vice President/Manager of Carthage Office
Gregory J. Bollin
Vice President
Mary Ellen Lovett
Vice President
</TABLE>
55
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant[X]
Filed by a Party other than the Registrant[ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
WINTON FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------
3) Filing Party:
--------------------------------------
4) Date Filed:
<PAGE>
WINTON FINANCIAL CORPORATION
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of
Winton Financial Corporation ("WFC") will be held at Shuller's Wigwam
Restaurant, 6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 28, 2000, at
10:00 a.m., Eastern Standard Time (the "Annual Meeting"), for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
1. To reelect directors of WFC for terms expiring in 2003;
2. To consider and vote upon the ratification of the selection of Grant
Thornton LLP as the auditors of WFC for the current fiscal year; and
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only shareholders of WFC of record at the close of business on December
10, 1999, will be entitled to receive notice of and to vote at the Annual
Meeting and at any adjournments thereof.
Whether or not you expect to attend the Annual Meeting, we urge you to
consider the accompanying Proxy Statement carefully and to SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. The
giving of a Proxy does not affect your right to vote in person in the event you
attend the Annual Meeting.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 17, 1999 President
<PAGE>
WINTON FINANCIAL CORPORATION
5511 Cheviot Road
Cincinnati, Ohio 45247
(513) 385-3880
PROXY STATEMENT
PROXIES
The enclosed Proxy is being solicited by the Board of Directors of
Winton Financial Corporation, an Ohio corporation ("WFC"), for use at the 1999
Annual Meeting of Shareholders of WFC to be held at Shuller's Wigwam Restaurant,
6210 Hamilton Ave., Cincinnati, Ohio 45224, on January 28, 2000, at 10:00 a.m.,
Eastern Standard Time, and at any adjournments thereof (the "Annual Meeting").
Without affecting any vote previously taken, the Proxy may be revoked by a
shareholder before exercise by executing a later-dated Proxy or by giving notice
of revocation to WFC in writing or in open meeting. Attendance at the Annual
Meeting will not, of itself, revoke a Proxy.
Each properly executed Proxy received prior to the Annual Meeting and
not revoked will be voted as specified thereon or, in the absence of specific
instructions to the contrary, will be voted:
FOR the reelection of Messrs. Robert L. Bollin and William J. Parchman
as directors of WFC for terms expiring in 2003; and
FOR the ratification of the selection of Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year.
Proxies may be solicited by the directors, officers and other employees
of WFC and The Winton Savings and Loan Co., the wholly-owned subsidiary of WFC
("Winton"), in person or by telephone, telegraph, telecopy or mail. WFC may
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to beneficial
owners. The cost of soliciting proxies will be borne by WFC.
Only shareholders of record as of the close of business on December 10,
1999 (the "Voting Record Date"), are eligible to vote at the Annual Meeting and
will be entitled to cast one vote for each share of WFC (the "Common Shares")
owned. WFC's records disclose that, as of the Voting Record Date, there were
4,405,214 votes entitled to be cast at the Annual Meeting.
This Proxy Statement is first being mailed to shareholders of WFC on or
about December 20, 1999.
<PAGE>
VOTE REQUIRED
Election of Directors
Under Ohio law and the Code of Regulations of WFC (the "Regulations"),
the nominees receiving the greatest number of votes will be elected as
directors. Common Shares as to which the authority to vote is withheld and
shares held by a nominee for a beneficial owner that are represented in person
or by proxy at the Annual Meeting, but not voted with respect to the election of
directors ("Non-votes"), are not counted toward the election of directors or
toward the individual nominees specified in the enclosed Proxy. If the enclosed
Proxy is signed and dated by the shareholder, but no vote is specified thereon,
the Common Shares held by such shareholder will be voted FOR the reelection of
the nominees.
Ratification of Selection of Auditors
The affirmative vote of the holders of at least a majority of the
outstanding Common Shares, voting in person or by proxy, is necessary to ratify
the selection of Grant Thornton as the auditors of WFC for the current fiscal
year. The effect of an abstention or a Non-vote is the same as a vote against
ratification. If the accompanying Proxy is signed and dated by the shareholder,
but no vote is specified thereon, the Common Shares held by such shareholder
will be voted FOR the ratification of the selection of Grant Thornton as
auditors.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons known to WFC to own beneficially more than five percent of the
Common Shares as of December 1, 1999:
<TABLE>
<CAPTION>
Amount and Nature Percentage of Common
Name and Address of Beneficial Ownership (1) Shares Outstanding (2)
<S> <C> <C>
Firstar, N.A., as Trustee 355,089 (3) 8.1%
P.O. Box 1118
Cincinnati, Ohio 45201
Robert L. Bollin 230,614 (4) 5.1
3358 Kuliga Park Drive
Cincinnati, Ohio 45248
Daniel P. Randolph 239,608 (5) 5.4
Suite 700
105 East Fourth Street
Cincinnati, Ohio 45202
Henry L. Schulhoff 257,260 (6) 5.8
7 West Seventh Street
Cincinnati, Ohio 45202
</TABLE>
- -----------------------------
(1) A person is the beneficial owner of Common Shares if such person,
directly or indirectly, has sole or shared voting or investment power
over such shares directly or indirectly or has the right to acquire
such voting or investment power within 60 days. All Common Shares are
owned directly with sole voting or investment power, unless otherwise
indicated by footnote. All stock options granted under the Winton
Financial Corporation Stock Option and Incentive Plan, as amended (the
"1988 Option Plan"), and the Winton Financial Corporation 1999 Stock
Option and Incentive Plan (the "1999 Option Plan") are currently
exercisable.
(2) For each person, assumes a total of 4,405,214 Common Shares
outstanding, plus the number of Common Shares such person may acquire
pursuant to the 1988 Option Plan and the 1999 Option Plan, if any.
(Footnotes continue on next page)
2
<PAGE>
(3) The Common Shares are held by Firstar, N.A., as trustee under The
Winton Financial Corporation Employee Stock Ownership Plan (the
"ESOP"). Firstar, N.A., has investment power with respect to all of
such common shares and voting power with respect to the unallocated
common shares.
(4) Includes 103,000 Common Shares that may be acquired upon the exercise
of options; 39,588 Common Shares held for the benefit of Robert L.
Bollin in The Winton Savings and Loan Co. Cash and Deferred Plan (the
"Deferred Plan"), the trustees of which are James W. Brigger, Robert L.
Bollin and Mary Ellen Lovett, executive officers of WFC; 35,829 Common
Shares held for the benefit of Robert L. Bollin in the ESOP; 1,360
Common Shares held by the individual retirement account of Robert L.
Bollin, the trustee of which is Merrill Lynch; 36,080 Common Shares
held jointly with Mr. Bollin's spouse; 4,800 Common Shares held by A.G.
Edwards, for the benefit of Elaine Bollin; 200 Common Shares held by
Elaine Bollin as custodian for Anthony Bollin; 9,728 shares held by
A.G. Edwards in the Robert J. Bollin Trust, for the benefit of Robert
L. Bollin; and 29 shares held for Elaine Bollin, Mr. Bollin's spouse,
in the ESOP.
(5) Based on a Schedule 13G filed with the Securities and Exchange
Commission by Daniel P. Randolph. Includes 42,144 Common Shares held by
Daniel P. Randolph in an individual retirement account; 178,164 Common
Shares owned as trustee under a trust for the benefit of R. Irene
Randolph; 10,800 Common Shares owned as trustee under a trust for the
benefit of Ronald I. Oldiges; and 8,500 Common Shares owned as trustee
under a trust for the benefit of Charles Randolph.
(6) Includes 57,500 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by the Cathleen Schulhoff Trust,
Cathleen Schulhoff trustee, as to which Mr. Schulhoff disclaims
beneficial ownership; and 14,200 Common Shares owned by Schulhoff &
Company, Inc., a corporation of which Mr. Schulhoff is a major
shareholder.
The following table sets forth certain information with respect to the
number of Common Shares beneficially owned by each director of WFC and by all
directors and executive officers of WFC as a group as of December 1, 1999:
<TABLE>
<CAPTION>
Amount and Nature of Percent of Common
Name and Address (1) Beneficial Ownership (2) Shares Outstanding (3)
<S> <C> <C>
Robert L. Bollin 230,614 (4) 5.1%
Robert E. Hoeweler 188,700 (5) 4.2
Thomas H. Humes 19,500 (6) 0.4
Timothy M. Mooney 18,500 (7) 0.4
William J. Parchman 189,355 (8) 4.3
Henry L. Schulhoff 257,260 (9) 5.8
J. Clay Stinnett 18,500 (10) 0.4
All directors and executive officers
of WFC as a group (11 persons) 1,265,558 (11) 25.9
</TABLE>
(1) Each of the persons listed in this table may be contacted at the address of
WFC, 5511 Cheviot Road, Cincinnati, Ohio 45247.
(2) A person is the beneficial owner of Common Shares if such person, directly
or indirectly, has sole or shared voting or investment power over such
shares directly or indirectly or has the right to acquire such voting or
investment power within 60 days. All Common Shares are owned directly with
sole voting and investment power, unless otherwise indicated by footnote.
All stock options granted under the 1988 Option Plan and the 1999 Option
Plan are currently exercisable.
(3) For each person, assumes a total of 4,405,214 shares outstanding, plus the
number of Common Shares such person may acquire pursuant to the 1988 Option
Plan and the 1999 Option Plan.
(Footnotes continue on next page)
3
<PAGE>
(4) Includes 103,000 Common Shares that may be acquired upon the exercise of
options; 39,588 Common Shares held for the benefit of Robert L. Bollin in
the Deferred Plan, the trustees of which are James W. Brigger, Robert L.
Bollin and Mary Ellen Lovett, executive officers of WFC; 35,829 Common
Shares held for the benefit of Robert L. Bollin in the ESOP; 1,360 Common
Shares held by the individual retirement account of Robert L. Bollin, the
trustee of which is Merrill Lynch; 36,080 Common Shares held jointly with
Mr. Bollin's spouse; 4,800 Common Shares held by A.G. Edwards, for the
benefit of Elaine Bollin; and 200 Common Shares held by Elaine Bollin as
custodian for Anthony Bollin; 9,728 shares held by A.G. Edwards in the
Robert J. Bollin Trust, for the benefit of Robert L. Bollin; and 29 shares
held for Elaine Bollin, Mr. Bollin's spouse, in the ESOP.
(5) Includes 57,500 Common Shares that may be acquired upon the exercise of
options; 51,600 Common Shares held jointly with Mr. Hoeweler's spouse;
39,800 Common Shares held in trust for the benefit of Brian Hoeweler; and
39,800 Common Shares held in trust for the benefit of Jennifer Hoeweler.
(6) Includes 17,500 Common Shares that may be acquired upon the exercise of an
option and 2,000 Common Shares held by Prudential Securities for the
benefit of Thomas H. and Marcia Humes.
(7) Includes 17,500 Common Shares that may be acquired upon the exercise of an
option and 1,000 Common Shares held by PaineWebber for the benefit of
Timothy M. Mooney.
(8) Includes 47,500 Common Shares that may be acquired upon the exercise of
options; 114,480 Common Shares held in the individual retirement account of
William J. Parchman, the trustee of which is Alex Brown & Sons, Inc.; and
14,095 Common Shares owned by Mr. Parchman's spouse.
(9) Includes 57,500 Common Shares that may be acquired upon the exercise of
options; 17,600 Common Shares owned by the Cathleen Schulhoff Trust,
Cathleen Schulhoff trustee, as to which Mr. Schulhoff disclaims beneficial
ownership; and 14,200 Common Shares owned by Schulhoff & Company, Inc., a
corporation of which Mr. Schulhoff is a major shareholder.
(10) Includes 17,500 Common Shares that may be acquired upon the exercise of an
option and 1,000 Common Shares held by Merrill Lynch for the benefit of J.
Clay Stinnett.
(11) Includes 469,000 Common Shares that may be acquired upon the exercise of
options and 115,994 Common Shares held in the ESOP.
PROPOSAL ONE - REELECTION OF DIRECTORS
The Regulations provide for a Board of Directors consisting of nine
persons, divided into three classes. Each class serves for a three-year period.
Each of the directors of WFC is also a director of Winton.
The entire Board of Directors of WFC acts as a nominating committee for
selecting nominees for election as directors. In accordance with Section 2.03 of
the Regulations, nominees for election as directors may be proposed only by the
directors or by a shareholder entitled to vote for directors if such shareholder
has submitted a written nomination to the Secretary of WFC by the later of the
February 1st immediately preceding the annual meeting of shareholders or the
sixtieth day before the first anniversary of the most recent annual meeting of
shareholders held for the election of directors. Each such written nomination
must state the name, age, business or residence address of the nominee, the
principal occupation or employment of the nominee, the number of Common Shares
owned either beneficially or of record by each such nominee and the length of
time such Common Shares have been so owned.
The Board of Directors proposes the reelection of the following
directors to terms which will expire in 2003:
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held Director Since
- ---- ---- ---------------- --------------
<S> <C> <C> <C>
Robert L. Bollin (2) 47 Director and President 1989
William J. Parchman 80 Director and 1989
Chairman of the Board
</TABLE>
(Footnotes on next page)
4
<PAGE>
(1) As of December 1, 1999.
(2) Robert L. Bollin, a director and the President of WFC, is a brother of
Gregory J. Bollin, a Vice President of WFC.
If any nominee is unable to stand for election, the Proxies will be
voted for such substitute as the Board of Directors recommends. At this time,
the Board of Directors knows of no reason why any nominee would be unable to
serve if elected. No shareholder may cumulate votes in the election of
directors. There are presently two vacancies on the Board of Directors. One
vacancy exists in the class of directors which will stand for election in
January 2000, which resulted from the decision of Donald G. Avery not to stand
for re-election in 1997, and one vacancy exists in the class of directors which
will stand for election in January 2001, which resulted from the death of Robert
J. Bollin.
The following directors will continue to serve after the Annual Meeting
for the terms indicated:
<TABLE>
<CAPTION>
Position(s) Director Term
Name Age (1) Held Since Expires
<S> <C> <C> <C> <C>
Robert E. Hoeweler 52 Director 1989 2002
Thomas H. Humes 50 Director 1996 2001
Timothy M. Mooney 52 Director 1996 2002
Henry L. Schulhoff 55 Director 1989 2001
J. Clay Stinnett 48 Director 1996 2002
</TABLE>
- -----------------------------
(1) As of December 1, 1999.
Robert L. Bollin has been the President and a director of Winton since 1988
and the President and a director of WFC since incorporation in November 1989.
Mr. Bollin joined Winton in 1969, initially working part time while completing a
degree in Business Management at Miami University. In 1979, he was promoted to
Secretary and Assistant Managing Officer of Winton, responsible for managing
Winton's accounting operations, developing and implementing Winton's investment
policy in consultation with the Board of Directors and managing the day-to-day
operations of Winton.
William J. Parchman has served as a director of Winton for 43 years. A
graduate of the University of Cincinnati, he received his law degree and was
admitted to the practice of law in Ohio in 1949. Mr. Parchman was the founder of
Parchman & Oyler Company Realtors which, at its peak, was Cincinnati's largest
residential real estate company. Mr. Parchman served as National Alumni
President of the University of Cincinnati and more recently as Chairman of the
Board of the University of Cincinnati Foundation. He was also a director of the
Cincinnati Metropolitan Housing Authority for 18 years, past president of the
Cincinnati Board of Realtors and President of Clovernook Country Club. Mr.
Parchman was the first recipient of the Carl H. Lindner Medal for Outstanding
Business Achievement presented by the College of Business Administration Alumni
Association, University of Cincinnati.
Robert E. Hoeweler was elected to the Board of Directors of Winton in 1988.
Mr. Hoeweler is a certified public accountant. Since 1972, Mr. Hoeweler has been
active in the management of a group of family-owned companies which includes
Aluminum Extruded Shapes, Inc.
Thomas H. Humes has served as President of Great Traditions Land and
Development Co., a real estate and land development company in Cincinnati, for
the past six years.
Timothy M. Mooney has served as Executive Vice President and Chief
Financial Officer of Kendle International Inc., a clinical research organization
in Cincinnati, since 1996. From 1994 to 1995, he served as Vice President, Chief
Financial Officer and Treasurer of The Future Now, Inc., a computer reseller
located in Cincinnati. From 1988 to 1994, Mr. Mooney served as Senior Vice
President and Chief Financial Officer of Hook-SupeRx, Inc., a retail drug store
chain.
Henry L. Schulhoff became a director of Winton in February 1988. Since
1976, Mr. Schulhoff has been the President of Schulhoff and Company, Inc., a
local investment counseling firm.
J. Clay Stinnett has served since 1993 as President and a director of J.R.
Concepts, Inc., a direct mail advertising company in Cincinnati. Prior to 1993,
Mr. Stinnett spent almost 20 years in the banking business, including serving as
President and Chief Operating Officer of PNC Bank, N.A. (formerly The Central
Trust Co., N.A.), until 1992.
5
<PAGE>
Meetings of Directors
The Board of Directors of WFC met 13 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1999. Each director
attended at least 75% of the aggregate of such meetings.
The Board of Directors of Winton met 13 times for regularly scheduled and
special meetings during the fiscal year ended September 30, 1999. Each director
attended at least 75% of the aggregate of such meetings.
Committees of Directors
The Board of Directors of WFC has no standing committees. Nominations for
election of directors are determined by the entire Board of Directors. See
"Election of Directors."
The committees of the Board of Directors of Winton includes an Audit
Committee, an Executive Committee, a Loan Committee, a Compensation Committee,
an ESOP Committee and a Stock Option Committee. Each director attended at least
75% of the aggregate of all meetings of each committee on which he served as a
regular member.
The members of Winton's Audit Committee are Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Audit Committee is to
communicate with WFC outside auditors and to recommend to the Board of Directors
a firm of accountants to serve as independent auditors for WFC. The Audit
Committee met once during the fiscal year ended September 30, 1999.
The members of the Executive Committee are Robert L. Bollin, Robert E.
Hoeweler, William J. Parchman and Henry L. Schulhoff. The function of the
Executive Committee is to examine, together with management, levels and methods
of investment, to review and evaluate alternative and additional investment
programs and to consider and establish interest rates on the various forms of
savings deposits and mortgage loans. The Executive Committee met 28 times during
the fiscal year ended September 30, 1999.
Winton's Loan Committee is comprised of William J. Parchman and Henry L.
Schulhoff. Robert L. Bollin serves as alternate. The function of the Loan
Committee is to approve loan applications and exercise the authority of the
Board of Directors when the Board is not in session, subject to certain
limitations. The Loan Committee met 34 times during the fiscal year ended
September 30, 1999.
Winton's Compensation Committee consists of Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett. The function of the Compensation Committee is to
confer with management and make recommendations to the Board of Directors
regarding the compensation of Winton's executive officers and employees. The
Compensation Committee met once during the fiscal year ended September 30, 1999.
The ESOP is administered by a committee of at least three directors
designated by the Board of Directors. The ESOP committee presently consists of
Timothy M. Mooney, Robert E. Hoeweler and William J. Parchman. The ESOP
Committee met once during the fiscal year ended September 30, 1999.
The Stock Option Committee is responsible for administering the stock
option plans, including interpreting the 1988 Option Plan and the 1999 Stock
Option Plan and awarding options pursuant to its terms. The Stock Option
Committee met three times during the fiscal year ended September 30, 1999. The
current members of the Stock Option Committee are Thomas H. Humes, Timothy M.
Mooney and J. Clay Stinnett.
6
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of WFC, other than those who are also directors:
<TABLE>
<CAPTION>
Name Age(1) Position(s) Held
<S> <C> <C>
Gregory J. Bollin 45 Vice President
Jill M. Burke 37 Treasurer and Chief
Financial Officer
James W. Brigger 51 Secretary
Mary Ellen Lovett 61 Vice President
</TABLE>
- -----------------------------
(1) As of December 1, 1999.
Gregory J. Bollin is a Vice President of WFC, a position he has held since
January 1994. Mr. Bollin also serves as Executive Vice President of Winton, a
position he has held since January 1993. Mr. Bollin served as Vice President of
Winton from 1988 until January 1993. Mr. Bollin is the brother of Robert L.
Bollin.
Jill M. Burke is the Treasurer and Chief Financial Officer of WFC, a
position she has held since 1989. Ms. Burke also serves as Treasurer and
Controller of Winton, a position she has held since 1989.
James W. Brigger is the Secretary of WFC, a position he has held since
1989. Mr. Brigger also serves as Vice President of Winton.
Mary Ellen Lovett is a Vice President of WFC, a position she has held since
January 1994. Ms. Lovett also serves as Senior Vice President of Winton, a
position she has held since January 1993. Ms. Lovett served as Vice President of
Winton from 1988 to May 1993.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation
WFC does not pay directors fees. Each director of Winton receives $12,000
annually for monthly meetings and $100 for each meeting attended of a committee
of the Board of Directors of Winton, except for meetings of the Executive
Committee for which members receive $200 per meeting.
Executive Compensation
WFC does not pay any compensation to its executive officers. Executive
officers of Winton are compensated by Winton for services rendered to Winton.
Except for the President, the Executive Vice President and the Treasurer and
Chief Financial Officer of Winton, no director or executive officer of WFC
received more than $100,000 in salary and bonus payments from Winton during the
year ended September 30, 1999.
7
<PAGE>
The following table sets forth certain information with respect to
compensation paid to the President and Executive Vice President of Winton:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Awards All Other
Options/SARs Compensation
Name and Principal Position Year Salary($) Bonus($) (#)(1) ($)
<S> <C> <C> <C> <C> <C>
Robert L. Bollin, President 1999 $173,327 $62,000 15,000 $7,725 (2)
1998 165,330 52,000 - 8,567 (2)
1997 158,599 16,000 - 8,352 (2)
Gregory J. Bollin, Executive 1999 $126,400 $44,000 10,000 $6,554 (3)
Vice President 1998 120,669 39,000 - 7,034 (3)
1997 115,569 13,000 - 6,293 (3)
Jill M. Burke, Treasurer 1999 $ 75,961 $30,000 10,000 $4,831 (4)
Chief Financial Officer 1998 64,300 17,000 - 4,102 (4)
1997 61,754 9,000 - 3,904 (4)
</TABLE>
- -----------------------------
(1) These figures represent the number of Common Shares underlying options
granted to the named individuals during the year indicated pursuant to the
1988 Option Plan the 1999 Option Plan. The outstanding options were
adjusted for the two 2-for-1 stock splits in the form of stock dividends
effective in 1993, 1994 and 1998. WFC has no restricted stock awards or
stock appreciation rights ("SARs").
(2) Consists of cash or stock contributions to the ESOP or the reallocation of
forfeited shares in the ESOP of $5,371, $6,157 and $6,202 allocated to Mr.
Robert L. Bollin's account and $2,354, $2,410 and $2,150 in matching
contributions to the Deferred Plan for Mr. Robert L. Bollin's account for
the years ended September 30, 1999, 1998 and 1997, respectively.
(3) Consists of cash or stock contributions to the ESOP or the reallocation of
forfeited shares in the ESOP of $5,371, $6,144 and $5,316 allocated to Mr.
Gregory J. Bollin's account and $1,183, $890 and $977 in matching
contributions to the Deferred Plan for Mr. Gregory J. Bollin's account for
the years ended September 30, 1999, 1998 and 1997, respectively.
(4) Consists of cash or stock contributions to the ESOP or the reallocation of
forfeited shares in the ESOP of $3,557, $2,882 and $2,925 allocated to Ms.
Burke's account and $1,274, $1,220 and $978 in matching contributions to
the Deferred Plan for Ms. Burke's account for the years ended September 30,
1999, 1998 and 1997, respectively.
8
<PAGE>
Option Plans
The following table sets forth information regarding the number and
value of unexercised options granted pursuant to the 1988 Option Plan and the
1999 Option Plan held by the persons listed in the Summary Compensation Table.
No stock appreciation rights have been granted under either the 1988 Option Plan
or the 1999 Option Plan.
<TABLE>
<CAPTION>
Aggregate Option/SAR Exercises in Last Fiscal Year and 9/30/99 Option/SAR Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs
Options/SARs at 9/30/99(#) at 9/30/99($) (1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert L. Bollin - - 103,000/ - $825,053/ -
Gregory J. Bollin - - 66,000/ - $526,615/ -
Jill M. Burke - - 36,000/ - $257,750/ -
</TABLE>
- ------------------------
(1) An option is "in-the-money" if the fair value of the underlying stock
exceeds the market price of the option. The figure represents the value of
such unexercised options, determined by multiplying the number of
unexercised options by the difference between the exercise price of such
options and the $14.9375 closing bid price for the Common Shares reported
by the American Stock Exchange ("AMEX"), on September 30, 1999.
Employment and Severance Agreements
WFC and Winton have entered into employment agreements with Robert L.
Bollin, President of WFC and Winton, and Gregory J. Bollin, Vice President of
WFC and Executive Vice President of Winton, which expire on April 30, 2001. Each
employment agreement has a term of three years and provides for an annual salary
of not less than $182,000 for Robert L. Bollin and $134,000 for Gregory J.
Bollin and an annual salary and performance review by the Board of Directors.
The employment agreements require the inclusion of Robert L. and Gregory J.
Bollin in any formally established employee benefit, bonus, pension and profit
sharing plans for which senior management personnel are eligible and also
provide for vacation and sick leave.
The employment agreements are terminable by WFC and Winton at any time.
If the employment of either Robert L. Bollin or Gregory J. Bollin is terminated
at any time during such three-year term for any reason other than "just cause"
(as defined in the agreements) or a change in control of WFC or Winton, he will
be entitled to receive his annual compensation for the remainder of the
three-year term of the agreement and a continuation of benefits substantially
equal to those being provided at the date of termination of employment until the
earliest to occur of the expiration of the term of the employment agreement or
the date on which the employee becomes employed full-time by another employer.
If such employment is terminated, or if the position or
responsibilities of the employee is changed, in connection with or within one
year of a change in control of WFC or Winton, he will be entitled to receive an
amount equal to his then current annual compensation, multiplied by three,
subject to reduction to the extent necessary to comply with certain provisions
of the Code and regulations of the Office of Thrift Supervision ("OTS").
Assuming employment termination in connection with such a change of control, the
maximum payment to Robert L. Bollin and Gregory J. Bollin would be $546,000 and
$402,000, respectively, or three times the greater of the minimum salary levels
in the agreements or the salary levels for fiscal 1999 reflected in the Summary
Compensation Table above.
WFC and Winton have also entered into a severance agreement with Jill
M. Burke, Treasurer and Chief Financial Officer of WFC, which terminates on May
22, 2000. The severance agreement provides that if Ms. Burke is terminated or if
her position or responsibilities are changed at any time before May 22, 2000,
she will be entitled to receive an amount equal to her then current annual
compensation, multiplied by two, subject to reduction to the extent necessary to
comply with certain regulations of the Code and the OTS. Assuming employment
termination in connection with such change in control, the maximum payment to
Ms. Burke would be $151,922, or two times her current annual salary.
9
<PAGE>
Personnel and Salary Committee Report on Executive Compensation
As a unitary savings and loan holding company, the business of WFC
consists principally of holding the stock of Winton. The functions of the
executive officers of WFC, who are also the executive officers of Winton,
pertain primarily to the operations of Winton. The executive officers receive
their compensation, therefore, from Winton, rather than from WFC. The
Compensation Committee of Winton has furnished the following report concerning
executive compensation:
Process for Determining Compensation
WFC has not paid any cash compensation to its executive officers since
its formation. All executive officers of WFC also currently hold positions with
Winton and receive cash compensation from Winton. Decisions on cash compensation
of Winton's executives are made by the three-member Compensation Committee of
Winton's Board of Directors.
The Compensation Committee reviews the compensation levels of the
executive officers, including the CEO, each year. The Compensation Committee
utilizes independent surveys of compensation of officers in the thrift industry,
taking into account comparable asset bases and geographic locations. The
Compensation Committee also assesses each particular executive officer's
contribution to WFC and Winton, the skills and experiences required by his/her
position and the potential of the executive officer. Based on the foregoing
factors, recommendations are made by the Compensation Committee to the Board of
Directors of Winton. Such recommendations are reviewed by the Board of Directors
of Winton, except that Board members who are also executive offices do not
participate in deliberations regarding their own respective compensation.
Compensation Policies toward Executive Officers Generally
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that will attract and
retain qualified executives and will reward individual performance, initiative
and achievement, while enhancing overall corporate performance and shareholder
value. The cash compensation program for executive officers consists of three
elements, a base salary component, a discretionary cash bonus, and an incentive
component payable under an incentive plan (the "Incentive Plan").
The objectives of the discretionary cash bonuses are to motivate and
reward the executive officers based on each individual's contribution to the
total performance of Winton and WFC and to reinforce a strong performance
orientation.
The objectives of the Incentive Plan are to motivate and reward the
executive officers in connection with the accomplishment of annual objectives of
Winton and WFC, to reinforce a strong performance orientation with
differentiation and variability in individual awards based on contribution to
annual and long range business results and to provide a competitive compensation
package which will attract, reward and retain individuals of the highest
quality. For the President and the Executive Vice President of Winton and the
President and Vice President of WFC, incentive awards are determined as a
percentage of gross income, which percentage is calculated utilizing a corporate
goal factor and a performance factor. The corporate goal factor is based upon
WFC's achievement of certain levels of earnings and a predetermined return on
equity. The performance factor is based upon the particular executive officer's
performance during the preceding year.
Determination of CEO's Compensation
The Compensation Committee based the compensation of Mr. Robert L.
Bollin in 1999 on the policies described above for executive officers. The
corporate profitability measurements considered were return on equity, net
income, earnings per share and return on assets. Additional corporate goals
considered were merger and acquisition activities, continued updating and
implementation of Winton's strategic plan and subsidiary oversight and progress.
The Compensation Committee believes that the level of compensation paid to Mr.
Robert L. Bollin in 1999 was fair and reasonable when compared with compensation
levels in the thrift industry reported in various independent surveys. The
compensation earned by Mr. Robert L. Bollin in 1999 reflects the significant
management and leadership responsibilities required of him and the effective
manner in which those responsibilities were fulfilled.
Submitted by the Compensation Committee of Winton's Board of Directors
Thomas H. Humes
Timothy M. Mooney
J. Clay Stinnett
10
<PAGE>
Personnel and Salary Committee Interlocks
During fiscal 1999, no member of the Compensation Committee was a
current or former executive officer or employee of WFC or Winton or had a
reportable business relationship with WFC or Winton.
Performance Graph
The following graph compares the cumulative total return on WFC's
common shares for the fiscal year ended September 30, 1999, with the cumulative
total return of the SNL Index, which is an index of banks whose shares are
traded on The New York Stock Exchange, AMEX or The Nasdaq Stock Market, and the
cumulative total return of the Standard and Poor's 500 for the same period.
[Total performance graph plotting points set forth below]
<TABLE>
<CAPTION>
Index 9/30/94 9/29/95 9/30/96 9/30/97 9/30/98 9/30/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Winton Financial Corp. 100.00 103.11 101.25 146.73 204.48 263.14
SNL Bank Index 100.00 130.92 167.00 255.82 243.60 274.75
S&P 500 Index 100.00 126.31 148.55 204.73 219.80 277.23
</TABLE>
Certain Transactions with Winton
Some of the directors and officers of WFC and Winton were customers of
and had transactions with Winton in the ordinary course of Winton's business
during the two years ended September 30, 1999. All loans and commitments to loan
included in such transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of the management of WFC, do not involve more than a normal risk of
collectibility or present other unfavorable features.
PROPOSAL TWO - SELECTION OF AUDITORS
The Board of Directors has selected Grant Thornton LLP ("Grant
Thornton") as the auditors of WFC for the current fiscal year and recommends
that the shareholders ratify the selection. Grant Thornton has audited the
11
<PAGE>
financial statements of WFC or Winton since 1985. Management expects that a
representative of Grant Thornton will be present at the Annual Meeting, will
have the opportunity to make a statement if he or she so desires and will be
available to respond to appropriate questions.
The Board of Directors recommends a vote FOR the ratification of the
selection of Grant Thornton as auditors for the current fiscal year.
PROPOSALS OF SECURITY HOLDERS AND OTHER MATTERS
Any proposals of qualified shareholders intended to be included in the
proxy statement for the 2001 Annual Meeting of Shareholders of WFC should be
sent to WFC by certified mail and must be received by WFC not later than August
30, 2000. In addition, if a shareholder intends to present a proposal at the
2001 Annual Meeting without including the proposal in the proxy materials
related to that meeting, and if the proposal is not received by November 13,
2000, then the proxies designated by the Board of Directors of WFC for the 2001
Annual Meeting of Shareholders of WFC may vote in their discretion on any such
proposal any shares for which they have been appointed proxies without mention
of such matter in the proxy statement or on the proxy card for such meeting.
Management knows of no other business which may be brought before the
Annual Meeting, including matters incident to the conduct of the Annual Meeting.
It is the intention of the persons named in the enclosed Proxy to vote such
Proxy in accordance with their best judgment on any other matters which may be
brought before the Annual Meeting.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO FILL IN, SIGN AND
RETURN THE PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
By Order of the Board of Directors
Cincinnati, Ohio Robert L. Bollin
December 17, 1999 President
12
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WINTON FINANCIAL
CORPORATION FOR THE WINTON FINANCIAL CORPORATION 2000 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 28, 2000
The undersigned shareholder of Winton Financial Corporation ("WFC"), an
Ohio corporation, hereby constitutes and appoints Timothy M. Mooney and J. Clay
Stinnett, or either of them, the Proxy or Proxies of the undersigned, with full
power of substitution and resubstitution, to vote at the Annual Meeting of
Shareholders of WFC to be held at Shuller's Wigwam, 6210 Hamilton Avenue,
Cincinnati, Ohio 45224 on January 28, 2000, at 10:00 a.m. (the "Annual
Meeting"), all of the shares of WFC which the undersigned is entitled to vote at
the Annual Meeting or at any adjournment thereof, on each of the following
proposals, all of which are described in the accompanying Proxy Statement:
1. The reelection of two directors:
[ ] FOR all nominees [ ] WITHHOLD authority to
listed below vote for all nominees
(except as marked to the listed below:
contrary below):
Robert L. Bollin
William J. Parchman
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below).
- -----------------------------------------------------------------------
2. The ratification of the selection of Grant Thornton LLP, as the Auditors of
WFC for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, upon such other business as may properly come before
the Annual Meeting.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. Unless otherwise specified, the shares will be
voted FOR proposals 1 and 2.
IMPORTANT: Please sign and date this Proxy on the reverse side
All Proxies previously given by the undersigned are hereby revoked. Receipt of
the Notice of the 2000 Annual Meeting of Shareholders of WFC and of the
accompanying Proxy Statement is hereby acknowledged.
Please sign exactly as your name appears on your Stock Certificate(s).
Executors, Administrators, Trustees, Guardians, Attorneys and Agents should give
their full titles.
- ---------------------------- ------------------------------
Signature Signature
Dated: _____________________ Dated: _______________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WFC. PLEASE SIGN,
DATE AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE U.S.A.
13
ACCOUNTANTS' CONSENT
We have issued our report dated November 19, 1999, accompanying the
consolidated financial statements of Winton Financial Corporation which are
incorporated within the Annual Report on Form 10-K for the year ended September
30, 1999. We hereby consent to the incorporation by reference of said report in
Winton's Form S-8 (333-34177) regarding the 1998 Stock Option Plan and Winton's
Form S-8 (333-42251) regarding Winton's 401(k) Plan.
/s/GRANT THORNTON LLP
Cincinnati, Ohio
December 31, 1999
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0
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0
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<INTEREST-DEPOSIT> 15,059
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<TABLE> <S> <C>
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0
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SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could because actual results to
differ material from those discussed in the statement. Winton Financial
Corporation desires to take advantage of the "safe harbor" provisions of the
Act. Certain information, particularly information regarding future economic
performance and finances and plans and objectives of management, contained or
incorporated by reference in Winton Financial Corporation's Annual Report on
Form 10-K for fiscal year 1998 is forward-looking. In some cases, information
regarding certain important factors that could cause actual results of
operations or outcomes of other events to differ materially from any such
forward-looking statement appear together with such statement. In addition,
forward-looking statement s are subject to other risks and uncertainties
affecting the financial institutions industry, including, but not limited to,
the following:
Interest Rate Risk
Winton Financial Corporation's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans and investments and interest expense on deposits and
borrowings. The interest income and interest expense of Winton Financial
Corporation change as the interest rates on mortgages, securities and other
assets and on deposits and other liabilities change. Interest rates may change
because of general economic conditions, the policies of various regulatory
authorities and other factors beyond Winton Financial Corporation's control. The
interest rates on specific assets and liabilities of Winton Financial
Corporation will change or "reprice" in accordance with the contractual terms of
the asset or liability instrument and in accordance with customer reaction to
general economic trends. In a rising interest rate environment, loans tend to
prepay slowly and new loans at higher rates increase slowly, while interest paid
on deposits increases rapidly because the terms to maturity of deposits tend to
be shorter than the terms to maturity or prepayment of loans. Such differences
in the adjustment of interest rates on assets and liabilities may negatively
affect Winton Financial Corporation income. Moreover, rising interest rates tend
to decrease loan demand in general, negatively affecting Winton Financial
Corporation income.
Possible Inadequacy of the Allowance for Loan Losses
The Winton Savings and Loan Co. maintains an allowance for loan losses based
upon a number of relevant factors, including, but not limited to, trends in the
level of nonperforming assets and classified loans, current and anticipated
economic conditions in the primary lending area, past loss experience, possible
losses arising from specific problem assets and changes in the composition of
the loan portfolio. While the Board of Directors of The Winton Savings and Loan
Co. believes that it uses the best information available to determine the
allowance for loan losses, unforeseen market conditions could result in material
adjustments, and net earnings could be significantly adversely affected if
circumstances differ substantially from the assumptions used in making the final
determination.
<PAGE>
Loans not secured by one- to four-family residential real estate are generally
considered to involve greater risk of loss than loans secured by one- to
four-family residential real estate due, in part, to the effects of general
economic conditions. The prepayment of multifamily residential and
nonresidential real estate loans generally depends upon the cash flow from the
operation of the property, which may be negatively affected by national and
local economic conditions that cause leases not to be renewed or that negatively
affect the operations of a commercial borrower. Construction loans may also be
negatively affected by such economic conditions, particularly loans made to
developers who do not have a buyer for a property before the loan is made. The
risk of default on consumer loans increases during periods of recession, higher
unemployment and other adverse economic conditions. When consumers have trouble
paying their bills, they are more likely to pay mortgage loans than consumer
loans, and the collateral securing such loans, if any, may decrease in value
more rapidly than the outstanding balance of the loan.
Competition
The Winton Savings and Loan Co. competes for deposits with other savings
associations, commercial banks and credit unions and issuers of commercial paper
and other securities, such as shares in money market mutual funds. The primary
factors in competing for deposits are interest rates and convenience of office
location. In making loans, The Winton Savings and Loan Co. competes with other
savings associations, commercial banks, consumer finance companies, credit
unions, leasing companies, mortgage companies and other lenders. Competition is
affected by, among other things, the general availability of lendable funds,
general and local economic conditions, current interest rate levels and other
factors which are not readily predictable. The size of financial institutions
competing with The Winton Savings and Loan Co. is likely to increase as a result
of changes in statutes and regulations eliminating various restrictions on
interstate and inter-industry branching and acquisitions. Such increased
competition may have an adverse effect upon Winton Financial Corporation.
Legislation and Regulation that may Adversely Affect The Winton Savings and Loan
Co. 's Earnings
The Winton Savings and Loan Co. is subject to extensive regulation by the Office
of Thrift Supervision (the "OTS") and the Federal Deposit Insurance Corporation
(the "FDIC") and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. As a savings and loan holding
company, Winton Financial Corporation is also subject to regulation and
examination by the OTS. Such supervision and regulation of The Winton Savings
and Loan Co. and Winton Financial Corporation are intended primarily for the
protection of depositors and not for the maximization of shareholder value and
may affect the ability of the company to engage in various business activities.
The assessments, filing fees and other costs associated with reports,
examinations and other regulatory matters are significant and may have an
adverse effect on Winton Financial Corporation's net earnings.
The FDIC is authorized to establish separate annual assessment rates for deposit
insurance of members of the Bank Insurance fund (the "BIF") and the Savings
Association Insurance Fund (the "SAIF") . The FDIC may increase assessment rates
for either fund if necessary to restore the fund's ratio of reserves to insured
deposits to the target level within a reasonable time and may decrease such
rates if such target level has been met. The FDIC has established a risk-based
assessment system for both SAIF and BIF members. Under such system, assessments
may vary depending on the risk the institution poses to its deposit insurance
fund. Such risk level is determined by reference to the institution's capital
level and the FDIC's level of supervisory concern about the institution.
<PAGE>
Specific References
In addition to the foregoing, some of the matters, which are addressed in the
Form 10-K and Forms 10-Q's filed by Winton Financial Corporation and contain
forward-looking statements, include the following.
Pending legislation or proposals regarding changes in charter or regulation.
Management's determination of the amount of the allowance for loan losses and
expectations regarding its adequacy.
Management's efforts to reduce the higher degree of risk in second mortgage,
multifamily residential real estate, developed building lot,
nonresidential real estate and construction loans.
Management's expectation that secondary market activities will continue to
increase if interest rates decline.
Management's efforts to manage delinquencies.
Management's efforts to manage interest rate risk.
Management's characterization of its competition.
Pending regulatory proposals.
Levels of deposit insurance assessments.
