FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
-------------------------------------
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 executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of May 11, 2000, the latest practicable date, 4,411,414 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 17 pages
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Winton Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 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 11
PART II - OTHER INFORMATION 16
SIGNATURES 17
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, September 30,
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 1,617 $ 1,647
Interest-bearing deposits in other financial institutions 4,043 434
------- -------
Cash and cash equivalents 5,660 2,081
Investment securities available for sale - at market 4,862 5,503
Investment securities held to maturity - at cost, approximate market
value of $17,891 and $16,774 at March 31, 2000 and September 30, 1999,
respectively 18,122 16,882
Mortgage-backed securities available for sale - at market 377 410
Mortgage-backed securities held to maturity - at cost, approximate
market value of $12,397 and $13,058 at March 31, 2000 and
September 30, 1999, respectively 12,885 13,533
Loans receivable - net 421,369 411,058
Loans held for sale - at lower of cost or market 1,999 2,492
Office premises and equipment - net 3,623 3,708
Real estate acquired through foreclosure 591 492
Federal Home Loan Bank stock - at cost 6,690 5,925
Accrued interest receivable 3,179 3,227
Prepaid expenses and other assets 759 433
Intangible assets - net 310 341
Prepaid federal income taxes 136 193
------- -------
Total assets $480,562 $466,278
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $310,408 $312,072
Advances from the Federal Home Loan Bank 132,056 116,532
Accounts payable on mortgage loans serviced for others 833 838
Advance payments by borrowers for taxes and insurance 915 1,023
Other liabilities 1,532 1,990
Deferred federal income taxes 1,705 1,683
------- -------
Total liabilities 447,449 434,138
Shareholders' equity
Preferred stock - 2,000,000 shares without par value
authorized; no shares issued and outstanding - -
Common stock - 18,000,000 shares of no par value
authorized; 4,411,414 and 4,403,714 shares outstanding - -
Additional paid-in capital 9,968 9,917
Retained earnings - substantially restricted 22,638 21,619
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale 507 604
------- -------
Total shareholders' equity 33,113 32,140
------- -------
Total liabilities and shareholders' equity $480,562 $466,278
======= =======
</TABLE>
3
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
March 31, March 31,
2000 1999 2000 1999
(Restated) (Restated)
<S> <C> <C> <C> <C>
Interest income
Loans $16,568 $14,580 $8,340 $7,413
Mortgage-backed securities 391 469 195 227
Investment securities 617 600 312 301
Interest-bearing deposits and other 209 284 111 115
------ ------ ----- -----
Total interest income 17,785 15,933 8,958 8,056
Interest expense
Deposits 7,616 7,535 3,793 3,701
Borrowings 3,734 2,255 1,950 1,201
------ ------ ----- -----
Total interest expense 11,350 9,790 5,743 4,902
------ ------ ----- -----
Net interest income 6,435 6,143 3,215 3,154
Provision for losses on loans 45 47 22 24
------ ------ ----- -----
Net interest income after provision
for losses on loans 6,390 6,096 3,193 3,130
Other income
Gain on sale of mortgage loans 126 1,001 76 325
Mortgage-servicing fees 155 23 78 33
Gain on sale of real estate acquired through
foreclosure - 34 - 34
Other operating 311 330 155 159
------ ------ ----- -----
Total other income 592 1,388 309 551
General, administrative and other expense
Employee compensation and benefits 2,286 2,083 1,182 1,098
Occupancy and equipment 907 889 466 450
Franchise taxes 183 180 92 90
Federal deposit insurance premiums 86 89 39 47
Amortization of intangible assets 31 31 16 16
Advertising 192 136 114 68
Other operating 676 832 335 392
------ ------ ----- -----
Total general, administrative and other expense 4,361 4,240 2,244 2,161
------ ------ ----- -----
Earnings before income taxes 2,621 3,244 1,258 1,520
Federal income taxes
Current 826 1,186 391 500
Deferred 72 (84) 40 11
------ ------ ----- -----
Total federal income taxes 898 1,102 431 511
------ ------ ----- -----
NET EARNINGS $ 1,723 $ 2,142 $ 827 $1,009
====== ====== ===== =====
EARNINGS PER SHARE
Basic $0.39 $0.49 $0.19 $0.23
==== ==== ==== ====
Diluted $0.38 $0.46 $0.18 $0.21
==== ==== ==== ====
Dividends per share $0.16 $0.14 $0.08 $0.07
==== ==== ==== ====
</TABLE>
4
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Six months ended Three months ended
March 31, March 31,
2000 1999 2000 1999
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net earnings $1,723 $2,142 $827 $1,009
Other comprehensive loss, net of tax:
Unrealized holding losses on securities during
the period, net of taxes $(76), $(75), $(50)
and $(49) during the respective periods (147) (145) (98) (95)
----- ----- --- -----
Comprehensive income $1,576 $1,997 $729 $ 914
===== ===== === =====
Accumulated comprehensive income $ 507 $ 674 $507 $ 674
===== ===== === =====
</TABLE>
5
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(In thousands)
2000 1999
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,723 $ 2,142
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 26 30
Amortization of deferred loan origination fees (11) (60)
Depreciation and amortization 270 265
Amortization of intangible assets 31 31
Provision for losses on loans 45 47
Gain on sale of mortgage loans (73) (819)
Loans originated for sale in the secondary market (22,061) (61,303)
Proceeds from sale of loans in the secondary market 23,094 67,697
Gain on sale of real estate acquired through foreclosure - (34)
Federal Home Loan Bank stock dividends (222) (162)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 61 98
Accrued interest receivable on mortgage-backed securities 2 16
Accrued interest receivable on investments (15) 1
Prepaid expenses and other assets (326) (576)
Accounts payable on mortgage loans serviced for others (5) (50)
Other liabilities (458) 34
Federal income taxes
Current 57 150
Deferred 72 (84)
------ ------
Net cash provided by operating activities 2,210 7,423
Cash flows from investing activities:
Principal repayments on mortgage-backed securities 664 1,489
Proceeds from the maturity of investment securities - 5,300
Proceeds from maturity of investment securities designated
as available for sale 500 100
Purchase of investment securities designated as held to maturity (1,255) (6,842)
Loan principal repayments 39,180 66,939
Loan disbursements (49,992) (105,054)
Proceeds from sale of real estate acquired through foreclosure - 169
Purchase of office premises and equipment (176) (163)
Purchase of Federal Home Loan Bank stock (543) (33)
Additions to real estate acquired through foreclosure (108) -
------ ------
Net cash used in investing activities (11,730) (38,095)
------ ------
Net cash used in operating and investing
activities (balance carried forward) (9,520) (30,672)
------ ------
</TABLE>
6
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Winton Financial Corporation
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended March 31,
(In thousands)
2000 1999
(Restated)
<S> <C> <C>
Net cash used in operating and investing
activities (balance brought forward) $(9,520) $(30,672)
Cash flows from financing activities:
Net increase (decrease) in deposit accounts (1,664) 6,335
Repayments of Federal Home Loan Bank advances (19,326) (7,556)
Proceeds from Federal Home Loan Bank advances 34,850 29,500
Advances by borrowers for taxes and insurance (108) 32
Proceeds from exercise of stock options 51 4
Dividends paid on common stock (704) (630)
------ -------
Net cash provided by financing activities 13,099 27,685
------ -------
Net increase (decrease) in cash and cash equivalents 3,579 (2,987)
Cash and cash equivalents at beginning of period 2,081 7,076
------ -------
Cash and cash equivalents at end of period $ 5,660 $ 4,089
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 767 $ 1,035
====== =======
Interest on deposits and borrowings $11,403 $ 9,840
====== =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (147) $ (145)
====== =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 53 $ 182
====== =======
Transfers from loans to real estate acquired through foreclosure $ 108 $ 35
====== =======
</TABLE>
7
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six month periods ended March 31, 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 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 six and three month
periods ended March 31, 2000, are not necessarily indicative of the
results which may be expected for the entire fiscal year.
On December 14, 1998, Winton Financial Corporation ("Winton Financial"
or the "Corporation") entered into an Agreement and Plan of
Reorganization with BenchMark Federal Savings Bank ("BenchMark")
pursuant to which BenchMark would merge with and into The Winton
Savings and Loan Co. ("Winton Savings" or the "Company") a wholly-owned
subsidiary of the Corporation. The merger was consummated on June 11,
1999 and was accounted for using the pooling of interests method of
accounting. Accordingly, the financial statements for the six and three
month periods ending March 31, 1999, have been restated to give effect
to the combination.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Winton Financial and Winton Savings. All significant intercompany
items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 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 six month periods ended March 31, 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. Year 2000 Compliance Issues
As with all providers of financial services, the Company's operations
are heavily dependent on information technology systems. During the
periods leading up to January 1, 2000, the Company addressed the
potential problems associated with the possibility that the computers
that control or operate the Company's information technology system and
infrastructure may not have been programmed to read four-digit date
codes and, upon arrival of the year 2000, may have recognized the
two-digit code "00" as the year 1900, causing systems to fail to
function or to generate erroneous data.
As part of the awareness and assessment phases of its action plan
related to the Year 2000 problem, management identified the operating
systems that it considered critical to the on-going operations of the
Company. Of the systems that the Company identified as
mission-critical, the most significant is the on-line core account
processing system performed by a third party service provider,
Intrieve, Inc. ("Intrieve"). Intrieve converted its hardware to a new
Year 2000 compliant system 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.
The Company expended approximately $67,000 through the periods ended
December 31, 1999, in connection with its Year 2000 compliance program.
Winton Savings experienced no significant problems related to its
information technology systems upon arrival of the Year 2000, nor was
there any interruption in service to its customers of any kind.
9
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Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the six month periods ended March 31, 2000 and 1999
5. Earnings Per Share
Basic earnings per share for the six and three month periods ended
March 31, 2000 is computed based on 4,405,671 and 4,406,457
weighted-average shares outstanding, respectively.
Basic earnings per share for the six and three month periods ended
March 31, 1999 is computed based on 4,391,514 and 4,391,283
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 4,578,633 and 4,561,211 for the six and three month
periods ended March 31, 2000, respectively, and 4,610,126 and 4,615,395
for the six and three month periods ended March 31, 1999, respectively.
Incremental shares related to the assumed exercise of stock options
included in the calculation of diluted earnings per share totaled
172,962 and 154,754 for the six and three month periods ended March 31,
2000, and 218,612 and 224,112 for the six and three month periods ended
March 31, 1999, respectively.
Options to purchase 194,000 and 134,000 shares of common stock with a
weighted-average exercise price of $12.56 and $13.25 were outstanding
at March 31, 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.
10
<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 March 31,
2000
At March 31, 2000, the Corporation had total assets of $480.6 million, an
increase of approximately $14.3 million, or 3.1%, over the level at September
30, 1999. The growth in assets was funded by an increase in Federal Home Loan
Bank ("FHLB") advances of $15.5 million and undistributed net earnings of $1.0
million, which were partially offset by a decrease in deposits of $1.7 million.
Cash and cash equivalents increased by $3.6 million, or 172.0%, during the six
months ended March 31, 2000.
Investment securities totaled approximately $23.0 million at March 31, 2000, an
increase of approximately $599,000, or 2.7%, over September 30, 1999 levels, as
purchases of $1.3 million exceeded maturities and called securities of $500,000
during the period.
Mortgage-backed securities totaled approximately $13.3 million at March 31,
2000, a decrease of approximately $681,000, or 4.9%, since September 30, 1999,
primarily attributable to regular principal repayments during the period.
Loans receivable and loans held for sale totaled $423.4 million at March 31,
2000, an increase of approximately $9.8 million, or 2.4%, over the level at
September 30, 1999. The increase resulted primarily from loan originations of
$72.1 million, which were partially offset by loan sales of $23.0 million and
principal repayments of $39.2 million.
At March 31, 2000, the allowance for loan losses of Winton Savings totaled $1.0
million, an increase of $78,000 from the level maintained at September 30, 1999.
At March 31, 2000, the allowance represented approximately 0.23% of the total
loan portfolio and 217.3% of total nonperforming loans. Nonperforming loans
totaled $465,000 and $246,000 at March 31, 2000 and September 30, 1999,
respectively. At March 31, 2000, the ratio of total nonperforming loans to total
loans amounted to 0.11% compared to 0.06% at September 30, 1999. Although
management believes that its allowance for loan losses at March 31, 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 $310.4 million at March 31, 2000, a decrease of $1.7 million,
or 0.5%, from September 30, 1999 levels. Deposits declined during the first
fiscal quarter ended December 31, 1999, by $4.9 million and increased during the
second fiscal quarter ended March 31, 2000, by $3.3 million. The increase during
the current quarter resulted primarily from a special fifteen month, 7.0%,
certificate offered during the quarter.
Advances from the FHLB totaled $132.1 million at March 31, 2000, an increase of
$15.5 million, or 13.3%, over September 30, 1999 levels. Proceeds from advances
have generally been utilized to fund the growth in the loan portfolio.
11
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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 March 31,
2000 (continued)
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At March 31, 2000, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Six Month Periods ended March 31, 2000
and 1999
General
The Corporation recorded net earnings for the six months ended March 31, 2000,
totaling $1.7 million, compared to $2.1 million in net earnings for the same
period in 1999, a decrease of $419,000, or 19.6%. The decreased earnings
resulted primarily from a $796,000 decline in other income and a $121,000
increase in general, administrative and other expense, which were partially
offset by a $292,000 increase in net interest income, a $204,000 decrease in the
provision for federal income taxes and a $2,000 decrease in the provision for
losses on loans.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $1.9
million, or 12.7%, for the six months ended March 31, 2000, compared to the same
period in 1999. The increase resulted primarily from a $51.9 million increase in
the weighted-average portfolio outstanding year to year, partially offset by a 6
basis point decrease in yield, to 7.83% for six months ended March 31, 2000.
Interest income on investment securities and interest-bearing deposits and other
decreased by $58,000, or 6.6%, for the six months ended March 31, 2000, compared
to the same period in 1999. The decrease resulted from a decrease in yield of 45
basis points, which was partially offset by a $274,000 increase in the average
balance outstanding for the six months ended March 31, 2000.
Interest expense on deposits increased by $81,000, or 1.1%, for the six months
ended March 31, 2000, compared to the same period in 1999. The increase was
primarily attributable to a $3.9 million increase in weighted-average deposits
outstanding year to year. The weighted-average cost of deposits decreased during
the periods, amounting to 4.92% for the six months ended March 31, 2000,
compared to 4.93% for the same period in 1999.
Interest expense on borrowings increased by $1.5 million, or 65.6%, during the
six months ended March 31, 2000, compared to the same period in 1999, primarily
due to an increase of $48.5 million in the weighted-average balances of FHLB
advances outstanding, and an increase in weighted-average cost of FHLB advances
to 6.02% from 5.74% during the six month periods ended March 31, 2000 and 1999.
12
<PAGE>
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Month Periods ended March 31, 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 $292,000, or 4.8%, to $6.4 million for the six
months ended March 31, 2000, compared to $6.1 million for the same period in
1999. The interest rate spread decreased by 21 basis points, to 2.46% for the
six months ended March 31, 2000, while the net interest margin decreased by 21
basis points, to 2.78% for the six months ended March 31, 2000, compared to
2.99% for the six months ended March 31, 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 $45,000
provision for losses on loans during the six-month period ended March 31, 2000,
compared to a provision of $47,000 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 $796,000, or 57.3%, for the six months ended March 31,
2000, compared to the 1999 period, due to an $875,000, or 87.4%, decrease in
gain on sale of mortgage loans, a $34,000 decline in gain on sale of real estate
acquired through foreclosure and a $19,000, or 5.8%, decline in other operating
income, which were partially offset by an increase of $132,000 in mortgage
servicing fees.
General, Administrative and Other Expense
General, administrative and other expense increased by $121,000, or 2.9%, for
the six months ended March 31, 2000, compared to the same period in 1999. The
increase consisted of a $203,000, or 9.7%, increase in employee compensation and
benefits and an $18,000, or 2.0%, increase in occupancy and equipment, an
increase in advertising expenses of $56,000, or 41.2%, and a $3,000 increase in
franchise tax expense, which were partially offset by a $156,000, or 18.8%,
decrease in other operating expense and a $3,000, or 3.4%, decrease in federal
deposit insurance premiums. 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.
Federal Income Taxes
The provision for federal income taxes amounted to $898,000 for the six months
ended March 31, 2000, a decrease of $204,000, or 18.5%, from the same period in
1999. The decrease resulted primarily from a $623,000, or 19.2%, decrease in
pretax earnings. The effective tax rates were 34.3% and 34.0% for the six month
periods ended March 31, 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 March 31, 2000
and 1999
General
The Corporation recorded net earnings for the three months ended March 31, 2000,
totaling $827,000, compared to $1.0 million in net earnings for the same period
in 1999, a decrease of $182,000, or 18.0%. The decreased earnings resulted
primarily from a $242,000 decrease in other income and an $83,000 increase in
general, administrative and other expense, which were partially offset by a
$61,000 increase in net interest income, an $80,000 decrease in the provision
for federal income taxes and a $2,000 decrease in the provision for loan losses.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $895,000,
or 11.7%, for the three months ended March 31, 2000, compared to the same period
in 1999. The increase resulted primarily from a $45.6 million increase in the
weighted-average balance outstanding year to year. The average yield on the
portfolio remained constant at 7.84% from period to period.
Interest income on investment securities and interest-bearing deposits and other
increased by $7,000, or 1.7%, for the three months ended March 31, 2000,
compared to the same quarter in 1999. The increase resulted from a $1.5 million
increase in the average balance outstanding, offset by a decrease in yield of 20
basis points, to 5.70% for the three months ended March 31, 2000.
Interest expense on deposits increased by $92,000, or 2.5%, for the three months
ended March 31, 2000 compared to the same period in 1999. The increase was
primarily attributable to a $1.8 million increase in weighted-average deposits
outstanding coupled with a 9 basis point increase in the weighted-average rate
year to year. The weighted-average cost of deposits increased during the period,
amounting to 4.92% and 4.86% for the three months ended March 31, 2000 and 1999,
respectively.
Interest expense on borrowings increased by $749,000, or 62.4%, during the three
months ended March 31, 2000, compared to the same period in 1999, primarily due
to an increase of $41.6 million in the weighted-average balances of FHLB
advances outstanding, coupled with an increase in the weighted-average cost of
FHLB advances to 6.12% from 5.59% during the three month periods ended March 31,
2000 and 1999, respectively.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $61,000, or 1.9%, to $3.2 million for the three
months ended March 31, 2000, compared to the same period in 1999. The interest
rate spread decreased by 28 basis points, to 2.43% for the three months ended
March 31, 2000, while the net interest margin decreased by 26 basis points, to
2.76% for the three months ended March 31, 2000, compared to 3.02% for the three
months ended March 31, 1999.
14
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Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods ended March 31, 2000
and 1999 (continued)
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 $22,000
provision for losses on loans during the three-month period ended March 31,
2000, compared to a provision of $24,000 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 $242,000, or 43.9%, for the three months ended March
31, 2000, compared to the 1999 period, primarily due to a $249,000, or 76.6%,
decrease in gain on sale of mortgage loans, a decrease of $34,000 in gain on
sale of real estate acquired through foreclosure and a $4,000, or 2.5%, decline
in other operating income, which was partially offset by a $45,000 increase in
mortgage servicing fees.
General, Administrative and Other Expense
General, administrative and other expense increased by $83,000, or 3.8%, for the
three months ended March 31, 2000, compared to the same period in 1999. The
increase consisted primarily of an $84,000, or 7.7%, increase in employee
compensation and benefits, a $16,000, or 3.6%, increase in occupancy and
equipment and a $46,000, or 67.6%, increase in advertising expense, which were
partially offset by a $57,000, or 14.5%, decrease in other operating expense and
an $8,000 decline in federal deposit insurance premiums. The increase in
employee compensation and benefits resulted primarily from a reduction in
deferred salary cost due to a decrease in loan production volume. The increase
in occupancy and equipment expense resulted from costs associated with the new
loan production office location in Western Hills.
Federal Income Taxes
The provision for federal income taxes amounted to $431,000 for the three months
ended March 31, 2000, a decrease of $80,000, or 15.7%, from the same period in
1999. The decrease resulted primarily from a $262,000, or 17.2%, decrease in
pretax earnings. The effective tax rates were 34.3% and 33.6% for the three
month periods ended March 31, 2000 and 1999, respectively.
15
<PAGE>
Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule for the Six
Months Ended March 31, 2000
27.2 Restated Financial Data Schedule for
the Six Months Ended March 31, 1999
(b) Reports on Form 8-K: None.
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: May 12, 2000 By: /s/Robert L. Bollin
-------------------------- -------------------
Robert L. Bollin
President
Date: May 12, 2000 By: /s/Jill M. Burke
-------------------------- ----------------
Jill M. Burke
Chief Financial Officer
17
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