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, 1998
--------------------------------------
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)
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 of 1934 during the preceeding
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 2, 1998, the latest practicable date, 2,293,210 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 18 pages
<PAGE>
Glenway Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
September 30, June 30,
ASSETS 1998 1998
<S> <C> <C>
Cash and due from banks $ 2,882 $ 1,436
Interest-bearing deposits in other financial institutions 1,941 1,764
------- -------
Cash and cash equivalents 4,823 3,200
Investment securities - at amortized cost, approximate market value of $9,162
and $8,120 at September 30, 1998 and June 30, 1998, respectively 9,073 8,069
Mortgage-backed securities - at cost, approximate market value of $10,663
and $11,158 at September 30, 1998 and June 30, 1998, respectively 10,768 11,304
Mortgage-backed securities available for sale - at market 4,940 5,570
Loans receivable - net 257,578 262,327
Office premises and equipment - at depreciated cost 5,707 5,805
Federal Home Loan Bank stock - at cost 2,665 2,617
Accrued interest receivable on loans 1,567 1,548
Accrued interest receivable on mortgage-backed securities, investments and
interest-bearing deposits 169 230
Cash surrender value of life insurance 1,667 1,652
Prepaid expenses and other assets 414 412
Prepaid federal income taxes - 372
Goodwill and other intangible assets - net of amortization 200 226
------- -------
Total assets $299,571 $303,332
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $219,335 $220,639
Advances from the Federal Home Loan Bank 47,199 50,435
Advances by borrowers for taxes and insurance 736 186
Accounts payable on mortgage loans serviced for others 728 600
Accrued interest payable 93 108
Other liabilities 1,041 1,486
Accrued federal income taxes 9 -
Deferred federal income taxes 591 657
------- -------
Total liabilities 269,732 274,111
Stockholders' equity
Serial preferred stock (500,000 shares of $.01 par value authorized; no
shares issued) - -
Common stock - authorized, 3,000,000 shares of $.01 par value; 2,374,738
shares issued 24 24
Additional paid-in capital 13,405 13,359
Retained earnings - substantially restricted 17,259 16,806
Shares acquired by employee benefit plans (80) (107)
Treasury stock - 81,528 and 91,244 shares at September 30, 1998 and
June 30, 1998, respectively - at cost (830) (929)
Unrealized gains on securities designated as available for sale,
net of related tax effects 61 68
------- -------
Total stockholders' equity 29,839 29,221
------- -------
Total liabilities and stockholders' equity $299,571 $303,332
======= =======
</TABLE>
3
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
(In thousands, except per share data)
1998 1997
<S> <C> <C>
Interest income
Loans $5,143 $4,926
Mortgage-backed securities 256 372
Investment securities 126 108
Interest-bearing deposits and other 81 56
----- -----
Total interest income 5,606 5,462
Interest expense
Deposits 2,611 2,801
Borrowings 701 423
----- -----
Total interest expense 3,312 3,224
----- -----
Net interest income 2,294 2,238
Provision for losses on loans 45 100
----- -----
Net interest income after provision for losses on loans 2,249 2,138
Other income
Gain on sale of loans 48 -
Gain on sale of office premises 7 -
Loan servicing fees 34 39
Other operating 209 197
----- -----
Total other income 298 236
General, administrative and other expense
Employee compensation and benefits 889 789
Occupancy and equipment 182 171
Federal deposit insurance premiums 36 36
Franchise taxes 72 94
Data processing 38 81
Amortization of goodwill 26 35
Other operating 233 229
----- -----
Total general, administrative and other expense 1,476 1,435
----- -----
Earnings before income taxes 1,071 939
Federal income taxes
Current 428 337
Deferred (63) (11)
----- -----
Total federal income taxes 365 326
----- -----
NET EARNINGS $ 706 $ 613
===== =====
EARNINGS PER SHARE
Basic $.31 $.27
=== ===
Diluted $.30 $.26
=== ===
</TABLE>
4
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended September 30,
(In thousands)
1998 1997
<S> <C> <C>
Net earnings $706 $613
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during the
period, net of tax (7) 10
---- ---
Comprehensive income $699 $623
=== ===
</TABLE>
5
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 706 $ 613
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 105 94
Provision for losses on loans 45 100
Gain on sale of loans (20) -
Loans disbursed for sale in the secondary market (3,499) -
Proceeds from sale of loans 3,519 -
Amortization of deferred loan origination fees (3) (28)
Amortization of goodwill and other intangible assets 26 35
Amortization of premiums and discounts on loans,
investments and mortgage-backed securities - net (21) 4
Gain on sale of office premises (7) -
Federal Home Loan Bank stock dividends (48) (44)
Increases (decreases) in cash due to changes in
Accrued interest receivable on loans (19) (21)
Accrued interest receivable on mortgage-backed securities,
investment securities and interest-bearing deposits 61 52
Prepaid expenses and other assets (2) 100
Accounts payable on mortgage loans serviced for others 128 641
Other liabilities (460) (164)
Increase in checks issued in excess of bank balance - (2,028)
Federal income taxes
Current 381 83
Deferred (63) (11)
------ ------
Net cash provided by (used in) operating activities 829 (574)
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 1,155 880
Purchase of investment securities (2,000) -
Proceeds from maturities/calls of investment securities 1,000 -
Loan principal repayments 20,465 22,366
Loan disbursements (15,740) (31,203)
Purchase of office premises and equipment (30) (143)
Proceeds from sale of office premises 30 -
Increase in cash surrender value of life insurance (15) (18)
------ ------
Net cash provided by (used in) investing activities 4,865 (8,118)
------ ------
Net cash provided by (used in) operating and investing
activities (subtotal carried forward) 5,694 (8,692)
------ ------
</TABLE>
6
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended September 30,
(In thousands)
1998 1997
<S> <C> <C>
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $5,694 $(8,692)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (1,304) 3,155
Proceeds from borrowings 1,400 29,150
Repayment of borrowings (4,636) (25,773)
Advances by borrowers for taxes and insurance 550 589
Dividends paid on common stock (253) (228)
Shares issued under stock option and benefit plans 172 117
----- ------
Net cash provided by (used in) financing activities (4,071) 7,010
----- ------
Net increase (decrease) in cash and cash equivalents 1,623 (1,682)
Cash and cash equivalents at beginning of period 3,200 3,890
----- ------
Cash and cash equivalents at end of period $4,823 $ 2,208
===== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 150 $ 404
===== ======
Interest on deposits and borrowings $3,327 $ 3,212
===== ======
Supplemental disclosure of noncash investing activities:
Unrealized gains (losses) on securities designated as available for
sale, net of related tax effects $ (7) $ 10
===== ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 28 $ -
===== ======
Supplemental disclosure of noncash financing activities:
Issuance of treasury shares in exchange for outstanding shares related
to exercise of stock options $ 99 $ -
===== ======
</TABLE>
7
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended
September 30, 1998 and 1997
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,
1998. 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 period ended September 30, 1998, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of 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
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period, less shares in the Corporation's ESOP that are
unallocated and not committed to be released. Weighted-average common shares
totaled 2,293,210 and 2,270,594 for the three month periods ended September 30,
1998 and 1997, respectively.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
2,348,692 and 2,320,554 for the three month periods ended September 30, 1998,
and 1997, respectively.
8
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended
September 30, 1998 and 1997
4. Effect of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) 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. Management adopted SFAS No. 130
effective July 1, 1998, as required, without material effect on the
Corporation'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 an
enterprise's reportable operating segments which is based on reporting
information 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 requires that selected information be reported in interim
financial statements. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. SFAS No. 131 is not expected to have
a material effect on the Corporation's financial position or results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize all
derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specifies new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting.
9
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three month periods ended
September 30, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. SFAS No. 133 is
not expected to have a material impact on the Corporation's financial
statements.
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, 1998 to September 30,
1998
The Corporation's total assets amounted to $299.6 million at September 30, 1998,
a decrease of $3.8 million, or 1.2%, from the $303.3 million total at June 30,
1998. The decrease consisted primarily of an overall decline in loans receivable
of $4.7 million, or 1.8%, while deposits and borrowings declined by $1.3 million
and $3.2 million, respectively.
Cash and due from banks and interest-bearing deposits in other financial
institutions increased by $1.6 million, or 50.7%, to a total of $4.8 million at
September 30, 1998, compared to $3.2 million at June 30, 1998. Investment
securities increased by $1.0 million as purchases of $2.0 million exceeded
maturities/calls of $1.0 million during the quarter. Mortgage-backed securities
and mortgage-backed securities available for sale decreased by $1.2 million, or
6.9%, as a result of principal repayments.
Loans receivable decreased by $4.7 million, or 1.8%, during the current three
month period, as principal repayments of $20.5 million exceeded loan
originations of $19.2 million. Additionally, during the three months ended
September 30, 1998, the Bank sold $3.5 million of fixed rate 30 year mortgage
loans in the secondary market. Due to consumer demand for long-term fixed rate
products in the current interest rate environment, loans are evaluated and sold
in the secondary market as part of the Bank's interest rate risk management
strategy. The Corporation's allowance for loan losses amounted to $1.2 million
at September 30, 1998, an increase of $43,000, or 3.7%, over the total at June
30, 1998. The allowance for loan losses represented .46% of the total loan
portfolio at September 30, 1998, compared to .43% at June 30, 1998, and
represented 124.6% of non-performing loans, which totaled $977,000 at September
30, 1998, compared to 119.6% of nonperforming loans, which totaled $982,000, at
June 30, 1998.
Deposits decreased by $1.3 million, or .6%, to a total of $219.3 million at
September 30, 1998. Total borrowings decreased by $3.2 million, or 6.4%, from
June 30, 1998, to September 30, 1998. The Corporation repaid $4.6 million in
borrowings with funds obtained from loan sales and mortgage-backed securities
principal repayments.
Stockholders' equity increased by $618,000 during the current three month
period, as period earnings of $706,000 and distributions of employee benefits
and stock awards totaling $172,000 exceeded cash dividends paid totaling
$253,000, and a decline in unrealized gains on securities designated as
available for sale of $7,000.
The Federal Deposit Insurance Corporation prescribes minimum regulatory capital
ratio guidelines to which the Savings Bank is subject. At September 30, 1998,
the Savings Bank's Tier 1 capital of $27.1 million, or 9.0% of adjusted total
assets, exceeded the required Tier 1 leverage ratio of 5%, or $15.0 million, by
$12.1 million. The Savings Bank's risk-based capital of $28.3 million, or 14.4%
of total risk-weighted assets, exceeded the 8% risk-based capital requirement of
$15.7 million by $12.6 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 Three Months ended September 30, 1998
and 1997
General
Net earnings totaled $706,000 for the three months ended September 30, 1998,
compared to $613,000, for the same period in 1997. The increase in net earnings
is primarily attributable to an increase in net interest income of $56,000, an
increase in other income of $62,000, and a decline in the provision for loan
losses of $55,000, which were partially offset by a $41,000 increase in general,
administrative and other expense and an increase in federal income taxes of
$39,000.
Net Interest Income
Interest income on loans and mortgage-backed securities for the three months
ended September 30, 1998, increased by $101,000, or 1.9%, over the same period
in 1997. This increase resulted from growth of $16.8 million in the average loan
portfolio balance outstanding year to year, which was partially offset by a
decline in the weighted-average rate from 7.97% to 7.78%. Interest on
investments and interest-bearing deposits increased by $43,000, or 26.2%, over
the same period in 1997.
Interest expense on deposits decreased by $190,000, or 6.8%, for the three
months ended September 30, 1998, compared to the comparable period in 1997, due
primarily to an $8.2 million, or 3.6%, decrease in average deposit balances for
the three month period year to year, which was partially offset by a 25 basis
point decline in the average cost of funds to 4.68% in the 1998 period. Interest
on borrowings increased by $278,000, or 65.7%, due to a $19.4 million, or 67.5%,
increase in the average borrowings outstanding year to year.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $56,000, or 2.5%, to a total of $2.3 million
for the three months ended September 30, 1998. The interest rate spread
decreased to approximately 2.85% for the three months ended September 30, 1998,
from 2.87% for the 1997 period, while the net interest margin decreased to
approximately 3.13% in 1998, as compared to 3.24% in 1997.
Provision for Losses on Loans
The provision for losses on loans represents a charge to earnings to maintain
the allowance for loan losses at a level management believes is adequate to
absorb potential losses in the loan portfolio. The provision for losses on loans
amounted to $45,000 for the three months ended September 30, 1998, as compared
to $100,000 for the same period in 1997, a decrease of $55,000, or 55.0%.
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, 1998, 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.
12
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Months ended September 30, 1998
and 1997 (continued)
Other Income
Other income for the three months ended September 30, 1998, increased by
$62,000, or 26.3%, primarily as a result of gains on sales of loans and office
premises during the 1998 period. Other operating income for the three months
ended September 30, 1998, increased by $12,000, or 6.1%, due to increases in
service charges, loan fees and miscellaneous revenues.
General, Administrative and Other Expense
General, administrative and other expense increased by $41,000, or 2.9%, for the
three months ended September 30, 1998, compared to the three months ended
September 30, 1997, due primarily to a $100,000, or 12.7%, increase in employee
compensation and benefits and an increase of $11,000, or 6.4%, in occupancy and
equipment, which were partially offset by a decrease of $43,000, or 53.1%, in
data processing, a $22,000, or 23.4%, decrease in franchise taxes and a $9,000
decrease in amortization of goodwill. Other expenses remained relatively
unchanged.
The increase in employee compensation and benefits is due primarily to normal
annual merit increases, an increase in staffing levels, and payments made to two
officers of the Savings Bank who retired during the quarter ended September 30,
1998. In April 1998, the Bank began the process of converting to an in-house
computer processing system which led to the reduction in data processing expense
of $43,000.
Federal Income Taxes
The provision for federal income taxes totaled $365,000 for the three months
ended September 30, 1998, an increase of $39,000, or 12.0%, over the $326,000
recorded in 1997. The increase resulted primarily from a $132,000, or 14.1%,
increase in earnings before taxes over the 1997 period. The effective tax rates
were 34.1% and 34.7% for the three months ended September 30, 1998 and 1997,
respectively.
Year 2000 Compliance Matters
The Savings Bank's operations, like those of most financial institutions, depend
almost entirely on computer systems. The Savings Bank has addressed the
potential problems associated with the possibility that the computers which
control or operate the Savings Bank's operating systems, facilities and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data.
13
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
Centennial Savings Bank has been working for the last several years to resolve
the potential impact of Year 2000 on the ability of our computerized information
system to accurately process information that may be date sensitive. It may also
affect the operations of third parties with which the Bank does business,
including the vendors, suppliers, utility companies, and customers. The Bank's
Year 2000 compliance plan has five phases. These phases are (1) project
management and awareness, (2) assessment, (3) validation and testing, (4)
renovation and implementation and (5) development of a contingency plan. The
Bank has substantially completed phases one through three, although appropriate
follow-up activities continue to occur, and the Bank is proceeding with
additional testing and implementation phases of the Y2K Plan.
Project Management and Awareness
The Bank has assigned primary responsibility for Year 2000 project
management to its Chief Operations Officer. Several projects have been
designed to promote awareness of Year 2000 issues throughout the Bank and
our customer base. These procedures include mailing information brochures
to deposit and loan customers, providing training for staff, and responding
to customer, vendor and shareholder inquiries, and providing Year 2000
information and progress updates on the Corporation's web site.
Assessment
Assessment is the process of identifying all mission critical applications
that could potentially be impacted by the Year 2000. The Bank's assessment
phase is complete. The scope of this examination included core-processing
applications for loans and deposits, telecommunications systems, vendor
supplied software, PC hardware and firmware, and other software and
hardware used in daily operations.
The Bank's operations are dependent upon vendors of both computer hardware
and computer software for most applications. The Bank has identified and
contacted those vendors to receive Year 2000 compliance assurance from its
primary mission critical vendors, and is continuing to monitor the
progress/status of each.
The Bank's main core processing application (loans and deposits) is
processed on Data Communications, Inc. in-house client server software. The
Bank converted to DCI in 1998. All screens and reports show 4-digit fields,
and DCI is testing internal programming codes to ensure Y2K compliance.
14
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
Validation and Testing
The Bank is participating with DCI in testing for Y2K compliance.
Validation and testing are to be substantially complete by December 31,
1998. The Bank staff will monitor DCI testing and certification progress by
review of DCI Y2K update documentation, which is provided to all DCI users,
and via contact with designated DCI Y2K project and executive staff.
Renovation and Implementation
This phase involves obtaining and implementing renovated software
applications provided by our vendors. As these applications are received
and implemented, the Bank will test them for Year 2000 compliance as noted
above. This phase also involves upgrading and replacing software and
hardware where appropriate and will continue throughout 1998 and should be
substantially complete by the end of March 1999.
The Company's anticipated direct expenses are less than $20,000, primarily
for upgrades to existing user PC's. Additional expense could be incurred if
PC's, ATM's, and phone systems require further modifications. This expense
would be capitalized and depreciated over differing periods resulting in an
immaterial affect to the Corporation.
Contingency Plan
Alternatives if renovation is unsuccessful with the DCI core processing
system include:
1. If Y2K testing by DCI and the Bank has indicated critical date issues
have been validated, leaving only minor Y2K issues, the Bank will
continue working with DCI to correct the remaining minor problems.
Minor issues are defined as date issues which do not affect system
calculations, daily operations, or any other critical processes as
identified on a case-by-case basis.
2. In the unlikely event that Y2K remediation cannot be timely completed
by DCI for critical date issues, the Bank will convert all necessary
applications to a vendor which has been proven to be Y2K compliant.
15
1.
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
Contingency Plan (continued)
Contingency planning will include assessment of account off-line
procedures, staffing requirements, security, cash needs, etc. The plan will
consider the resources needed and available to resume normal operations
following a disaster.
The Bank and DCI are on schedule to meet Y2K project dates set forth by the
FFIEC for remediation testing and contingency planning. Bank management
believes that all systems and hardware will be Year 2000 ready by March 31,
1999. There are unknown elements outside of management's control or ability
to test, such as power, water, telephone failure, which could affect
operations.
16
<PAGE>
Glenway Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On October 28, 1998, the Corporation's Annual Meeting of the
Stockholders was held. Each of three directors were re-elected for
terms expiring in 2001 by the following votes:
Edgar A. Rust For: 1,283,670 Withheld: 83,721
John P. Torbeck For: 1,283,670 Withheld: 83,721
Milton L Van Schoik For: 1,283,670 Withheld: 83,721
The following vote was cast on the ratification of the selection of
Grant Thornton LLP as the independent auditors of the Company for the
fiscal year ending June 30, 1999.
For: 1,285,432 Against: 80,695 Abstain: 1,264
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: None.
Exhibits:
27.1: Financial data schedule for the three
months ended September 30, 1998.
27.2: Restated financial data schedule for
the three months ended September 30,
1997.
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: November 12, 1998 By: /s/Robert R. Sudbrook
------------------------- --------------------------------
Robert R. Sudbrook
President
Date: November 12, 1998 By: /s/Gregory P. Niesen
------------------------- --------------------------------
Gregory P. Niesen
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,882
<INT-BEARING-DEPOSITS> 1,941
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,940
<INVESTMENTS-CARRYING> 19,841
<INVESTMENTS-MARKET> 19,825
<LOANS> 258,795
<ALLOWANCE> 1,217
<TOTAL-ASSETS> 299,571
<DEPOSITS> 219,335
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,198
<LONG-TERM> 47,199
0
0
<COMMON> 24
<OTHER-SE> 29,815
<TOTAL-LIABILITIES-AND-EQUITY> 299,571
<INTEREST-LOAN> 5,143
<INTEREST-INVEST> 382
<INTEREST-OTHER> 81
<INTEREST-TOTAL> 5,606
<INTEREST-DEPOSIT> 2,611
<INTEREST-EXPENSE> 3,312
<INTEREST-INCOME-NET> 2,294
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,476
<INCOME-PRETAX> 1,071
<INCOME-PRE-EXTRAORDINARY> 706
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
<YIELD-ACTUAL> 3.08
<LOANS-NON> 649
<LOANS-PAST> 328
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,174
<CHARGE-OFFS> 2
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,217
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,217
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,208
<INT-BEARING-DEPOSITS> 526
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,426
<INVESTMENTS-CARRYING> 19,946
<INVESTMENTS-MARKET> 19,735
<LOANS> 248,414
<ALLOWANCE> 920
<TOTAL-ASSETS> 293,245
<DEPOSITS> 230,008
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,431
<LONG-TERM> 30,056
0
0
<COMMON> 12
<OTHER-SE> 27,738
<TOTAL-LIABILITIES-AND-EQUITY> 293,245
<INTEREST-LOAN> 4,926
<INTEREST-INVEST> 480
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 5,462
<INTEREST-DEPOSIT> 2,801
<INTEREST-EXPENSE> 3,224
<INTEREST-INCOME-NET> 2,238
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,435
<INCOME-PRETAX> 939
<INCOME-PRE-EXTRAORDINARY> 939
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 613
<EPS-PRIMARY> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 3.24
<LOANS-NON> 302
<LOANS-PAST> 356
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 820
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 920
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 920
</TABLE>
