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 September 30, 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 Securities 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 November 13, 1997, the latest practicable date, 1,140,747 shares of
the registrant's common stock, $.01 par value, were outstanding.
Page 1 of 15
<PAGE>
Glenway Financial Corporation and Subsidiary
INDEX
PART I FINANCIAL INFORMATION Page
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 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 14
SIGNATURES 15
2
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<TABLE>
Glenway Financial Corporation and Subsidiary
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
1997
<S> <C> <C>
ASSETS September 30, June 30,
(Dollars in thousands)
Cash and due from banks ........................................................... $ 1,682 $ 3,890
Interest-bearing deposits in other financial institutions ......................... 526 -
-------- --------
Cash and cash equivalents .................................................... 2,208 3,890
Investment securities - at amortized cost, approximate market value of $7,073
and $7,035 at September 30 and June 30, 1997, respectively ................... 7,045 7,042
Mortgage-backed securities - at cost, approximate market value of $12,662 and
$12,946 at September 30 and June 30, 1997, respectively ...................... 12,901 13,281
Mortgage-backed securities available for sale - at market ......................... 9,426 9,920
Loans receivable - net ............................................................ 248,414 239,648
Office premises and equipment - at depreciated cost ............................... 7,092 7,043
Real estate acquired through foreclosure .......................................... 44 44
Federal Home Loan Bank stock - at cost ............................................ 2,426 2,382
Accrued interest receivable on loans .............................................. 1,235 1,214
Accrued interest receivable on mortgage-backed securities, investments and
interest-bearing deposits .................................................... 215 267
Cash surrender value - life insurance ............................................. 1,603 1,585
Prepaid expenses and other assets ................................................. 304 404
Goodwill and other intangible assets - net of accumulated amortization ............ 332 368
--------- --------
Total assets ................................................................. $293,245 $287,088
======== ========
</TABLE>
3
<PAGE>
<TABLE>
Glenway Financial Corporation and Subsidiary
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, June 30,
Deposits .......................................................................... $230,008 $226,853
Federal funds purchased ........................................................... 1,500 -
Advances from Federal Home Loan Bank .............................................. 29,991 28,114
Loan to Employee Stock Ownership Plan ............................................. 65 65
Checks issued in excess of bank balance ........................................... 394 2,422
Advances by borrowers for taxes and insurance ..................................... 824 235
Accounts payable on mortgage loans serviced for others ............................ 858 229
Accrued interest payable .......................................................... 73 61
Other liabilities ................................................................. 1,025 1,189
Accrued federal income taxes ...................................................... 185 102
Deferred federal income taxes ..................................................... 572 580
--------- ----------
Total liabilities ............................................................ 265,495 259,850
Stockholders' equity
Serial preferred stock (500,000 shares of $.01 par value authorized; no
shares issued) ........................................................... - -
Common stock - authorized, 3,000,000 shares at $.01 par value;
1,187,369 and 1,187,369 shares issued at September 30 and
June 30, 1997, respectively .............................................. 12 12
Additional paid-in capital ................................................... 13,351 13,267
Retained earnings - substantially restricted ................................. 15,423 15,038
Required contributions for shares acquired by employee benefit plans ......... (183) (216)
Treasury stock - 47,372 and 47,372 shares at September 30 and
June 30, 1997, respectively - at cost .................................... (965) (965)
Unrealized losses on securities designated as available for sale, net of
related tax effects ...................................................... 112 102
---------- ----------
Total stockholders' equity ............................................... 27,750 27,238
---------- ----------
Total liabilities and stockholders' equity ............................... $293,245 $287,088
======== ========
</TABLE>
4
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<TABLE>
Glenway Financial Corporation and Subsidiary
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30,
<S> <C> <C>
1997 1996
------ ----
(Dollars in thousands)
Interest income
Loans .......................................................................... $4,926 $4,425
Mortgage-backed securities ..................................................... 372 489
Investment securities .......................................................... 108 151
Interest-bearing deposits and other ............................................ 56 53
------- -------
Total interest income ...................................................... 5,462 5,118
Interest expense
Deposits ....................................................................... 2,801 2,766
Borrowings ..................................................................... 423 305
------ ------
Total interest expense ..................................................... 3,224 3,071
----- -----
Net interest income ........................................................ 2,238 2,047
----- -----
Provision for losses on loans ..................................................... 100 18
------ -----
Net interest income after provision for losses on loans .................... 2,138 2,029
Other income
Gain on sale of loans .......................................................... - 7
Gain on sale of real estate acquired through foreclosure ....................... - 21
Loan servicing fees ............................................................ 39 43
Other operating ................................................................ 197 155
------ ------
Total other income ......................................................... 236 226
General, administrative and other expense
Employee compensation and benefits ............................................. 789 788
Occupancy and equipment ........................................................ 171 115
Federal deposit insurance premiums ............................................. 36 1,477
Franchise taxes ................................................................ 94 85
Data processing ................................................................ 81 57
Amortization of goodwill and other intangible assets ........................... 35 52
Other operating ................................................................ 229 335
------ ------
Total general, administrative and other expense ............................ 1,435 2,909
----- -----
Earnings (loss) before income taxes (credits) .............................. 939 (654)
Federal income taxes (credits)
Current ........................................................................ 337 (241)
Deferred ....................................................................... (11) 26
------- -------
Total federal income taxes (credits) ....................................... 326 (215)
------ ------
NET EARNINGS (LOSS) ........................................................ $ 613 $ (439)
===== =======
EARNINGS (LOSS) PER SHARE .................................................. $ .54 $ (.38)
====== ====
</TABLE>
5
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<TABLE>
Glenway Financial Corporation and Subsidiary
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
<S> <C> <C>
1997 1996
------ ----
(In thousands)
Cash flows from operating activities:
Net earnings (loss) for the period ............................................. $ 613 $ (439)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization ................................................ 94 62
Provision for losses on loans ................................................ 100 18
Gain on sale of loans ........................................................ - (7)
Loans disbursed for sale in the secondary market ............................. - (440)
Proceeds from sale of loans .................................................. - 444
Amortization of deferred loan origination fees ............................... (28) (32)
Amortization of goodwill and other intangible assets ......................... 36 52
Amortization of premiums and discounts on loans, investments and
mortgage-backed securities - net ........................................... 3 5
Gain on sale of real estate acquired through foreclosure ..................... - (21)
Federal Home Loan Bank stock dividends ....................................... (44) (39)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans ....................................... (21) (48)
Accrued interest receivable on mortgage-backed securities,
investment securities, and interest-bearing deposits ..................... 52 110
Prepaid expenses and other assets .......................................... 100 (10)
Accounts payable on mortgage loans serviced for others ..................... 641 (447)
Other liabilities .......................................................... (164) 1,362
Increase in checks issued in excess of bank balance ........................ (2,028) 559
Federal income taxes
Current .................................................................. 83 (458)
Deferred ................................................................. (11) 26
--------- ---------
Net cash provided by (used in) operating activities .................. (574) 697
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities ............................. 880 745
Loan principal repayments ...................................................... 22,366 12,240
Loan disbursements ............................................................. (31,203) (17,861)
Purchase of office premises and equipment ...................................... (143) (799)
Increase in cash surrender value of life insurance ............................. (18) (16)
Proceeds from sale of real estate acquired through foreclosure ................. - 195
---------- --------
Net cash used in investing activities ................................ (8,118) (5,496)
-------- -------
Net cash used in operating and investing activities
(subtotal carried forward) ......................................... (8,692) (4,799)
----- --------
</TABLE>
6
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<TABLE>
Glenway Financial Corporation and Subsidiary
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
<S> <C> <C>
1997 1996
------ ----
(In thousands)
Net cash used in operating and investing
activities (subtotal brought forward) ............................... $ (8,692) $ (4,799)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts ............................................... 3,155 5,142
Proceeds from Federal Home Loan Bank advances .................................. 29,150 14,950
Repayment of Federal Home Loan Bank advances ................................... (25,773) (16,811)
Repayment of loan to Employee Stock Ownership Plan ............................. - (4)
Advances by borrowers for taxes and insurance .................................. 589 578
Dividends paid on common stock ................................................. (228) (186)
Issuance of shares under stock option and benefit plans ........................ 117 174
-------- --------
Net cash provided by financing activities ................................ 7,010 3,843
------- -------
Net decrease in cash and cash equivalents ......................................... (1,682) (956)
Cash and cash equivalents at beginning of period .................................. 3,890 5,142
------- -------
Cash and cash equivalents at end of period ........................................ $ 2,208 $ 4,186
======== ========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Federal income taxes ......................................................... $ 404 $ 215
========= =========
Interest on deposits and borrowings .......................................... $ 3,212 $ 3,077
======== ========
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure ................ $ - $ 117
========= =========
Unrealized gains on securities designated as available for sale, net
of tax effects ............................................................... $ 10 $ 9
========== ========
</TABLE>
7
<PAGE>
Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended
September 30, 1997 and 1996
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. 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 month periods ended September
30, 1997 and 1996, 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
Glenway Financial Corporation (Glenway Financial or the Corporation) and its
wholly-owned subsidiary, Centennial Savings Bank (the Savings Bank or
Centennial). All significant intercompany items have been eliminated.
3. Earnings Per Share
Earnings per share for the three months ended September 30, 1997 and 1996, has
been computed based on 1,135,297 and 1,151,552 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 ("FASB") issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and 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 charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment 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. Earlier application is encouraged. Glenway
Financial adopted SFAS No. 121 on July 1, 1996, without material effect on
consolidated financial position or results of operations.
In June 1994, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which requires that Glenway Financial 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 will apply prospectively to fiscal years
8
<PAGE>
Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended
September 30, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
beginning after December 15, 1995, 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 Glenway Financial'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 continue using their existing accounting
method 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, adoption of SFAS 123 will not have a material effect on Glenway
Financial's financial condition or results of operations.
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 for 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, known 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, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. SFAS No. 125
supersedes SFAS No. 122. Management does not believe that adoption of SFAS No.
125 will have a material adverse effect on Glenway Financial's consolidated
financial position or results of operations.
9
<PAGE>
Glenway Financial Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended
September 30, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is
effective for financial statements for periods ending after December 15, 1997,
including interim periods. SFAS 128 simplifies the calculation of earnings per
share ("EPS") by replacing primary EPS with basic EPS. It also requires dual
presentation of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing income
available to common shareholders by the weighted-average common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings, such as stock options, warrants or
other common stock equivalents. All prior period EPS data will be restated to
conform with the new presentation. This statement will not have a material
impact on the Corporation's financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure." SFAS No. 129 consolidated existing accounting guidance
relating to disclosure about a company's capital structure. SFAS No. 129 is
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 129 is not expected to have a material impact on the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components (revenues, expenses, gains and loses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. SFAS No. 130 is not expected to
have a material impact on Glenway Financial's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 significantly changes the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 uses a
"management approach" to disclose financial and descriptive information about
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. For many enterprises, the
management approach will likely result in more segments being reported. In
addition, SFAS No. 131 requires significantly more information to be disclosed
for each reportable segment than is presently being reported in annual financial
statements and also requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 is not expected to have a material impact on the
Company's financial statements.
10
<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three month periods ended September 30, 1997 and 1996
Discussion of Financial Condition Changes from June 30, 1997 to
September 30, 1997
The Corporation's total assets amounted to $293.2 million as of September 30,
1997, an increase of $6.2 million, or 2.1%, over the $287.1 million total at
June 30, 1997. The increase was funded primarily through growth in deposits of
$3.2 million, and an increase in borrowings of $3.4 million.
Cash and due from banks and interest bearing deposits in other financial
institutions decreased by $1.7 million, or 43.2%, to a total of $2.2 million at
September 30, 1997 compared to $3.9 million at June 30, 1997. Investment
securities remained relatively unchanged, while mortgage-backed securities and
mortgage-backed securities available for sale decreased by $874,000, or 3.8%.
The decrease in mortgage-backed securities resulted from principal repayments.
Loans receivable increased by $8.8 million, or 3.7%, during the current three
month period, as loan originations of $31.2 million exceeded principal
repayments of $22.3 million. The increase was funded by the redeployment of $1.7
million of liquid assets and the $874,000 of mortgage-backed securities,
repayments and the increases in deposits and borrowings. The Corporation's
allowance for loan losses amounted to $920,000 at September 30, 1997, an
increase of $100,000, or 12.2%, over the total at June 30, 1997. The allowance
for loan losses represented .37% of the total loan portfolio at September 30,
1997, as compared to .32% at June 30, 1997. The allowance represented 139.8% and
96.4% of nonperforming loans, which totaled $658,000 and $851,000, at September
30 and June 30, 1997, respectively.
Deposits increased by $3.2 million, or 1.4%, for the current three month period.
During the first quarter of fiscal 1998, Centennial Savings Bank became a
depository for the State of Ohio, Office of the Treasurer and received $6.0
million in short-term certificates of deposits from the State of Ohio.
Alternative sources of funds, such as Federal Home Loan Bank ("FHLB") advances
and federal funds purchased, are frequently used to manage the cost of funds.
FHLB advances increased by $1.9 million, or 6.7%, from June 30, 1997, and
federal funds purchased increased by $1.5 million.
The Corporation's stockholders' equity increased by $512,000 during the current
three month period. Period earnings of $613,000, distributions of employee
benefits and stock awards totaling $117,000, and a $10,000 increase in
unrealized gains on securities designated as available for sale were partially
offset by cash dividends paid totaling $228,000 during the three months ended
September 30, 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 September 30, 1997, the Savings Bank's Tier 1 capital of
$24.7 million, or 8.5%, exceeded the required Tier 1 leverage ratio of 5%, or
$14.5 million, by $10.2 million. The Savings Bank's risk-based capital of $25.6
million, or 13.8% of total risk-weighted assets, exceeded the 8% risk-based
capital requirement of $14.8 million by $11.8 million.
11
<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For the three month periods ended September 30, 1997 and 1996
Comparison of Operating Results for the Three Months Ended September 30,
1997 and 1996
General
Net earnings amounted to $613,000 for the three months ended September 30, 1997,
compared to a net loss of $439,000, for the same period in 1996. The increase in
earnings in the first quarter of 1997 over the first quarter of fiscal 1996 was
due to an increase of $344,000, or 6.7%, in net interest income, an increase of
$10,000 in other income, and a decline in general, administrative, and other
expense. These increases were partially offset by the increase in the provision
for loan losses of $82,000, or 455.6%. The decrease in general, administrative
and other expense relates to the one-time $1.35 million, or $891,000, after tax,
assessment imposed on the Savings Bank as part of legislation to recapitalize
the Savings Association Insurance Fund ("SAIF"). Absent the special SAIF
assessment, net earnings for the three months ended September 30, 1996, would
have been $452,000. Excluding the SAIF recapitalization, the first quarter 1997
earnings represents an increase of $161,000, or 35.6%, over September 30, 1996.
Net Interest Income
Interest income on loans and mortgage-backed securities for the three months
ended September 30, 1997, increased by $384,000, or 7.8%, over the same period
in 1996. This increase resulted from growth of $21.8 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
$40,000, or 19.6%, for the three months ended September 30, 1997, due mainly to
the sale of $4.1 million of investment securities designated as available for
sale during 1996.
Interest expense on deposits increased by $35,000, or 1.3%, for the three months
ended September 30, 1997, compared to the same period in 1996. This increase was
due primarily to growth of $2.1 million in deposit balances outstanding year to
year, as well as a marginal increase in the cost of funds. Interest on
borrowings increased $118,000, or 38.7%, due to an increase in the overall level
of borrowings from year to year.
Provision for Loan Losses
The provision for loan losses represents a charge to earnings to maintain the
loan loss allowance at a level management believes is adequate to absorb losses
in the loan portfolio. The Corporation's provision for loan losses amounted to
$100,000 for the three months ended September 30, 1997, as compared to $18,000
for the same period in 1996, an increase of $82,000 or 455.6%. The provision for
loan losses in 1997 was increased primarily as a result of the $21.8 million, or
9.6%, increase in the loan portfolio over the year and the Corporation's
entrance into small business commercial lending.
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at September 30, 1997, future adjustments to the allowance could be necessary
and net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Other Income
Other income for the three months ended September 30, 1997, increased by
$10,000, or 4.4%, primarily as a result of a $42,000 increase in other operating
income, which was partially offset by decreases in gains on sales or real estate
acquired through foreclosure and gains on sales of loans from year to year.
12
<PAGE>
Glenway Financial Corporation and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
For the three month periods ended September 30, 1997 and 1996
General, Administrative, and Other Expenses
General, administrative and other expense decreased by $1.5 million, or 50.7%,
for the three months ended September 30, 1997, due primarily to a $1.4 million
decrease in federal deposit insurance premiums, a decrease of $106,000 in other
operating expenses and a $17,000 decrease in amortization of goodwill. These
decreases were partially offset by a $56,000 increase in occupancy and
equipment, a $24,000 increase in data processing, a $9,000 increase in franchise
tax, and a $1,000 increase in employee compensation and benefits. As a result of
the one-time SAIF assessment, FDIC insurance premiums were reduced from 23 basis
points to 6 basis points per $100 of deposits. The premium decrease resulted in
approximately $30,000 monthly reduction in FDIC premiums. The decrease in other
operating expenses resulted primarily from decreases in professional fees,
correspondent bank charges, advertising, and office supplies expenses from year
to year. In August 1996, the Corporation opened it's new main office
headquarters and upgraded the data communications systems of the Savings Bank
which resulted in the increases in office occupancy and equipment expense.
Federal Income Taxes
The provision for federal income taxes totaled $326,000 for the quarter ended
September 30, 1997, an increase of $541,000 over the credit of $215,000 recorded
for the same quarter in 1996. The increase resulted primarily from a $1.6
million increase in earnings before taxes over the prior year. The effective tax
rates (credit) were 34.7% and 32.9%, for the three months ended September 30,
1997 and 1996, respectively.
13
<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
At the 1997 Annual Meeting of the Company's stockholders, held
on October 22, 1997 (the "Annual Meeting"), the following
persons were re-elected as directors of the Company for terms
expiring in 2000 pursuant to the following votes:
Daniel W. Geeding For: 863,835 Withheld: 51,375
Ronald L. Goodfellow For: 882,981 Withheld: 32,229
Kenneth C. Lichtendahl For: 886,497 Withheld: 28,713
The terms of Edgar A. Rust, John P. Torbeck and Milton L. Van
Schoik will continue until the 1998 Annual Meeting of the
Company's stockholders and the terms of Albert W. Moeller and
Robert R. Sudbrook will continue until the 1999 Annual Meeting
of the Company's stockholders.
The following vote was cast on the ratification of the
selection of Grant Thornton LLP as independent auditors of the
Company for the fiscal year ended June 30, 1998:
For: 875,423 Against: 37,968 Abstain: 1,819
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibit 27: Financial Data Schedule for the three month
period ended September 30, 1997.
14
<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: November 13, 1997 Robert R. Sudbrook
President
Date: November 13, 1997 Gregory P. Niesen
Chief Financial Officer
15
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