FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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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
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WINTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 31-1303854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road, Cincinnati, Ohio 45247
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(Address of principal executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of August 11, 2000, the latest practicable date, 4,411,514 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 16 pages
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Winton Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 4
Consolidated Statements of 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 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 1,677 $ 1,647
Interest-bearing deposits in other financial institutions 793 434
------- -------
Cash and cash equivalents 2,470 2,081
Investment securities available for sale - at market 3,096 5,503
Investment securities held to maturity - at cost, approximate market
value of $17,932 and $16,774 at June 30, 2000 and September 30, 1999,
respectively 18,115 16,882
Mortgage-backed securities available for sale - at market 358 410
Mortgage-backed securities held to maturity - at cost, approximate
market value of $12,028 and $13,058 at June 30, 2000 and
September 30, 1999, respectively 12,536 13,533
Loans receivable - net 420,162 411,058
Loans held for sale - at lower of cost or market 3,601 2,492
Office premises and equipment - net 3,519 3,708
Real estate acquired through foreclosure 646 492
Federal Home Loan Bank stock - at cost 6,813 5,925
Accrued interest receivable 3,316 3,227
Prepaid expenses and other assets 561 433
Intangible assets - net 295 341
Prepaid federal income taxes - 193
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Total assets $475,488 $466,278
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $319,294 $312,072
Advances from the Federal Home Loan Bank 118,389 116,532
Accounts payable on mortgage loans serviced for others 812 838
Advance payments by borrowers for taxes and insurance 193 1,023
Other liabilities 1,562 1,990
Accrued federal income taxes 99 -
Deferred federal income taxes 1,613 1,683
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Total liabilities 441,962 434,138
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued and outstanding - -
Common stock - 18,000,000 shares without par value
authorized; 4,411,514 and 4,403,714 shares outstanding
at June 30, 2000 and September 30, 1999, respectively - -
Additional paid-in capital 9,969 9,917
Retained earnings - restricted 23,229 21,619
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 328 604
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Total shareholders' equity 33,526 32,140
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Total liabilities and shareholders' equity $475,488 $466,278
======= =======
</TABLE>
3
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
Nine months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income
Loans $25,058 $22,265 $8,490 $7,685
Mortgage-backed securities 586 676 195 208
Investment securities 906 891 289 291
Interest-bearing deposits and other 330 395 121 111
------ ------ ----- -----
Total interest income 26,880 24,227 9,095 8,295
Interest expense
Deposits 11,668 11,339 4,052 3,804
Borrowings 5,648 3,556 1,914 1,301
------ ------ ----- -----
Total interest expense 17,316 14,895 5,966 5,105
------ ------ ----- -----
Net interest income 9,564 9,332 3,129 3,190
Provision for losses on loans 83 145 38 98
------ ------ ----- -----
Net interest income after provision
for losses on loans 9,481 9,187 3,091 3,092
Other income
Gain on sale of mortgage loans 267 1,211 141 210
Mortgage-servicing fees 225 75 70 51
Gain on sale of investments 8 - 8 -
Gain on sale of real estate acquired through
foreclosure - 70 - 36
Other operating 476 489 165 160
------ ------ ----- -----
Total other income 976 1,845 384 457
General, administrative and other expense
Employee compensation and benefits 3,372 3,210 1,086 1,127
Occupancy and equipment 1,347 1,367 440 478
Franchise taxes 275 271 92 91
Federal deposit insurance premiums 125 133 39 45
Amortization of intangible assets 46 46 15 15
Advertising 259 197 67 60
Other operating 973 1,162 297 331
Merger-related expenses - 1,574 - 1,574
------ ------ ----- -----
Total general, administrative and other expense 6,397 7,960 2,036 3,721
------ ------ ----- -----
Earnings (loss) before income taxes 4,060 3,072 1,439 (172)
Federal income taxes
Current 1,315 1,152 457 (33)
Deferred 77 14 37 97
------ ------ ----- -----
Total federal income taxes 1,392 1,166 494 64
------ ------ ----- -----
NET EARNINGS (LOSS) $ 2,668 $ 1,906 $ 945 $ (236)
====== ====== ===== =====
EARNINGS (LOSS) PER SHARE
Basic $.61 $.43 $.21 $(.05)
=== === === ====
Diluted $.58 $.42 $.21 $(.05)
=== === === ====
Dividends per share $0.24 $0.219 $0.08 $0.075
==== ===== ==== =====
</TABLE>
4
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Nine months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net earnings (loss) $2,668 $1,906 $945 $(236)
Other comprehensive income (loss), net of tax:
Reclassification adjustment for realized gains included in
earnings, net of tax of $3 for the nine and three months
ended June 30, 2000 (5) - (5) -
Unrealized holding losses on securities during the period,
net of tax of $(145), $(110), $(66) and $(35) in the
respective periods (271) (213) (174) (68)
----- ----- --- ----
Comprehensive income (loss) $2,392 $1,693 $816 $(304)
===== ===== === ====
Accumulated comprehensive income $ 328 $ 377 $328 $ 377
===== ===== === ====
</TABLE>
5
<PAGE>
Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 2,668 $ 1,906
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments and
mortgage-backed securities 41 48
Amortization of deferred loan origination fees (36) (78)
Depreciation 405 396
Amortization of intangible assets 46 46
Gain on sale of mortgage loans (188) (1,022)
Provision for losses on loans 83 145
Loans disbursed for sale in the secondary market (36,777) (81,481)
Proceeds from sale of loans in the secondary market 35,856 85,726
Loss on merger-related disposition of office premises and equipment - 174
Gain on sale of real estate acquired through foreclosure - (70)
Gain on sale of investment securities (8) -
Federal Home Loan Bank stock dividends (345) (248)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (68) (13)
Accrued interest receivable on mortgage-backed securities 2 24
Accrued interest receivable on investments (23) 19
Prepaid expenses and other assets (128) 51
Accounts payable on mortgage loans serviced for others (26) (87)
Other liabilities (428) 586
Federal income taxes
Current 292 (419)
Deferred 77 14
------ ------
Net cash provided by operating activities 1,443 5,717
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 1,022 2,239
Proceeds from maturity of investment securities - 7,800
Proceeds from maturity of investment securities designated as
available for sale 500 100
Proceeds from sales of investment securities designated as available for sale 1,500 -
Purchase of investment securities designated held to maturity (1,255) (9,076)
Loan principal repayments 64,870 95,452
Loan disbursements (74,021) (152,531)
Proceeds from the sale of real estate acquired through foreclosure - 403
Purchase of office premises and equipment (202) (467)
Additions to real estate acquired through foreclosure (168) -
Purchase of Federal Home Loan Bank stock (543) (499)
------ ------
Net cash used in investing activities (8,297) (56,579)
------ ------
Net cash used in operating and investing
activities (balance carried forward) (6,854) (50,862)
------ ------
</TABLE>
6
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended June 30,
(In thousands)
2000 1999
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(6,854) $(50,862)
Cash flows from financing activities:
Net increase in deposit accounts 7,222 12,969
Proceeds from Federal Home Loan Bank advances 54,350 49,000
Repayment of Federal Home Loan Bank advances (52,493) (13,713)
Advances by borrowers for taxes and insurance (830) (625)
Proceeds from exercise of stock options 52 46
Dividends paid on common stock (1,058) (961)
------ -------
Net cash provided by financing activities 7,243 46,716
------ -------
Net increase (decrease) in cash and cash equivalents 389 (4,146)
Cash and cash equivalents at beginning of period 2,081 7,076
------ -------
Cash and cash equivalents at end of period $ 2,470 $ 2,930
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 1,027 $ 1,580
====== =======
Interest on deposits and borrowings $17,249 $ 14,699
====== =======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 168 $ 233
====== =======
Unrealized losses on securities designated as available for sale,
net of related tax effects $ (276) $ (213)
====== =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 79 $ 189
====== =======
</TABLE>
7
<PAGE>
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine month periods ended June 30, 2000 and 1999
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 ("Winton Financial" or the "Corporation")
included in the Annual Report on Form 10-K for the year ended September
30, 1999. However, all adjustments (consisting of only normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have been
included. The results of operations for the nine and three month
periods ended June 30, 2000, 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 its wholly-owned subsidiary, The Winton Savings
and Loan Co. ("Winton Savings" or the "Company"). All significant
intercompany items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("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.
8
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine month periods ended June 30, 2000 and 1999
3. Effects of Recent Accounting Pronouncements (continued)
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 could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
4. Earnings (Loss) Per Share
Basic earnings per share for the nine and three month periods ended
June 30, 2000 is computed based on 4,407,591 and 4,411,514
weighted-average shares outstanding, respectively.
Basic earnings (loss) per share for the nine and three month periods
ended June 30, 1999 is computed based on 4,393,052 and 4,396,591
weighted-average shares outstanding, 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 4,561,925 and 4,532,980 for the nine and three month
periods ended June 30, 2000, and 4,583,924 and 4,396,591 for the nine
and three month periods ended June 30, 1999, respectively.
Incremental shares related to the assumed exercise of stock options
included in the calculation of diluted earnings per share totaled
154,334 and 121,466 for the nine and three month periods ended June 30,
2000, and 190,872 for the nine month period ended June 30, 1999. There
were no incremental shares related to the assumed exercise of stock
options for the three month period ended June 30, 1999.
Options to purchase 193,000 and 134,000 shares of common stock with a
weighted-average exercise price of $12.55 and $13.25 were outstanding
at June 30, 2000 and 1999, respectively, but were excluded from the
computation of common share equivalents because their exercise prices
were greater than the average market price of the common shares.
9
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from September 30, 1999 to June 30,
2000
At June 30, 2000, the Corporation had total assets of $475.5 million, an
increase of approximately $9.2 million, or 2.0%, over the level at September 30,
1999. The growth in assets was funded by an increase in deposits of $7.2
million, an increase in Federal Home Loan Bank ("FHLB") advances of $1.9
million, or 1.6%, and undistributed net earnings of $1.6 million, which were
partially offset by a decrease in other liabilities of $428,000.
Cash and cash equivalents totaled $2.5 million at June 30, 2000, an increase of
$389,000, or 18.7%, over the balance at September 30, 1999. Investment
securities totaled approximately $21.2 million at June 30, 2000, a decrease of
approximately $1.2 million, or 5.2%, from September 30, 1999 levels, as sales of
securities designated as available for sale and maturities and called securities
of $2.0 million exceeded purchases of $1.3 million. Additionally, investment
securities designated as available for sale declined in market value by
approximately $400,000.
Mortgage-backed securities totaled approximately $12.9 million at June 30, 2000,
a decrease of approximately $1.0 million, or 7.5%, since September 30, 1999,
primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $423.8 million at June 30,
2000, an increase of approximately $10.2 million, or 2.5%, over the level at
September 30, 1999. The increase resulted primarily from loan originations of
$110.8 million, which were partially offset by loan sales of $35.6 million and
principal repayments of $64.9 million. Loan originations during the nine month
period ended June 30, 2000, were comprised predominately of one- to four-family
loans.
At June 30, 2000, the allowance for loan losses of Winton Savings totaled $1.0
million, an increase of $66,000 over the level maintained at September 30, 1999.
At June 30, 2000, the allowance represented approximately 0.23% of the total
loan portfolio and 101.42% of total nonperforming loans. Nonperforming loans
totaled $1.2 million and $246,000 at June 30, 2000 and September 30, 1999,
respectively. At June 30, 2000, the ratio of total nonperforming loans to total
loans amounted to 0.27% compared to 0.06% at September 30, 1999. It is
management's belief that such nonperforming loans are adequately collateralized
and no loss is anticipated. Although management believes that its allowance for
loan losses at June 30, 2000 is adequate based on the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect Winton
Financial's results of operations.
Deposits totaled $319.3 million at June 30, 2000, an increase of $7.2 million,
or 2.3%, over September 30, 1999 levels. Deposits declined during the first
fiscal quarter ended December 31, 1999, by $4.9 million and increased during the
second and third fiscal quarters by $12.1 million. The increase during the
second and third quarters resulted primarily from special certificates of
deposit offered at fifteen to twenty-four month maturities with yields between
7.00% and 7.25%.
Advances from the FHLB totaled $118.4 million at June 30, 2000, an increase of
$1.9 million, or 1.6%, over September 30, 1999 levels. Proceeds from advances
and deposit growth have generally been utilized to fund the growth in the loan
portfolio.
10
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 1999 to June 30,
2000 (continued)
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At June 30, 2000, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Nine Month Periods ended June 30, 2000
and 1999
General
The Corporation recorded net earnings for the nine months ended June 30, 2000,
totaling $2.7 million, compared to $1.9 million in net earnings for the same
period in 1999. In the 1999 fiscal third quarter, Winton recorded a one-time
after-tax charge of $1.2 million for costs associated with the BenchMark Federal
Savings Bank merger accounted for as a pooling-of-interests. Before
consideration of these merger costs, net earnings amounted to $3.1 million. The
decrease in earnings for the nine months ended June 30, 2000, compared to net
earnings for the same period in 1999, before merger related charges, of
$455,000, or 14.6%, resulted primarily from an $869,000 decline in other income,
an $11,000 increase in general, administrative and other expense and a $226,000
increase in the provision for federal income taxes, which were partially offset
by a $232,000 increase in net interest income and a $62,000 decline in the
provision for loan losses.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $2.7
million, or 11.8%, for the nine months ended June 30, 2000, compared to the same
period in 1999. The increase resulted primarily from a $44.0 million, or 11.3%,
increase in the weighted-average portfolio outstanding year to year, and a 4
basis point increase in yield, to 7.88% for nine months ended June 30, 2000.
Interest income on investment securities and interest-bearing deposits and other
decreased by $50,000, or 3.9%, for the nine months ended June 30, 2000, compared
to the same period in 1999. The decrease resulted primarily from a $1.1 million,
or 3.7%, decrease in the average balance outstanding for the nine months ended
June 30, 2000.
Interest expense on deposits increased by $329,000, or 2.9%, for the nine months
ended June 30, 2000, compared to the same period in 1999. The increase was
primarily attributable to a $3.1 million, or 1.0%, increase in the balance of
weighted-average deposits outstanding year to year and an increase in the
weighted-average cost of deposits during the periods, to 4.98% from 4.89% during
the nine month periods ended June 30, 2000 and 1999, respectively.
Interest expense on borrowings increased by $2.1 million, or 58.8%, during the
nine months ended June 30, 2000, compared to the same period in 1999, primarily
due to an increase of $37.6 million in the weighted-average balance of FHLB
advances outstanding, and an increase in weighted-average cost of FHLB advances
to 6.17% from 5.62% during the nine month periods ended June 30, 2000 and 1999,
respectively.
11
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods ended June 30, 2000
and 1999 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $232,000, or 2.5%, to $9.6 million for the nine
months ended June 30, 2000, compared to $9.3 million for the same period in
1999. The interest rate spread decreased by 21 basis points, to 2.42% for the
nine months ended June 30, 2000, while the net interest margin decreased by 21
basis points, to 2.75% for the nine months ended June 30, 2000, compared to
2.96% for the nine months ended June 30, 1999.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Company, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to the Company's loan portfolio, management elected to record an $83,000
provision for losses on loans during the nine-month period ended June 30, 2000,
compared to a provision of $145,000 recorded in the 1999 period. The current
period provision primarily reflects the growth in the loan portfolio year to
year. There can be no assurance that the allowance for loan losses of the
Company will be adequate to cover losses on nonperforming assets in the future.
Other Income
Other income decreased by $869,000, or 47.1%, for the nine months ended June 30,
2000, compared to the 1999 period, due to a $944,000, or 78.0%, decrease in gain
on sale of mortgage loans and the effects of a $70,000 gain on sale of real
estate acquired through foreclosure recorded in the 1999 period, which were
partially offset by an increase of $150,000 in mortgage servicing fees and a
gain on sale of investments of $8,000. The decrease in gain on sale of loans
resulted primarily from a $49.0 million, or 57.9%, decline in sales volume year
to year, due to the overall increase in interest rates during the period. The
increase in net mortgage servicing fees generally reflects the effects of a
reduction in amortization of capitalized mortgage servicing rights year to year.
General, Administrative and Other Expense
General, administrative and other expense increased by $11,000, or 0.2%, for the
nine months ended June 30, 2000, compared to the same period in 1999, excluding
the $1.6 million of one-time pre-tax merger related charges. The increase
consisted of a $162,000, or 5.0%, increase in employee compensation and benefits
expense and a $62,000, or 31.5%, increase in advertising expense, which were
partially offset by a $189,000, or 16.3%, decrease in other operating expenses
and a $20,000 decrease in occupancy and equipment. The increase in employee
compensation and benefits resulted primarily from a reduction in deferred salary
cost due to a decrease in loan production volume coupled with normal merit
increases. The decreases in occupancy and equipment and other operating expense
were attributable to efficiencies attained through the acquisition of BenchMark.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods ended June 30, 2000
and 1999 (continued)
Federal Income Taxes
The provision for federal income taxes amounted to $1.4 million for the nine
months ended June 30, 2000, an increase of $226,000, or 19.4%, over the same
period in 1999. The increase resulted primarily from a $988,000, or 32.2%,
increase in pretax earnings, coupled with the effects of nondeductible
merger-related expenses included in the 1999 period. The effective tax rates
were 34.3% and 38.0% for the nine month periods ended June 30, 2000 and 1999,
respectively.
Comparison of Operating Results for the Three Month Periods ended June 30, 2000
and 1999
General
The Corporation recorded net earnings for the three months ended June 30, 2000,
totaling $945,000, compared to a net loss of $236,000 for the same period in
1999. In the 1999 fiscal third quarter, Winton recorded a $1.2 million one-time
after-tax charge associated with the BenchMark Federal Savings Bank merger.
Before consideration of the merger related costs, net earnings amounted to
$981,000 for the quarter ended June 30, 1999. The decreased earnings resulted
primarily from a $73,000 decrease in other income and a $61,000 decrease in net
interest income, which were partially offset by a $111,0000 decrease in general,
administrative and other expense, and a $60,000 decrease in the provision for
loan losses.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $792,000,
or 10.0%, for the three months ended June 30, 2000, compared to the same period
in 1999. The increase resulted primarily from a $28.7 million, or 7.0%, increase
in the weighted-average balance outstanding and a 21 basis point increase in
average yield, to 7.95% for the three months ended June 30, 2000.
Interest income on investment securities and interest-bearing deposits and other
increased by $8,000, or 2.0%, for the three months ended June 30, 2000, compared
to the same quarter in 1999. The increase resulted from an increase in yield of
20 basis points, to 5.68% for the three months ended June 30, 2000. The average
balance declined by $484,000, period to period.
Interest expense on deposits increased by $248,000, or 6.5%, for the three
months ended June 30, 2000 compared to the same period in 1999. The increase was
primarily attributable to a $397,000 increase in weighted-average deposits
outstanding, coupled with a 31 basis point increase in the weighted-average rate
year to year. The weighted-average cost of deposits increased during the period,
amounting to 5.13% and 4.82% for the three months ended June 30, 2000 and 1999,
respectively.
Interest expense on borrowings increased by $613,000, or 47.1%, during the three
months ended June 30, 2000, compared to the same period in 1999, primarily due
to an increase of $24.6 million, or 25.6%, in the weighted-average balances of
FHLB advances outstanding, coupled with an increase in the weighted-average cost
of FHLB advances, to 6.35% from 5.43% during the three month periods ended June
30, 2000 and 1999, respectively.
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 June 30, 2000
and 1999 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $61,000, or 1.9%, to $3.1 million for the three
months ended June 30, 2000, compared to the same period in 1999. The interest
rate spread decreased by 27 basis points, to 2.35% for the three months ended
June 30, 2000, while the net interest margin decreased by 23 basis points, to
2.69% for the three months ended June 30, 2000, compared to 2.92% for the three
months ended June 30, 1999.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Company, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to the Company's loan portfolio, management elected to record a $38,000
provision for losses on loans during the three-month period ended June 30, 2000,
compared to a provision of $98,000 recorded in the 1999 period. The current
period provision reflects the growth in the loan portfolio year to year. There
can be no assurance that the allowance for loan losses of the Company will be
adequate to cover losses on nonperforming assets in the future.
Other Income
Other income decreased by $73,000, or 16.0%, for the three months ended June 30,
2000, compared to the 1999 period, primarily due to a $69,000, or 32.9%,
decrease in gain on sale of mortgage loans, coupled with the effects of a
$36,000 gain on sale of real estate acquired through foreclosure recorded in the
1999 period, which were partially offset by a $19,000 increase in mortgage
servicing fees, an $8,000 increase in gain on sale of investments and a $5,000
increase in other operating income.
General, Administrative and Other Expense
General, administrative and other expense decreased by $111,000, or 5.2%, for
the three months ended June 30, 2000, compared to the same period in 1999,
excluding the $1.6 million of one-time pre-tax merger related charges. The
decrease consisted of a $41,000, or 3.6%, decline in employee compensation and
benefits, a $38,000 decrease in occupancy and equipment and a $34,000 decrease
in other operating expenses. The decline in employee compensation and benefits
was attributable to the decrease in staffing levels year to year following the
BenchMark merger, which was partially offset by a decline in deferred salary
expense attendant to the decrease in loan origination volume. The decrease in
occupancy and equipment and other operating expense generally reflects the
efficiencies gained through the BenchMark merger.
Federal Income Taxes
The provision for federal income taxes amounted to $494,000 for the three months
ended June 30, 2000, an increase of $430,000 over the same period in 1999. The
increase resulted primarily from a $1.6 million increase in pretax earnings,
which was partially offset by the effects of nondeductible merger expenses
recorded in the 1999 quarter. The effective tax rates were 34.3% and 37.2% for
the three month periods ended June 30, 2000 and 1999, respectively.
14
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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
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for the Nine
Months Ended June 30, 2000
(b) Reports on Form 8-K: None.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000 By: /s/Robert L. Bollin
---------------------------- ------------------------
Robert L. Bollin
President
Date: August 11, 2000 By: /s/Jill M. Burke
---------------------------- ------------------------
Jill M. Burke
Chief Financial Officer
16
