FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
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 (Zip Code)
executive office)
Issuer'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 Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes __X__ No _____
As of February 11, 1997, the latest practicable date, 1,187,369 shares of the
registrant's common stock, $.01 par value, were issued.
Page 1 of 17 pages
<PAGE>
Glenway Financial Corporation
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
-2-
<PAGE>
<TABLE>
Glenway Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
ASSETS 1996 1996
-------- ---------
<S> <C> <C>
Cash and due from banks $ 2,311 $ 4,802
Federal funds sold -- 204
Interest-bearing deposits in other financial institutions 862 136
--------- ---------
Cash and cash equivalents 3,173 5,142
Investment securities - at amortized cost, approximate market value
of $6,535 and $5,499 at December 31, 1996 and June 30, 1996 6,556 5,549
Investment securities available for sale - at market -- 4,084
Mortgage-backed securities - at cost, approximate market value
of $14,745 and $15,354 at December 31, 1996 and June 30, 1996 15,025 15,710
Mortgage-backed securities available for sale - at market 11,471 14,761
Loans receivable - net 228,683 220,007
Loans held for sale - at lower of cost or market -- 1,094
Office premises and equipment - at depreciated cost 7,233 5,929
Real estate acquired through foreclosure 405 242
Federal Home Loan Bank stock - at cost 2,300 2,222
Accrued interest receivable on loans 1,083 1,103
Accrued interest receivable on mortgage-backed securities 174 181
Accrued interest receivable on investments and
interest-bearing deposits 100 177
Cash surrender value of life insurance 1,549 1,457
Prepaid expenses and other assets 403 545
Prepaid federal income taxes 94 30
Goodwill and other intangible assets - net of accumulated amortization 472 576
--------- ---------
Total assets $ 278,721 $ 278,809
========= =========
</TABLE>
-3-
<PAGE>
<TABLE>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
-------- ---------
<S> <C> <C>
Deposits $ 228,753 $ 222,768
Advances from the Federal Home Loan Bank 19,130 25,634
Loan to Employee Stock Ownership Plan 139 213
Checks issued in excess of bank balance 117 1,034
Advances by borrowers for taxes and insurance 1,397 242
Accounts payable on mortgage loans serviced for others 846 599
Accrued interest payable 69 56
Other liabilities 1,020 999
Deferred federal income taxes 413 483
--------- ---------
Total liabilities 251,884 252,028
Stockholders' equity
Serial preferred stock - 500,000 shares at $.01 par value authorized;
no shares issued
Common stock - authorized, 3,000,000 shares at $.01 par value; 1,187,369 and
1,130,854 shares issued and outstanding at December 31, 1996 and
June 30, 1996 12 11
Additional paid-in capital 13,389 12,102
Retained earnings - substantially restricted 14,290 15,749
Less required contributions for shares acquired by employee benefit plans (341) (316)
Less 30,227 and 39,157 shares of treasury stock at December 31,
1996 and June 30, 1996 - at cost (581) (756)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 68 (9)
--------- ---------
Total stockholders' equity 26,837 26,781
--------- ---------
Total liabilities and stockholders' equity $ 278,721 $ 278,809
========= =========
</TABLE>
-4-
<PAGE>
<TABLE>
Glenway Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
December 31, December 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Loans $ 9,048 $ 8,429 $ 4,580 $ 4,218
Mortgage-backed securities 954 1,009 465 498
Investment securities 254 368 103 188
Interest-bearing deposits and other 103 82 50 42
-------- -------- -------- --------
Total interest income 10,359 9,888 5,198 4,946
Interest expense
Deposits 5,473 5,289 2,707 2,669
Borrowings 594 724 289 344
-------- -------- -------- --------
Total interest expense 6,067 6,013 2,996 3,013
-------- -------- -------- --------
Net interest income 4,292 3,875 2,202 1,933
Provision for losses on loans 139 30 121 15
-------- -------- -------- --------
Net interest income after provision
for losses on loans 4,153 3,845 2,081 1,918
Other income
Gain on sale of loans 39 5 32 --
Gain on sale of investments and mortgage-backed securities 63 -- 63 --
Gain on sale of office premises -- 79 -- --
Gain (loss) on sale of real estate acquired through foreclosure 20 2 (1) --
Other operating 313 293 158 140
-------- -------- -------- --------
Total other income 435 379 252 140
General, administrative and other expense
Employee compensation and benefits 1,630 1,590 842 795
Occupancy and equipment 270 218 155 107
Federal deposit insurance premiums 1,476 237 (1) 119
Franchise taxes 167 191 82 95
Data processing 154 119 97 68
Amortization of goodwill and other intangible assets 104 110 52 55
Other operating 644 577 309 276
-------- -------- -------- --------
Total general, administrative and other expense 4,445 3,042 1,536 1,515
-------- -------- -------- --------
Earnings before income taxes 143 1,182 797 543
Federal income taxes
Current 185 307 426 61
Deferred (110) 131 (136) 142
-------- -------- -------- --------
Total federal income taxes 75 438 290 203
-------- -------- -------- --------
NET EARNINGS $ 68 $ 744 $ 507 $ 340
======== ======== ======== ========
EARNINGS PER SHARE $ .06 $ .66 $ .44 $ .30
======== ======== ======== ========
</TABLE>
-5-
<PAGE>
<TABLE>
Glenway Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
(In thousands)
1996 1995
------ ------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 68 $ 744
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 128 101
Provision for losses on loans 139 30
Gain on sale of loans (39) (5)
Gain on sale of investments and mortgage-backed securities (63) --
Loans disbursed for sale in the secondary market (440) (2,277)
Proceeds from sale of loans 444 900
Amortization of deferred loan origination fees (51) (67)
Amortization of goodwill and other intangible assets 104 110
Amortization of premiums and discounts on loans,
investments and mortgage-backed securities - net 17 2
Amortization of expense related to employee benefit plans 118 75
Gain on sale of office premises -- (79)
Gain on sale of real estate acquired through foreclosure (20) (2)
Federal Home Loan Bank stock dividends (78) (74)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans 20 (9)
Accrued interest receivable on mortgage-backed securities 7 12
Accrued interest receivable on investment
securities and interest-bearing deposits 77 (3)
Prepaid expenses and other assets 142 519
Accounts payable on mortgage loans serviced for others 260 (172)
Other liabilities 21 (291)
Increase (decrease) in checks issued in excess of bank balance (917) 3,866
Federal income taxes
Current (64) (45)
Deferred (110) 131
-------- --------
Net cash provided by (used in) operating activities (237) 3,466
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 1,466 2,077
Proceeds from sale of investments and mortgage-backed
securities designated as available for sale 6,762 --
Purchase of investment securities (2,000) (50)
Proceeds from maturities of investment securities 1,000 --
Loan principal repayments 25,697 26,091
Loan disbursements (33,700) (33,180)
Purchase of office premises and equipment (1,432) (709)
Proceeds from sale of office premises and equipment -- 195
Proceeds from sale of real estate acquired through foreclosure 212 396
Increase in cash surrender value of life insurance (92) (33)
-------- --------
Net cash used in investing activities (2,087) (5,213)
-------- --------
Net cash used in operating and investing
activities (subtotal carried forward) (2,324) (1,747)
-------- --------
</TABLE>
-6-
<PAGE>
<TABLE>
Glenway Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended December 31,
(In thousands)
1996 1995
------ ------
<S> <C> <C>
Net cash used in operating and investing
activities (subtotal brought forward) $ (2,324) $ (1,747)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 5,985 7,949
Proceeds from Federal Home Loan Bank advances 23,550 25,300
Repayment of Federal Home Loan Bank advances (30,054) (25,431)
Repayment of other borrowed money (74) (74)
Advances by borrowers for taxes and insurance 1,155 689
Dividends paid on common stock (382) (365)
Shares issued under stock option and benefit plans 175 208
-------- --------
Net cash provided by financing activities 355 8,276
-------- --------
Net increase (decrease) in cash and cash equivalents (1,969) 6,529
Cash and cash equivalents at beginning of period 5,142 4,072
-------- --------
Cash and cash equivalents at end of period $ 3,173 $ 10,601
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes $ 215 $ 370
======== ========
Interest on deposits and borrowings $ 6,054 $ 6,020
======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate
acquired through foreclosure $ 355 $ 110
======== ========
Transfer of investments from held to maturity to available for sale $ -- $ 1,000
======== ========
Transfer of mortgage-backed securities from held to maturity to
available for sale $ -- $ 12,118
======== ========
Unrealized gains on securities designated as available
for sale, net of related tax effects $ 77 $ 158
======== ========
Supplemental disclosure of noncash financing activities:
Issuance of treasury shares in exchange for outstanding
shares related to exercise of stock options $ 40 $ 20
======== ========
</TABLE>
-7-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six month periods ended
December 31, 1996 and 1995
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. Accordingly, these financial
statements should be read in conjunction with the Annual Report on Form
10-KSB 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 six month
periods ended December 31, 1996 and 1995, 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 December 31, 1996 and 1995,
has been computed based on 1,157,142 and 1,130,877 weighted-average shares
outstanding, respectively.
Earnings per share for the six months ended December 31, 1996 and 1995, has
been computed based on 1,154,347 and 1,127,583 weighted-average shares
outstanding. Weighted-average shares outstanding for the six and three month
periods ended December 31, 1995, have been restated for a 5.0% stock
dividend paid in August 1996. 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 (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 such 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
-8-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended
December 31, 1996 and 1995
4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS (continued)
of the asset and its eventual disposition. If the sum of the expected future
cash flows (undiscounted and without interest 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).
Earlier application is encouraged. Management adopted SFAS No. 121 effective
July 1, 1996, as required, without material effect on the Corporation's
consolidated financial position or results of operations.
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
would be applied 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 and
earlier adoption is encouraged. Management adopted SFAS No. 122 effective
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.
-9-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended
December 31, 1996 and 1995
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.
-10-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1996 TO
DECEMBER 31, 1996
The Corporation's assets totaled $278.7 million at December 31, 1996, a decrease
of $88,000, or .03%, from June 30, 1996 levels. Assets remained relatively
unchanged due to the use of proceeds from the sale of securities designated as
available for sale of $6.8 million to repay $6.5 million of advances from the
Federal Home Loan Bank. 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 $4.0
million, or 13.0%. The combined decrease in investment and mortgage-backed
securities of $7.1 million resulted from the sale of $6.8 million of securities
designated as available for sale, scheduled maturities of $1 million and
principal payments on mortgage-backed securities of $1.5 million. These
decreases were partially offset by the purchase of U.S. Treasury Notes of $2
million.
Loans receivable and loans held for sale increased by $7.6 million, or 3.4%,
during the current six month period, as loan originations of $34.1 million
exceeded principal repayments of $25.7 million by approximately $8.4 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 (ARMS) because of the
beneficial effect on interest rate risk management. When market conditions are
favorable, fixed rate loans are sold in the secondary market.
Deposits increased by $6.0 million, or 2.7%, for the current six month period.
During July, 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, however, alternate sources of funds are frequently reviewed to maintain
the cost of funds. Federal Home Loan Bank advances decreased by $6.5 million, or
25.4%.
Stockholders' equity increased by $56,000 during the current six month period,
as a result of period earnings of $68,000, proceeds from exercises of stock
options totaling $175,000 and a $77,000 increase in unrealized gains on
securities designated as available for sale. Additionally, during the first
quarter, the final distribution of restricted shares awarded in 1993 under the
Corporation stock option plan increased additional paid in capital by $147,000.
These increases were partially offset by cash dividends paid of $382,000 for the
six months ended 1996.
The Federal Deposit Insurance Corporation (FDIC) has adopted minimum regulatory
capital ratio guidelines to which the Savings Bank is subject. The required
range of the Tier 1 leverage ratio (Tier 1 capital to adjusted total assets, as
specified) is a minimum ratio of 3% and a maximum ratio of 5%. Additionally, the
Savings Bank is required to maintain a total risk-based capital ratio of 8%.
At December 31, 1996, Centennial's Tier 1 capital of $23.5 million, or 8.6%,
exceeded the maximum Tier 1 leverage ratio of 5%, or $13.8 million, by $9.8
million. Centennial's risk-based capital of $24.2 million, or 14.1% of total
risk-weighted assets, exceeded the 8% minimum capital requirement of $13.8
million by $10.4 million.
-11-
<PAGE>
Glenway 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 DECEMBER 31,
1996 AND 1995
GENERAL
Net earnings amounted to $68,000 for the six months ended December 31, 1996, as
compared to $744,000 for the same period of 1995, a decrease of $676,000, or
90.9%. The decrease in earnings was primarily attributable to the Savings
Association Insurance Fund (SAIF) assessment, which totaled approximately $1.35
million, or $891,000 after tax. Additionally, the decline in earnings resulted
from an increase in general, administrative and other expense of $53,000, and a
$109,000 increase in the provision for losses on loans. These increases were
partially offset by a $417,000 increase in net interest income and a $56,000
increase in other income.
NET INTEREST INCOME
Interest income on loans and mortgage-backed securities for the six months ended
December 31, 1996, increased by $564,000, or 6.0%, over the 1995 period. This
increase resulted primarily from growth of $3.6 million in the average mortgage
portfolio outstanding year to year, coupled with higher yields during the 1996
period. Interest on investments and interest-bearing deposits decreased by
$93,000, or 20.7%, from the 1995 period, due mainly to the sale of $6.8 million
of securities designated as available for sale.
Interest expense on deposits increased by $184,000, or 3.5%, for the six months
ended December 31, 1996, as compared to the comparable period in 1995. This
increase was due primarily to growth of $6.0 million in the average deposit
balances outstanding year to year, as well as an increase in the cost of funds.
Interest on borrowings decreased $130,000, or 18.0%, due to a decrease in the
level of borrowings year to year.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans totaled $139,000 for the six months ended
December 31, 1996, an increase of $109,000 over the comparable 1995 period. The
provision during the 1996 period resulted from growth in the loan portfolio, as
well as changes in the composition of the loan portfolio. Nonperforming loans
totaled $898,000 and $883,000 at December 31, 1996, and June 30, 1996,
respectively. The loan loss allowance totaled $710,000 and $618,000 at December
31, 1996, and June 30, 1996, respectively, representing 79.1% and 70.0% of
nonperforming loans and .31% and .27% of total loans at those respective dates.
Although management believes that its allowance for loan losses at December 31,
1996, is adequate based upon facts and circumstances 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 1933, 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 loan borrowers; (3) decreases in the value of collateral securing consumer
-12-
<PAGE>
Glenway 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 DECEMBER 31,
1996 AND 1995 (continued)
loans to amounts equal to 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 six months ended December 31, 1996, increased by $56,000,
or 14.8%, primarily as a result of a $63,000 gain on sale of securities, an
increase in gain on sale of loans of $34,000, and an $18,000 increase in gain on
sale of real estate acquired through foreclosure, which more than offset the
1995 period income attributable to the recognition of a gain on sale of office
premises of $79,000.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
General, administrative and other expense increased by $1.4 million, or 46.1%,
for the six months ended December 31, 1996, 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 $67,000, or 11.6%, increase in other
operating expenses, a $40,000, or 2.5%, increase in employee compensation and
benefits, a $52,000, or 23.9%, increase in occupancy and equipment and an
increase in data processing expense of $35,000, or 29.4%, over the prior six
month period. These increases were partially offset by declines of $24,000 in
franchise taxes and $6,000 in goodwill amortization.
The one-time SAIF assessment was part of legislation passed in 1996 to
recapitalize the SAIF and to eliminate a disparity in deposit insurance premiums
paid SAIF-insured institutions and those paid by institutions whose deposits are
insured by the Bank Insurance Fund. As a result of such legislation,
SAIF-insured institutions, including the Savings Bank, paid an assessment of
$.657 per $100 of deposits held at March 31, 1995. The Savings Bank had $206.0
million in deposits at March 31, 1995, resulting in an assessment of $1.35
million, or $891,000 after tax, which was recorded on September 30, 1996, and
was paid in November 1996. The assessment was partially offset by a rebate of
federal deposit insurance premiums for the quarter ended December 31, 1996,
totaling $129,000.
The increase in employee compensation and benefits resulted primarily from an
increase in compensation related to early retirements and terminations of
personnel. 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 systems. The increase in other operating
expenses resulted primarily from a $36,000 increase in advertising costs related
to the new office location grand opening, a $14,000 increase in office supplies
and pro-rata increases in other operating costs.
-13-
<PAGE>
Glenway 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 DECEMBER 31,
1996 AND 1995 (continued)
FEDERAL INCOME TAXES
The provision for federal income taxes amounted to $75,000 for the six months
ended December 31, 1996, a decrease of $363,000, or 82.9%, from the 1995 period.
The decrease resulted primarily from a $1.0 million, or 87.9%, 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 six months ended December 31, 1996 and 1995, were 52.4 % and 37.1%,
respectively.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED DECEMBER 31,
1996 AND 1995
GENERAL
Net earnings for the second quarter of 1996 amounted to $507,000, as compared to
net earnings of $340,000 for the 1995 quarter, an increase of $167,000, or
49.1%. Such increase in current quarter earnings is principally attributable to
an increase in net interest income after provision for loan losses of $163,000
and an increase in other income of $112,000, which were partially offset by an
increase in the provision for federal income taxes of $87,000, and an increase
in general, administrative and other expenses of $21,000.
NET INTEREST INCOME
Interest income on loans and mortgage-backed securities increased by $329,000,
or 7.0%, during the current quarter as a result of the growth in loans
receivable. Interest on investments and interest-bearing deposits decreased by
$77,000, or 33.5%, due to the sale of investment securities designated as
available for sale during October 1996.
Interest on deposits for the 1996 quarter increased by $38,000, or 1.4%.
Interest on borrowings decreased by $55,000, or 16.0%, due primarily to the
decline in the outstanding balance.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans totaled $121,000 for the three month period
ended December 31, 1996, an increase of $106,000 over the comparable 1995
quarter. The increase resulted primarily from growth in the loan portfolio.
OTHER INCOME
Other income for the three months ended December 31, 1996, increased by
$112,000, or 80.0%, primarily as a result of a $63,000 gain on sale of
securities and a $32,000 gain on sale of loans.
-14-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED DECEMBER 31,
1996 AND 1995 (continued)
GENERAL, ADMINISTRATIVE, AND OTHER EXPENSE
General, administrative and other expense increased by $21,000, or 1.4%, for the
three months ended December 31, 1996, due primarily to an increase in employee
compensation and benefits of $47,000, or 5.9%, an increase in other operating
expense of $33,000, or 12.0%, and an increase in occupancy and equipment expense
of $48,000, or 44.9%, for the reasons set forth above. These increases were
partially offset by a refund of $129,000 of SAIF premiums paid for the quarter.
FEDERAL INCOME TAXES
The provision for federal income taxes totaled $290,000 for the quarter ended
December 31, 1996, an increase of $87,000, or 42.9%, over the comparable 1995
quarter. The increase resulted primarily from a $254,000, or 46.8%, increase in
pretax earnings. The effective tax rates were 36.4% and 37.4% for the three
months ended December 31, 1996 and 1995, respectively.
-15-
<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 INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-16-
<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: 2-13-97 By: /s/ Robert R. Sudbrook
__________________________________
Robert R. Sudbrook
President
Date: 2-13-97 By: /s/ Gregory P. Niesen
__________________________________
Gregory P. Niesen
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,311
<INT-BEARING-DEPOSITS> 862
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,471
<INVESTMENTS-CARRYING> 21,581
<INVESTMENTS-MARKET> 21,280
<LOANS> 228,683
<ALLOWANCE> 710
<TOTAL-ASSETS> 278,721
<DEPOSITS> 228,753
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,862
<LONG-TERM> 19,269
0
0
<COMMON> 12
<OTHER-SE> 26,825
<TOTAL-LIABILITIES-AND-EQUITY> 278,721
<INTEREST-LOAN> 9,048
<INTEREST-INVEST> 1,208
<INTEREST-OTHER> 103
<INTEREST-TOTAL> 10,359
<INTEREST-DEPOSIT> 5,473
<INTEREST-EXPENSE> 6,067
<INTEREST-INCOME-NET> 4,292
<LOAN-LOSSES> 139
<SECURITIES-GAINS> 63
<EXPENSE-OTHER> 4,445
<INCOME-PRETAX> 143
<INCOME-PRE-EXTRAORDINARY> 68
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 3.22
<LOANS-NON> 168
<LOANS-PAST> 730
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 785
<ALLOWANCE-OPEN> 618
<CHARGE-OFFS> 47
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 710
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 710
</TABLE>
