FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
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. 0-18664
GLENWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-1297820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5535 Glenway Avenue, Cincinnati, Ohio 45238
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (513) 922-5959
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 2, 1997, the latest practicable date, 1,142,997 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
<PAGE>
Glenway Financial Corporation and Subsidiary
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 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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<TABLE>
Glenway Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
ASSETS March 31, June 30,
1997 1996
--------- --------
<S> <C> <C>
Cash and due from banks $ 3,200 $ 4,802
Federal funds sold 513 204
Interest-bearing deposits in other financial institutions 112 136
--------- ---------
Cash and cash equivalents 3,825 5,142
Investment securities - at amortized cost, approximate market value
of $6,490 and $5,499 at March 31, 1997, and June 30, 1996 6,558 5,549
Investment securities available for sale - at market -- 4,084
Mortgage-backed securities - at cost, approximate market value
of $13,925 and $15,354 at March 31, 1997, and June 30, 1996 14,307 15,710
Mortgage-backed securities available for sale - at market 10,086 14,761
Loans receivable - net 232,480 220,007
Loans held for sale - at lower of cost or market -- 1,094
Office premises and equipment - at depreciated cost 7,119 5,929
Real estate acquired through foreclosure 250 242
Federal Home Loan Bank stock - at cost 2,340 2,222
Accrued interest receivable on loans 1,171 1,103
Accrued interest receivable on mortgage-backed securities 162 181
Accrued interest receivable on investments and interest-bearing deposits 59 177
Cash surrender value - life insurance 1,567 1,457
Prepaid expenses and other assets 469 545
Prepaid federal income taxes -- 30
Goodwill and other intangible assets - net of accumulated amortization 420 576
--------- ---------
Total assets $ 280,813 $ 278,809
========= =========
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LIABILITIES AND STOCKHOLDERS' EQUITY March 31, June 30,
1997 1996
--------- --------
Deposit accounts $ 227,517 $ 222,768
Advances from Federal Home Loan Bank 22,663 25,634
Loan to Employee Stock Ownership Plan 139 213
Checks issued in excess of bank balances 1,018 1,034
Advances by borrowers for taxes and insurance 798 242
Accounts payable on mortgage loans serviced for others 155 599
Accrued interest payable 53 56
Other liabilities 1,055 999
Accrued federal income tax 67 --
Deferred federal income taxes 507 483
--------- ---------
Total liabilities 253,972 252,028
Stockholders' equity
Serial preferred stock - authorized 500,000 shares of $.01 par value;
no shares issued -- --
Common stock - authorized, 3,000,000 shares of $.01 par value;
1,143,769 and 1,187,397 shares issued and outstanding at
March 31, 1997, and June 30, 1996 12 11
Additional paid-in capital 13,343 12,102
Retained earnings - substantially restricted 14,646 15,749
Less: required contributions for shares acquired by employee benefit plans (308) (316)
Less treasury stock - at cost, 43,600 and 41,115 shares at March 31, 1997,
and June 30, 1996 (878) (756)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 26
(9)
Total stockholders' equity 26,841 26,781
--------- ---------
Total liabilities and stockholders' equity $ 280,813 $ 278,809
========= =========
</TABLE>
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<TABLE>
Glenway Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
March 31, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $13,695 $ 12,734 $4,647 $ 4,305
Mortgage-backed securities 1,362 1,489 408 480
Investment securities 353 532 99 164
Interest-bearing deposits and other 156 136 53 54
------- -------- ------ -------
Total interest income 15,566 14,891 5,207 5,003
Interest expense
Deposits 8,189 7,924 2,716 2,635
Borrowings 907 1,057 313 333
------- -------- ------ -------
Total interest expense 9,096 8,981 3,029 2,968
------- -------- ------ -------
Net interest income 6,470 5,910 2,178 2,035
Provision for losses on loans 170 45 31 15
------- -------- ------ -------
Net interest income after provision for losses on loans 6,300 5,865 2,147 2,020
Other income
Gain on sale of loans 39 36 -- 31
Gain (loss) on investment securities transactions 63 (7) -- (7)
Gain on sale of real estate acquired through foreclosure 21 2 1 --
Gain on sale of office premises and equipment -- 144 -- 65
Other operating 486 432 173 139
------- -------- ------ -------
Total other income 609 607 174 228
General, administrative and other expense
Employee compensation and benefits 2,397 2,518 767 928
Occupancy and equipment 428 293 158 75
Federal deposit insurance premiums 1,512 361 36 124
Franchise taxes 260 286 93 95
Data processing 246 188 92 69
Amortization of goodwill and other intangible assets 156 165 52 55
Other operating 917 900 273 323
------- -------- ------ -------
Total general, administrative and other expense 5,916 4,711 1,471 1,669
------- -------- ------ -------
Earnings before income taxes 993 1761 850 579
Federal income taxes
Current 367 494 182 187
Deferred 6 159 116 28
------- -------- ------ -------
Total federal income taxes 373 653 298 215
------- -------- ------ -------
NET EARNINGS $ 620 $ 1,108 $ 552 $ 364
======= ======== ====== =======
EARNINGS PER SHARE $ .54 $ .97 $ .48 $ .31
======= ======== ====== =======
</TABLE>
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<TABLE>
Glenway Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1997 1996
-------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 620 $ 1,108
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 211 153
Provision for losses on loans 170 45
Gain on sale of loans (39) (36)
(Gain) loss on investments and mortgage-backed securities (63) 7
Loans disbursed for sale in the secondary market (440) (3,361)
Proceeds from sale of loans 444 2,834
Amortization of deferred loan origination fees (78) (95)
Amortization of goodwill and other intangible assets 156 165
Amortization of premiums and discounts on loans, investments
and mortgage-backed securities - net 29 25
Amortization of expense related to employee benefit plans 118 229
Gain on sale of office premises -- (144)
Gain on sale of real estate acquired through foreclosure (21) (2)
Federal Home Loan Bank stock dividends (118) (111)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans (68) (70)
Accrued interest receivable on mortgage-backed securities 19 50
Accrued interest receivable on investment securities and
interest-bearing deposits 118 10
Prepaid expenses and other assets 76 181
Accounts payable on mortgage loans serviced for others (444) 44
Other liabilities 53 (239)
Increase (decrease) in checks issued in excess of bank balance (16) 1,361
Federal income taxes
Current 97 112
Deferred 6 159
-------- --------
Net cash provided by operating activities 830 2,425
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 3,492 3,612
Proceeds from sale of investments and mortgage-backed securities
designated as available for sale 6,762 993
Purchase of investment securities (2,000) (2,575)
Proceeds from maturities of investment securities 1,000 1,038
Loan principal repayments 37,764 39,600
Loan disbursements (49,592) (48,355)
Purchase of office premises and equipment (1,401) (1,337)
Proceeds from sale of office premises and equipment -- 371
Proceeds from sale of real estate acquired through foreclosure 391 496
Increase in cash surrender value of life insurance (110) (14)
-------- --------
Net cash used in investing activities (3,694) (6,171)
-------- --------
Net cash used in operating and investing activities
(subtotal carried forward) $ (2,864) $ (3,746)
-------- --------
</TABLE>
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<TABLE>
Glenway Financial Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1997 1996
-- ------ -- ----
<S> <C> <C>
Net cash used in operating and investing
activities (subtotal brought forward) $ (2,864) $ (3,746)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 4,749 13,270
Proceeds from Federal Home Loan Bank advances 36,350 35,000
Repayment of Federal Home Loan Bank advances (39,321) (42,887)
Repayment of other borrowed money (74) (74)
Advances by borrowers for taxes and insurance 556 374
Dividends paid on common stock (578) (551)
Shares issued under stock option and benefit plans 207 224
Purchase of treasury stock (342) --
-------- --------
Net cash provided by financing activities 1,547 5,356
-------- --------
Net increase (decrease) in cash and cash equivalents (1,317) 1,610
Cash and cash equivalents at beginning of period 5,142 4,072
-------- --------
Cash and cash equivalents at end of period $ 3,825 $ 5,682
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 60 $ 370
======== ========
Interest on deposits and borrowings $ 9,093 $ 8,974
======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ 378 $ 110
======== ========
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 35 $ 88
======== ========
Issuance of treasury shares in exchange for outstanding shares
related to exercise of stock options $ 85 $ 112
======== ========
Transfer of mortgage-backed securities to an available for sale
classification $ -- $ 12,118
======== ========
</TABLE>
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<PAGE>
Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB 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 and should be read in conjunction with the annual
report of Glenway Financial Corporation (the "Corporation") for the fiscal year
ended June 30, 1996. However, all adjustments (consisting only of 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 and nine month periods ended March 31,
1997, are not necessarily indicative of the results which may be expected for an
entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation, Centennial Savings Bank (the "Savings Bank") and its wholly-owned
subsidiary, Centennial Savings and Loan Service Corporation. All significant
intercompany items have been eliminated.
3. Earnings Per Share
Earnings per share for the three months ended March 31, 1997 and 1996, has been
computed based on 1,155,939 and 1,144,748 weighted-average shares outstanding,
respectively. Earnings per share for the nine months ended March 31, 1997 and
1996, has been computed based on 1,154,862 and 1,139,813 weighted-average shares
outstanding, respectively. Fully-diluted earnings per share has not been
presented as the dilutive effect of the Corporation's stock option plan is not
material.
4. Effects of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest
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Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. SFAS No. 121 is effective for financial
statements for fiscal years beginning after December 15, 1995 (fiscal 1997 as to
the Corporation). Management is of the opinion that SFAS No. 121, which the
Corporation adopted on July 1, 1996, will not have a material effect on the
consolidated financial position or results of operations of the Corporation.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage Servicing
Rights," which requires that the Corporation recognize, as separate assets,
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. An institution that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells those
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights. SFAS No. 122 requires that
securitizations of mortgage loans be accounted for as sales of mortgage loans
and acquisitions of mortgage-backed securities. Additionally, SFAS No. 122
requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment is measured based
on fair value. SFAS No. 122 applies prospectively to fiscal years beginning
after December 15, 1995, (July 1, 1996, as to the Corporation) to transactions
in which an entity acquires mortgage servicing rights and to impairment
evaluations of all capitalized mortgage servicing rights and capitalized excess
servicing receivables whenever acquired. Retroactive application is prohibited.
Management adopted SFAS No. 122 on July 1, 1996, without material effect on the
Corporation's consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
stock compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995; however, companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25 and,
therefore, the provisions of SFAS No. 123 will have no effect on its
consolidated financial condition or results of operations.
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Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Effects of Recent Accounting Pronouncements (continued)
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
An entity that undertakes an obligation to service financial assets recognizes
either a servicing asset or liability for the servicing contract (unless related
to a securitization of assets, and all the securitized assets are retained and
classified as held-to-maturity). A servicing asset or liability that is
purchased or assumed is initially recognized at its fair value. Servicing assets
and liabilities are amortized in proportion to and over the period of estimated
net servicing income or net servicing loss and are subject to subsequent
assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1997, and is to be
applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Corporation's consolidated financial position or results
of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
requires companies to present basic earnings per share and, if applicable,
diluted earnings per share, instead of primary and fully-diluted earnings per
share, respectively. Basic earnings per share is computed without including
potential common shares, i.e., no dilutive effect. Diluted earnings per share is
computed taking into consideration common shares outstanding and dilutive
potential common shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods ending after
December 15, 1997. Early application is not permitted. Based upon the provisions
of SFAS No. 128, the Corporation's basic and diluted earnings per share for the
nine months ended March 31, 1997, would have each been $.54 and $.53,
respectively. Basic and diluted earnings per share for the three months ended
March 31, 1997, would have been $.48 and $.47, respectively.
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<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1996 to March 31, 1997
The Corporation's assets totaled $280.8 million at March 31, 1997, an increase
of $2.0 million, or 0.7%, from June 30, 1996, levels. The increase in assets is
mainly attributable to the increases in loans receivable and office premises and
equipment. Investment securities and investment securities available for sale
decreased by $3.1 million, or 31.9%, while mortgage-backed securities and
mortgage-backed securities available for sale decreased by $6.1 million, or
20.0%. The combined decrease of $9.2 million in investment and mortgage-backed
securities resulted from the sale of $6.8 million of securities designated as
available for sale, scheduled maturities of $1.0 million and principal payments
of $3.5 million on mortgage-backed securities. These decreases were partially
offset by the purchase of $2.0 million of U.S. Treasury Notes.
Loans receivable and loans held for sale increased by $11.4 million, or 5.1%,
during the current nine month period, as loan originations of $50.0 million
exceeded principal repayments of $37.8 million and were partially offset by loan
sales totaling $440,000. Loans funded during the period consisted of both fixed-
and adjustable-rate products. Historically, the Savings Bank has retained
adjustable-rate mortgage loans because of the beneficial effect on interest rate
risk management. Depending on asset/liability management considerations,
fixed-rate loans are sold in the secondary market.
Deposits increased by $4.8 million, or 2.1%, for the current nine month period.
During July 1996, consumers responded favorably to a nine month certificate of
deposit offered by the Savings Bank at an interest rate of 5.84%. Management
continually strives to keep certificates of deposit rates competitive in its
market. Alternate sources of funds, such as Federal Home Loan Bank advances, are
frequently reviewed to manage the cost of funds. Federal Home Loan Bank advances
decreased by $3.0 million, or 11.6%, for the nine month period, as a result of
scheduled repayments and the availability of other sources to fund loan growth.
Stockholders' equity increased by $60,000 during the current nine month period.
Period earnings of $620,000, an increase in additional paid in capital
attributable to proceeds from exercises of stock options totaling $207,000, the
final distribution of $147,000 of restricted shares awarded in 1993 under the
Corporation's stock option plan and a $35,000 increase in unrealized gains on
securities designated as available for sale were partially offset by cash
dividends paid totalling $578,000 and the repurchase of $342,000 of outstanding
stock during the nine months ended March 31, 1997.
The Federal Deposit Insurance Corporation prescribes minimum regulatory capital
ratio guidelines to which the Savings Bank is subject. The required Tier 1
leverage ratio (Tier 1 capital to adjusted total assets, as specified) is 5%.
Additionally, the Savings Bank is required to maintain a total risk-based
capital ratio of 8%. At March 31, 1997, the Savings Bank's Tier 1 capital of
$23.5 million, or 8.5%, exceeded the required Tier 1 leverage ratio of 5%, or
$13.9 million, by $9.7 million. The Savings Bank's risk-based capital of $24.3
million, or 13.7% of total risk-weighted assets, exceeded the 8% risk-based
capital requirement of $14.1 million by $10.1 million.
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Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1997
and 1996
General
Net earnings amounted to $620,000 for the nine months ended March 31, 1997,
compared to $1.1 million for the same period in 1996, a decrease of $488,000, or
44.0%. The decrease in earnings was primarily attributable to the approximately
$1.35 million, or $891,000 after tax, assessment imposed on the Savings Bank in
September 1996 as part of legislation to recapitalize the Savings Association
Insurance Fund ("SAIF"). Additionally, the decline in earnings resulted from an
increase of $115,000, or 1.3%, in interest expense and an increase of $125,000,
or 277.8%, in the provision for losses on loans. These increases were partially
offset by an increase of $675,000, or 4.5%, in net interest income and a $2,000
increase in other income.
Net Interest Income
Interest income on loans and mortgage-backed securities for the nine months
ended March 31, 1997, increased by $834,000, or 5.9%, over the same period in
1996. This increase resulted primarily from growth of $11.4 million in the loan
portfolio outstanding year to year, coupled with higher yields during the 1997
period. Interest on investments and interest-bearing deposits decreased by
$159,000, or 23.8%, from the 1996 period, due mainly to the sale of $4.1 million
of securities designated as available for sale.
Interest expense on deposits increased by $265,000, or 3.3%, for the nine months
ended March 31, 1997, compared to the comparable period in 1996. This increase
was due primarily to growth of $4.7 million in the deposit balances outstanding
year to year, as well as an increase in the cost of funds. Interest on
borrowings decreased $150,000, or 14.2%, due to a decrease in the level of
borrowings year to year.
Provision for Losses on Loans
The provision for losses on loans totaled $170,000 for the nine months ended
March 31, 1997, an increase of $125,000 over the comparable 1996 period. The
increase in the provision during the 1997 period resulted from growth in the
loan portfolio, as well as changes in the composition of the loan portfolio.
Nonperforming loans totaled $869,000 and $883,000 at March 31, 1997, and June
30, 1996, respectively. The loan loss allowance totaled $746,000 and $618,000 at
March 31, 1997, and June 30, 1996, respectively, representing 85.8% and 70.0% of
nonperforming loans and .32% and .27% of total loans at those respective dates.
Although management believes that its allowance for loan losses at March 31,
1997, is adequate based upon facts and circumstances
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Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1997
and 1996 (continued)
Provision for Losses on Loans
(continued)
available to it, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect the
Corporation's results of operations.
The foregoing statement is a "forward-looking" statement within the meaning of
Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the loan loss allowance include, but are not limited to, the
following: (1) changes in the national and local economy which may negatively
impact the ability of borrowers to repay their loans and which may cause the
value of real estate and other properties that secure outstanding loans to
decline; (2) unforeseen adverse changes in circumstances with respect to certain
large loans; (3) decreases in the value of collateral securing consumer loans to
amounts less than the outstanding balances of the consumer loans; and (4)
determinations by various regulatory agencies that the Savings Bank must
recognize additions to its loan loss allowance based on such regulators'
judgment of information available to them at the time of their examinations.
Other Income
Other income for the nine months ended March 31, 1997, increased by $2,000, or
.3%, primarily as a result of a $70,000 increase in gain on sale of securities,
a $3,000 increase in gain on sale of loans and a $19,000 increase in gain on
sale of real estate acquired through foreclosure Also, other operating income
increased by $54,000, due mainly to an increase of $17,000 in NOW account fees
and income of $10,000 from the Savings Bank's third party mutual fund service
and $6,000 from rental of property acquired through foreclosure.
General, Administrative and Other Expense
General, administrative and other expense increased by $1.2 million, or 25.6%,
for the nine months ended March 31, 1997, due primarily to a $1.2 million
increase in federal deposit insurance premiums as a result of the one-time SAIF
assessment. Other increases included a $135,000, or 46.1%, increase in occupancy
and equipment, a $58,000, or 30.9%, increase in data processing costs and a
$17,000, or 1.9%, increase in other operating expenses over the 1996 nine
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<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1997
and 1996 (continued)
General, Administrative and Other Expense
(continued)
month period. These increases were partially offset by declines of $121,000 in
employee compensation and benefits, $26,000 in franchise taxes and $9,000 in
goodwill amortization. The increase in occupancy and equipment was due to
increased depreciation charges and other costs associated with the new main
office facility, while the increase in data processing resulted from
enhancements to the Corporation's data processing system. The increase in other
operating expenses resulted primarily from a $21,000 increase in office supplies
and pro-rata increases in other operating costs. The increases were partially
offset by a decline in consultant's fees. The decrease in employee compensation
and benefits resulted from benefits paid in connection with the death of the
Corporation's President Dennis Betz, in the prior year.
Federal Income Taxes
The provision for federal income taxes amounted to $373,000 for the nine months
ended March 31, 1997, a decrease of $280,000, or 42.9%, from the 1996 period.
The decrease resulted primarily from a $768,000, or 43.6%, decline in pretax
earnings due to the SAIF assessment, coupled with a decline in the amortization
of certain nondeductible intangible expense items. The effective tax rates for
the nine months ended March 31, 1997 and 1996, were 37.6% and 37.1%,
respectively.
Comparison of Operating Results for the Three Month Periods ended March 31, 1997
and 1996
General
Net earnings for the third quarter of fiscal 1997 amounted to $552,000, compared
to net earnings of $364,000 for the 1996 quarter, an increase of $188,000, or
51.6%. Such increase in net earnings is principally attributable to an increase
in net interest income after provision for loan losses of $127,000 and a
decrease of $198,000 in general, administrative and other expenses, which were
partially offset by an increase of $83,000 in the provision for federal income
taxes.
-14-
<PAGE>
Comparison of Operating Results for the Three Month Periods ended March 31, 1997
and 1996 (continued)
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $270,000,
or 5.6%, during the current quarter as a result of growth in loans receivable.
Interest on investments and interest-bearing deposits decreased by $66,000, or
30.3%, due to the sale in October 1996 of investment securities designated as
available for sale.
Interest on deposits for the 1997 quarter increased by $81,000, or 3.1%, due to
growth in the deposit balances outstanding year to year. Interest on borrowings
decreased by $20,000, or 6.0%, due primarily to the decline in the average
outstanding balance.
Provision for Losses on Loans
The provision for losses on loans totaled $31,000 for the three month period
ended March 31, 1997, an increase of $16,000 over the comparable 1996 quarter.
The increase resulted primarily from growth in the loan portfolio.
Other Income
Other income for the three months ended March 31, 1997, decreased by $54,000, or
23.7%, primarily as a result of the absence in the 1997 quarter of gain on sale
of office premises and gain on sale of loans which in the 1996 quarter totalled
$65,000 and $31,000, respectively. The decline was partially offset by an
increase of $34,000 in other operating income.
General, Administrative and Other Expense
General, administrative and other expense declined by $198,000, or 11.9%, for
the three months ended March 31, 1997, compared to the three months ended March
31, 1996, due primarily to a decrease of $161,000, or 17.3%, in employee
compensation and benefits, which is attributable to the payment in 1996 of
benefits in connection with the death of Mr. Betz, a decrease of $88,000, or
71.0%, in federal deposit insurance premiums, which resulted from the SAIF
recapitalization, and a decrease of $50,000, or 15.5%, in other operating
expenses, for the reasons set forth above. These decreases were partially offset
by an increase of $83,000, or 110.7%, in office occupancy and equipment, and an
increase of $23,000, or 33.3%, in data processing expense.
-15-
<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Month Periods Ended March 31, 1997
and 1996 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $298,000 for the quarter ended
March 31, 1997, an increase of $83,000, or 38.6%, over the comparable 1996
quarter. The increase resulted primarily from a $271,000, or 46.8%, increase in
pretax earnings. The effective tax rates were 35.1% and 37.1% for the three
months ended March 31, 1997 and 1996, respectively.
-16-
<PAGE>
Glenway Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
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 Materially Important Events
None
ITEM 6. Exhibits and Reports on Form 8-K
On March 1, 1997, the Corporation filed a Form 8-K with the Securities and
Exchange Commission to report its intention to repurchase up to 5% of its
outstanding common stock over the following six months.
-17-
<PAGE>
Glenway Financial Corporation
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 13, 1997 By: /s/ Robert R. Sudbrook
_____________________________________
Robert R. Sudbrook
President
Date: May 13, 1997 By: /s/ Gregory P. Niesen
_____________________________________
Gregory P. Niesen
Chief Financial Officer
-18-
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