FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-18993
WINTON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1303854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road
Cincinnati, Ohio 45247
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
As of February 8, 1999, the latest practicable date, 4,015,304 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 18 pages
<PAGE>
Winton Financial Corporation and Subsidiary
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Other Comprehensive
Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II - OTHER INFORMATION 16
SIGNATURES 17
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, September 30,
ASSETS 1998 1998
<S> <C> <C>
Cash and due from banks $ 1,478 $ 1,607
Interest-bearing deposits in other financial institutions 1,306 2,607
------- -------
Cash and cash equivalents 2,784 4,214
Investment securities available for sale - at market 5,405 5,579
Investment securities - at cost, approximate market
value of $15,858 and $15,185 at December 31,
1998 and September 30, 1998 15,636 14,858
Mortgage-backed securities available for sale - at market 517 565
Mortgage-backed securities - at cost, approximate market
value of $11,834 and $12,266 at December 31,
1998 and September 30, 1998 11,859 12,418
Loans receivable - net 318,357 297,055
Loans held for sale - at lower of cost or market 6,344 8,253
Office premises and equipment - net 2,940 2,945
Real estate acquired through foreclosure 491 495
Federal Home Loan Bank stock - at cost 4,104 4,033
Accrued interest receivable on loans 2,325 2,407
Accrued interest receivable on mortgage-
backed securities 86 91
Accrued interest receivable on investments 257 285
Prepaid expenses and other assets 401 488
Intangible assets - net 386 402
Prepaid federal income taxes - 105
------- -------
Total assets $371,892 $354,193
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $264,186 $266,007
Advances from the Federal Home Loan Bank 74,882 56,899
Accounts payable on mortgage loans serviced for others 910 912
Advance payments by borrowers for taxes and insurance 1,161 610
Other liabilities 1,220 1,342
Accrued federal income taxes 501 -
Deferred federal income taxes 1,385 1,531
------- -------
Total liabilities 344,245 327,301
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued - -
Common stock - 5,000,000 shares without par value
authorized; 4,015,304 and 4,014,304 shares issued and outstanding - -
Additional paid-in capital 8,789 8,782
Retained earnings - substantially restricted 18,318 17,520
Unrealized gains on securities designated as available for sale, net 540 590
------- -------
Total shareholders' equity 27,647 26,892
------- -------
Total liabilities and shareholders' equity $371,892 $354,193
======= =======
</TABLE>
3
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 31,
(In thousands, except share data)
1998 1997
<S> <C> <C>
Interest income
Loans $6,275 $5,952
Mortgage-backed securities 189 230
Investment securities 299 262
Interest-bearing deposits and other 136 61
----- -----
Total interest income 6,899 6,505
Interest expense
Deposits 3,355 3,243
Borrowings 903 783
----- -----
Total interest expense 4,258 4,026
----- -----
Net interest income 2,641 2,479
Provision for losses on loans 23 -
----- -----
Net interest income after provision
for losses on loans 2,618 2,479
Other income
Gain on sale of mortgage loans 674 247
Mortgage servicing fees (8) 94
Other operating 156 103
----- -----
Total other income 822 444
General, administrative and other expense
Employee compensation and benefits 829 740
Occupancy and equipment 362 310
Federal deposit insurance premiums 37 37
Franchise taxes 78 68
Amortization of intangible assets 16 15
Advertising 62 48
Other operating 385 241
----- -----
Total general, administrative and other expense 1,769 1,459
----- -----
Earnings before income taxes 1,671 1,464
Federal income taxes
Current 691 541
Deferred (120) (37)
----- -----
Total federal income taxes 571 504
----- -----
NET EARNINGS $1,100 $ 960
===== =====
EARNINGS PER SHARE
Basic $.27 $.24
=== ===
Diluted $.26 $.23
=== ===
DIVIDENDS PAID PER COMMON SHARE $.0750 $.0625
===== =====
</TABLE>
4
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
For the three months ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Net earnings $1,100 $ 960
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (50) 145
----- -----
Comprehensive income $1,050 $1,105
===== =====
</TABLE>
5
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,100 $ 960
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on investment and
mortgage-backed securities 10 10
Amortization of deferred loan origination fees (33) (90)
Depreciation and amortization 110 99
Amortization of intangible assets 16 15
Provision for losses on loans 23 -
Gain on sale of mortgage loans (535) (214)
Loans originated for sale in the secondary market (38,002) (18,774)
Proceeds from sale of loans in the secondary market 40,446 16,171
Federal Home Loan Bank stock dividends (71) (54)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 82 60
Accrued interest receivable on mortgage-backed securities 5 3
Accrued interest receivable on investments 28 1
Prepaid expenses and other assets 87 29
Accounts payable on mortgage loans serviced for others (2) 11
Other liabilities (122) (35)
Federal income taxes
Current 606 180
Deferred (120) (37)
------ ------
Net cash provided by (used in) operating activities 3,628 (1,665)
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 598 483
Proceeds from the maturity of investment securities 2,100 3,500
Purchase of investment securities designated as held to maturity (2,781) (4,008)
Purchase of investment securities designated as available for sale - (748)
Loan principal repayments 30,383 20,869
Loan disbursements (51,675) (23,019)
Sale of loan participations - 2,499
Purchase of office premises and equipment (101) (113)
------ ------
Net cash used in investing activities (21,476) (537)
------ ------
Net cash used in operating and investing
activities (balance carried forward) (17,848) (2,202)
------ ------
</TABLE>
6
<PAGE>
<TABLE>
Winton Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended December 31,
(In thousands)
1998 1997
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(17,848) $(2,202)
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (1,821) 7,753
Repayments of Federal Home Loan Bank advances (17) (13,016)
Proceeds from Federal Home Loan Bank advances 18,000 9,000
Advances by borrowers for taxes and insurance 551 364
Proceeds from exercise of stock options 7 261
Dividends paid on common stock (302) (252)
------- ------
Net cash provided by financing activities 16,418 4,110
------- ------
Net increase (decrease) in cash and cash equivalents (1,430) 1,908
Cash and cash equivalents at beginning of period 4,214 2,786
------- ------
Cash and cash equivalents at end of period $ 2,784 $ 4,694
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 85 $ 300
======= ======
Interest on deposits and borrowings $ 4,144 $ 3,942
======= ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ (50) $ 145
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 139 $ 33
======= ======
</TABLE>
7
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended December 31, 1998 and 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
Accordingly, these financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Winton
Financial Corporation (the "Corporation" or "Winton Financial")
included in the Annual Report on Form 10-K for the year ended September
30, 1998. However, all adjustments (consisting of only normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have been
included. The results of operations for the three month period ended
December 31, 1998, are not necessarily indicative of the results which
may be expected for the entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Winton Financial and The Winton Savings and Loan Co. (the "Company"
or "Winton Savings"). All significant intercompany items have been
eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It
does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on Winton Financial's financial position or
results of operations.
8
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
3. Effects of Recent Accounting Pronouncements (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly
changes the way that public business enterprises report information
about operating segments in annual financial statements and requires
that those enterprises report selected information about reportable
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information
about the way that management organizes the segments within the
enterprise for making operating decisions and assessing performance.
For many enterprises, the management approach will likely result in
more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable
segment than is presently being reported in annual financial statements
and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material impact on Winton Financial's financial position or results
of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to
recognize all derivatives in their financial statements as either
assets or liabilities measured at fair value. SFAS No. 133 also
specifies new methods of accounting for hedging transactions,
prescribes the items and transactions that may be hedged, and specifies
detailed criteria to be met to qualify for hedge accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and
can be settled net or by delivery of an asset that is readily
convertible to cash. SFAS No. 133 applies to derivatives embedded in
other contracts, unless the underlying of the embedded derivative is
clearly and closely related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. On adoption, entities are permitted to transfer held-to-maturity
debt securities to the available-for-sale or trading category without
calling into question their intent to hold other debt securities to
maturity in the future. SFAS No. 133 is not expected to have a material
impact on Winton Financial's financial position or results of
operations.
The foregoing discussion of the effects of recent accounting
pronouncements contains forward-looking statements that involve risks
and uncertainties. Changes in economic circumstances could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
9
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
4. Year 2000 Compliance Issues
The Year 2000 issue is a serious operational problem which is
widespread and complex, affecting all industries. The Federal Financial
Institution Examination Council (the "FFIEC"), representing the views
of each of the primary financial institution regulators, has focused on
the risk that programming codes in existing computer systems will fail
to properly recognize the new millennium when it occurs in the year
2000. Winton Savings is addressing the potential problems associated
with the possibility that the computers which control or operate the
Company's operating systems may not be programmed to read four-digit
date codes and, upon arrival of the year 2000, may recognize the
two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data. Other concerns have been raised
regarding February 29, 2000, as well as September 9, 1999, which are
new calculation challenges that may result in further problems.
Most significantly affected are all forms of financial accounting,
including interest computations, due dates, pensions, personnel
benefits, investments, legal commitments, valuations, fixed asset
depreciation schedules, tax filings and financial models. Additional
problems may occur on other systems using computers for processing,
vault openings, check protectors and gas and electric. The total impact
is currently unknown; however, it is projected that failure to address
these programming code issues and make appropriate changes may expose
an institution to all types of risks, including credit, transaction,
liquidity, interest rate, compliance, reputation, strategic, price and
foreign exchange.
Winton Savings has established a Year 2000 team, headed by its systems
analyst, to analyze the risk of potential problems that might arise
from the failures of computer programming to recognize the year 2000
and to develop a plan to mitigate any such risk. Research by the team
indicates that the greatest potential impact upon Winton Savings is the
risk related to vendors used by Winton Savings, particularly the
Company's data processing service bureau. Quarterly progress reports
from the service bureau indicated levels of manpower and expertise
sufficient to amend and test the adequacy of its computer programming
and systems prior to the arrival of the year 2000. All other vendors
and commercial customers have been identified and requests for year
2000 certificates have been forwarded by Winton Savings.
The year 2000 team submits quarterly progress reports to the Board of
Directors and continues to perform all required internal testing of
each system utilized, which is expected to be minimal. The team
estimates that the impact upon the Company's results of operations,
liquidity and capital resources will be immaterial.
10
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended December 31, 1998 and 1997
4. Year 2000 Compliance Issues (continued)
Management has developed a contingency plan which includes manual
procedures along with certain off-line canned programs. Management has
set a budget of approximately $100,000, of which approximately $25,000
has been expensed at December 31, 1998, to ensure Winton Financial and
Winton Savings are year 2000 compliant.
In addition, financial institutions may experience increases in problem
loans and credit losses in the event that borrowers fail to prepare
properly for Year 2000, and higher funding costs could result if
consumers react to publicity about the issue by withdrawing deposits.
Winton Savings is assessing such risks among its customers. WFC could
also be materially adversely affected if other third parties, such as
governmental agencies, clearing houses, telephone companies, utilities
and other service providers fail to prepare properly. Winton Savings is
therefore attempting to assess these risks and take action to minimize
their effect.
5. Earnings Per Share
Basic earnings per share for the three month period ended December 31,
1998 is computed based on 4,014,847 weighted-average shares
outstanding.
Basic earnings per share for the three month period ended December 31,
1997, is computed based on 4,007,738 weighted-average shares
outstanding.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued
under the Corporation's stock option plan. Weighted-average common
shares deemed outstanding for purposes of computing diluted earnings
per share totaled 4,196,039 for the three month period ended December
31, 1998, and 4,138,807 for the three month period ended December 31,
1997, respectively.
Basic and diluted earnings per share for the three month period ended
December 31, 1997 have been restated to give effect to the
Corporation's two-for-one stock split which was effected on March 31,
1998.
11
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
In the following pages, management presents an analysis of the Corporation's
financial condition as of December 31, 1998, and the results of operations for
the three month period ended December 31, 1998, compared to the same period in
1997. In addition to this historical information, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, Winton Financial's operations and Winton Financial's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and in Winton Financial's general market area.
Without limiting the foregoing, some of the statements in the following
referenced sections of this discussion and analysis are forward looking and are,
therefore, subject to such risks and uncertainties.
1. Management's determination of the amount and adequacy of the allowance for
loan losses as set forth under "Discussion of Changes in Financial
Condition from September 30, 1998 to December 31, 1998" and "Comparison of
Results of Operations for the Three Months Ended December 31, 1998 and
1997."
2. Management's determination of the effects of the year 2000 on Winton
Financial's information technology systems as set forth under "Year 2000
Compliance Issues."
3. Management's estimate as to the effects of recent accounting pronouncements
as set forth under "Effects of Recent Accounting Pronouncements."
Discussion of Financial Condition Changes from September 30, 1998 to
December 31, 1998
At December 31, 1998, the Corporation had total assets of $371.9 million, an
increase of approximately $17.7 million, or 5.0%, over the level at September
30, 1998. The growth in assets was funded primarily by an increase in Federal
Home Loan Bank advances of $18.0 million and undistributed net earnings of
$798,000, partially offset by a decrease of $1.8 million in deposits.
Investment securities totaled approximately $21.0 million at December 31, 1998,
an increase of approximately $604,000, or 3.0%, over September 30, 1998 levels,
as purchases of $2.8 million exceeded maturities and called securities of $2.1
million during the period.
Mortgage-backed securities totaled approximately $12.4 million at December 31,
1998, a decrease of approximately $607,000, or 4.7%, since September 30, 1998,
primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $324.7 million at December 31,
1998, an increase of approximately $19.4 million, or 6.4%, over the level at
September 30, 1998. Proceeds from loan sales increased by $24.3 million during
the current period to $40.4 million, loan originations totaled $89.7 million and
principal repayments amounted to $30.4 million.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 1998 to December
31, 1998 (continued)
At December 31, 1998, the allowance for loan losses of Winton Savings totaled
$865,000, an increase of $23,000 from the level maintained at September 30,
1998. At December 31, 1998, the allowance represented approximately .25% of the
total loan portfolio and 64% of total nonperforming loans. At December 31, 1998,
the ratio of total nonperforming loans to total loans amounted to .40% as
compared to .35% at September 30, 1998. Although management believes that its
allowance for loan losses at December 31, 1998 is adequate based on the
available facts and circumstances, there can be no assurance that additions to
such allowance will not be necessary in future periods, which could adversely
affect Winton Financial's results of operations.
Deposits totaled $264.2 million at December 31, 1998, a decrease of $1.8
million, or .7%, from September 30, 1998 levels. The decrease in deposits was
primarily the result of management's decision not to renew brokered
certificates. Such brokered deposits totaled $23.7 million and $28.5 million at
December 31, 1998 and September 30, 1998, respectively.
Advances from the Federal Home Loan Bank totaled $74.9 million at December 31,
1998, an increase of $18.0 million, or 31.6%, over September 30, 1998 levels.
Proceeds from such advances have generally been utilized to fund the growth in
the loan portfolio.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At December 31, 1998, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997
General
Net earnings totaled $1.1 million for the three months ended December 31, 1998,
compared to $960,000 for the same period in 1997, an increase of $140,000, or
14.6%. The increased earnings resulted primarily from a $162,000, or 6.5%,
increase in net interest income and a $378,000 increase in other income, which
were partially offset by an increase of $23,000 in the provision for losses on
loans, a $310,000, or 21.2%, increase in general, administrative and other
expense, and a $67,000, or 13.3%, increase in the provision for federal income
taxes.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $282,000,
or 4.6%, for the three months ended December 31, 1998, compared to the same
period in 1997. The increase resulted primarily from a $28.3 million increase in
the weighted-average portfolio outstanding year to year, offset by a 39 basis
point decrease in yield, to 7.99% for three months ended December 31, 1998.
13
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997 (continued)
Net Interest Income (continued)
Interest income on investment securities and interest-bearing deposits and other
increased by $112,000, or 34.7%, for the three months ended December 31, 1998,
compared to the comparable period in 1997. The increase resulted from a $6.2
million increase in the average balance outstanding, and an increase in yield,
to 6.26% for the three months ended December 31, 1998.
Interest expense on deposits increased by $112,000, or 3.5%, for the three
months ended December 31, 1998 compared to the comparable period in 1997. The
increase was primarily attributable to a $19.8 million increase in
weighted-average deposits outstanding year to year. The weighted-average cost of
deposits decreased during the periods, amounting to 5.07% and 5.30% for the
three months ended December 31, 1998 and 1997, respectively.
Interest expense on borrowings increased by $120,000, or 15.3%, during the three
months ended December 31, 1998, compared to the same period in 1997, primarily
due to an increase of $9.7 million in the weighted-average balances of Federal
Home Loan Bank advances outstanding, while the weighted-average cost of Federal
Home Loan Bank advances decreased to 5.81% from 5.97% during the three month
periods ended December 31, 1998 and 1997.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $162,000, or 6.5%, to a total of $2.6 million
for the three months ended December 31, 1998, compared to the same period in
1997. The interest rate spread decreased by 16 basis points, to 2.64% for the
three months ended December 31, 1998, while the net interest margin decreased by
12 basis points, to 3.01% for the three months ended December 31, 1998, compared
to 3.13% for the comparable period in 1997.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, and general
economic conditions, particularly as such conditions relate to the Company's
loan portfolio. As a result of such analysis, management elected to record a
$23,000 provision for loan losses during the three-month period ended December
31, 1998. There can be no assurance that the allowance for loan losses of the
Company will be adequate to cover losses on nonperforming assets in the future.
Other Income
Other income increased by $378,000, or 85.1%, for the three months ended
December 31, 1998, compared to the 1997 period, primarily due to an increase of
$427,000, or 172.9%, in gain on sale of mortgage loans and a $53,000, or 51.5%,
increase in other income, which were partially offset by a $102,000, or 108.5%,
decrease in mortgage servicing fees.
14
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended December 31,
1998 and 1997 (continued)
General, Administrative and Other Expense
General, administrative and other expense increased by $310,000, or 21.2%, for
the three months ended December 31, 1998, compared to the same period in 1997.
The increase consisted primarily of a $89,000, or 12.0%, increase in employee
compensation and benefits, a $52,000, or 16.8%, increase in occupancy and
equipment, a $10,000, or 14.7%, increase in franchise taxes, a $14,000, or
29.2%, increase in advertising expense and a $144,000, or 59.8%, increase in
other operating expenses. The increase in employee compensation and benefits
resulted primarily from increased staffing levels coupled with normal merit
increases, which were partially offset by an increase in deferred loan
origination costs due to the increased lending volume. The increase in occupancy
and equipment expense resulted from costs associated with the new loan
production office location in Western Hills. The increase in other operating
expense resulted primarily from an increase in computer technology costs along
with additional training expense related to implementation of new loan software
which will streamline the loan production process, coupled with costs related to
the year 2000 compliance initiative.
Federal Income Taxes
The provision for federal income taxes amounted to $571,000 for the three months
ended December 31, 1998, an increase of $67,000, or 13.3%, over the same period
in 1997. The increase resulted primarily from a $207,000, or 14.1%, increase in
pretax earnings. The effective tax rates were 34.2% and 34.4% for the three
month periods ended December 31, 1998 and 1997, respectively.
15
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Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On January 29, 1999, the Annual Meeting of the Shareholders of
Winton Financial Corporation was held. Three directors were
nominated for re-election and were re-elected for terms
expiring in 2002, pursuant to the following respective votes:
Robert E. Hoeweler For: 3,565,939 Withheld: 23,200
Timothy M. Mooney For: 3,565,739 Withheld: 23,400
J. Clay Stinnett For: 3,565,739 Withheld: 23,400
Three other matters were voted upon by the shareholders, as follows:
1) Ratification of amendment to the amended Articles of
Incorporation of Winton Financial Corporation to increase the
authorized number of shares from 7,000,000 to 20,000,000,
18,000,000 of which will be common shares, each without par
value, and 2,000,000 of which will be preferred shares, each
without par value.
For: 3,315,077 Against: 234,601 Abstain: 39,460
2) Ratification of the Winton Financial Corporation 1999 Stock
Option and Incentive Plan:
For: 2,587,406 Against: 267,324 Abstain: 52,978
3) Ratification of the selection of Grant Thornton LLP as the
auditors of Winton Financial Corporation for the current fiscal
year, pursuant to the following vote:
For: 3,515,951 Against: 68,548 Abstain: 4,640
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
On December 14, 1998, Winton Financial filed a Form 8-K reporting in
Item 5 that it had signed an Agreement and Plan of Reorganization with
BenchMark Federal Savings Bank which provided for the merger of
BenchMark into Winton Savings.
Exhibits
27: Financial Data Schedule for the Three Months
Ended December 31, 1998.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 1999 By: /s/Robert L. Bollin
Robert L. Bollin
President
Date: February 9, 1999 By: /s/Jill M. Burke
Jill M. Burke
Chief Financial Officer
17
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