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 March 31, 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 May 12, 1998, the latest practicable date, 2,282,494 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 16 pages
<PAGE>
Glenway Financial Corporation and Subsidiary
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
Glenway Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 1998 1997
<S> <C> <C>
Cash and due from banks $ 3,228 $ 3,890
Interest-bearing deposits in other financial institutions 1,112 -
------- ------
Cash and cash equivalents 4,340 3,890
Investment securities - at amortized cost, approximate market value of $7,100
and $7,035 at March 31, 1998 and June 30, 1997, respectively 7,067 7,042
Mortgage-backed securities - at cost, approximate market value of $11,655
and $12,946 at March 31, 1998 and June 30, 1997, respectively 11,867 13,281
Mortgage-backed securities available for sale - at market 8,065 9,920
Loans receivable - net 256,955 239,648
Office premises and equipment - at depreciated cost 5,615 7,043
Real estate acquired through foreclosure 44 44
Federal Home Loan Bank stock - at cost 2,514 2,382
Accrued interest receivable on loans 1,282 1,214
Accrued interest receivable on mortgage-backed securities, investments and
interest-bearing deposits 188 267
Cash surrender value of life insurance 1,637 1,585
Prepaid expenses and other assets 475 404
Prepaid federal income taxes 137 -
Goodwill and other intangible assets - net of amortization 262 368
------- -------
Total assets $300,448 $287,088
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $225,529 $226,853
Advances from the Federal Home Loan Bank 42,697 28,114
Checks issued in excess of bank balance - 2,422
Loan to Employee Stock Ownership Plan - 65
Advances by borrowers for taxes and insurance 827 235
Accounts payable on mortgage loans serviced for others 798 229
Accrued interest payable 82 61
Other liabilities 1,250 1,189
Accrued federal income taxes - 102
Deferred federal income taxes 508 580
------- -------
Total liabilities 271,691 259,850
Stockholders' equity
Serial preferred stock (500,000 shares of $.01 par value authorized; no
shares issued) - -
Common stock - authorized, 3,000,000 shares of $.01 par value; 2,374,738
and 1,187,369 shares issued at March 31, 1998 and June 30, 1997, respectively 24 12
Additional paid-in capital 13,358 13,267
Retained earnings - substantially restricted 16,301 15,038
Required contributions for shares acquired by employee benefit plans (107) (216)
Treasury stock - 92,244 and 47,372 shares at March 31, 1998 and
June 30, 1997, respectively - at cost (939) (965)
Unrealized gains on securities designated as available for sale,
net of related tax effects 120 102
------- -------
Total stockholders' equity 28,757 27,238
------- -------
Total liabilities and stockholders' equity $300,448 $287,088
======= =======
</TABLE>
3
<PAGE>
Glenway Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Loans $15,261 $13,567 $5,188 $4,605
Mortgage-backed securities 1,050 1,362 332 408
Investment securities 359 353 117 99
Interest-bearing deposits and other 160 156 54 53
------ ------ ----- -----
Total interest income 16,830 15,438 5,691 5,165
Interest expense
Deposits 8,292 8,189 2,674 2,716
Borrowings 1,618 907 628 313
------ ------ ----- -----
Total interest expense 9,910 9,096 3,302 3,029
------ ------ ----- -----
Net interest income 6,920 6,342 2,389 2,136
Provision for losses on loans 238 170 75 31
------ ------ ----- -----
Net interest income after provision for losses on loans 6,682 6,172 2,314 2,105
Other income
Gain on sale of loans 21 39 21 -
Gain on sale of investments and mortgage-backed securities - 63 - -
Gain on sale of real estate acquired through foreclosure - 21 - 1
Loss on sale of office premises (57) - (57) -
Loan servicing fees 111 128 35 42
Other operating 602 486 203 173
------ ------ ----- -----
Total other income 677 737 202 216
General, administrative and other expense
Employee compensation and benefits 2,387 2,397 787 767
Occupancy and equipment 518 428 184 158
Federal deposit insurance premiums 108 1,512 37 36
Franchise taxes 256 260 71 93
Data processing 255 246 99 92
Amortization of goodwill and other intangible assets 106 156 35 52
Other operating 734 917 249 273
------ ------ ----- -----
Total general, administrative and other expense 4,364 5,916 1,462 1,471
------ ------ ----- -----
Earnings before income taxes 2,995 993 1,054 850
Federal income taxes
Current 1,128 367 265 182
Deferred (81) 6 5 116
------ ------ ----- -----
Total federal income taxes 1,047 373 370 298
------ ------ ----- -----
NET EARNINGS $ 1,948 $ 620 $ 684 $ 552
====== ====== ===== =====
EARNINGS PER SHARE
Basic $.86 $.27 $.30 $.24
=== === === ===
Diluted $.84 $.26 $.29 $.23
=== === === ===
</TABLE>
4
<PAGE>
Glenway Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,948 $ 620
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 260 211
Provision for losses on loans 238 170
Gain on sale of loans (12) (39)
Gain on sale of investment and mortgage-backed securities - (63)
Loans disbursed for sale in the secondary market (1,135) (440)
Proceeds from sale of loans 1,118 444
Amortization of deferred loan origination fees (71) (78)
Amortization of goodwill and other intangible assets 106 156
Amortization of premiums and discounts on loans,
investments and mortgage-backed securities - net (3) 29
Amortization of expense related to employee benefit plans 142 118
Gain on sale of real estate acquired through foreclosure - (21)
Loss on sale of office premises 57 -
Federal Home Loan Bank stock dividends (132) (118)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans (68) (68)
Accrued interest receivable on mortgage-backed securities,
investment securities and interest-bearing deposits (79) 137
Prepaid expenses and other assets (73) 76
Accounts payable on mortgage loans serviced for others 569 (444)
Other liabilities 82 53
Decrease in checks issued in excess of bank balance (2,422) (16)
Federal income taxes
Current (35) 97
Deferred (81) 6
------ -------
Net cash provided by operating activities 409 830
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 3,271 3,492
Proceeds from sale of investment and mortgage-backed securities
designated as available for sale - 6,762
Purchase of investment securities (3,000) (2,000)
Proceeds from maturities/calls of investment securities 3,000 1,000
Loan principal repayments 63,731 37,764
Loan disbursements (81,217) (49,592)
Purchase of office premises and equipment (485) (1,401)
Proceeds from sale of office premises 1,596 -
Proceeds from sale of real estate acquired through foreclosure - 391
Increase in cash surrender value of life insurance (52) (110)
------ -------
Net cash used in investing activities (13,156) (3,694)
------ -------
Net cash used in operating and investing
activities (subtotal carried forward) (12,747) (2,864)
------ -------
</TABLE>
5
<PAGE>
Glenway Financial Corporation and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1998 1997
<S> <C> <C>
Net cash used in operating and investing activities
(subtotal brought forward) $(12,747) $ (2,864)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (1,324) 4,749
Proceeds from borrowings 78,291 36,350
Repayment of borrowings (63,708) (39,321)
Repayment of ESOP loan (65) (74)
Advances by borrowers for taxes and insurance 592 556
Dividends paid on common stock (685) (578)
Shares issued under stock option and benefit plans 96 207
Purchase of treasury stock - (342)
------- -------
Net cash provided by financing activities 13,197 1,547
------- -------
Net increase (decrease) in cash and cash equivalents 450 (1,317)
Cash and cash equivalents at beginning of period 3,890 5,142
------- -------
Cash and cash equivalents at end of period $ 4,340 $ 3,825
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 1,091 $ 60
======= =======
Interest on deposits and borrowings $ 9,889 $ 9,093
======= =======
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ - $ 378
======= =======
Unrealized gains on securities designated as available for
sale, net of related tax effects $ 18 $ 35
======= ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 125 $ 9 $ -
======= ======
Supplemental disclosure of noncash financing activities:
Issuance of treasury shares in exchange for outstanding shares related
to exercise of stock options $ - $ 85
======= =======
</TABLE>
6
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine month periods ended
March 31, 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,
1997. However, all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the consolidated financial statements have been included. The results of
operations for the three and nine month periods ended March 31, 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 Employee Stock
Ownership Plan (the "ESOP") that are unallocated and not committed to be
released. Weighted-average common shares outstanding, which gives effect to
9,400 unallocated ESOP shares, totaled 2,271,636 and 2,282,149 for the nine and
three month periods ended March 31, 1998, respectively. Weighted-average common
shares outstanding, which gives effect to 27,400 unallocated ESOP shares,
totaled 2,282,317 and 2,284,575 for the nine and three month periods ended March
31, 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
2,326,238 and 2,336,751 for the nine and three month periods ended March 31,
1998, respectively, and 2,371,733 and 2,373,991 for the nine and three months
ended March 31, 1997, respectively.
7
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine month periods ended
March 31, 1998 and 1997
4. Effect of Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments 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, 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 adopted SFAS No. 125 effective January 1, 1998, as required, without
material effect on the Corporation's consolidated financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires entities presenting a complete set of financial statements to
include details of comprehensive income that arise in the reporting period.
Comprehensive income consists of net earnings or loss for the current period and
other comprehensive income, expense, gains and losses that bypass the income
statement and are reported in a separate component of equity, i.e., unrealized
gains and losses on certain investment securities. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Management does not believe that
adoption of SFAS No. 130 will have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
8
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine month periods ended
March 31, 1998 and 1997
4. Effects of Recent Accounting Pronouncements (continued)
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.
9
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from June 30, 1997 to March 31, 1998
The Corporation's total assets amounted to $300.4 million at March 31, 1998, an
increase of $13.4 million, or 4.7%, over the $287.1 million total at June 30,
1997. The increase was attributable to growth in loans and was funded primarily
through growth in borrowings of $14.6 million and undistributed net earnings of
$1.3 million.
Cash and due from banks and interest-bearing deposits in other financial
institutions increased by $450,000, or 11.6%, to a total of $4.3 million at
March 31, 1998, compared to $3.9 million at June 30, 1997. Mortgage-backed
securities and mortgage-backed securities available for sale decreased by $3.3
million, or 14.1%, as a result of principal repayments. Investment securities
remained relatively unchanged as purchases of $3.0 million equaled
maturities/calls during the period.
Loans receivable increased by $17.3 million, or 7.2%, during the current nine
month period, as loan originations of $82.4 million exceeded principal
repayments of $63.7 million. The Corporation's allowance for loan losses
amounted to $1.1 million at March 31, 1998, an increase of $231,000, or 28.2%,
over the total at June 30, 1997. The allowance for loan losses represented .41%
of the total loan portfolio at March 31, 1998, compared to .33% at June 30,
1997, and represented 200.2% of non-performing loans, which totaled $525,000 at
March 31, 1998, compared to 96.4% of nonperforming loans, which totaled
$851,000, at June 30, 1997.
Deposits decreased by $1.3 million, or .6%, to a total of $225.5 million at
March 31, 1998. Alternative sources of funds, such as Federal Home Loan Bank
("FHLB") advances and purchased federal funds are frequently reviewed to manage
the cost of funds. Total borrowings increased by $14.6 million, or 51.9%, from
June 30, 1997, to March 31, 1998.
Stockholders' equity increased by $1.5 million during the current nine month
period, as period earnings of $1.9 million, distributions of employee benefits
and stock awards totaling $238,000, and a $18,000 increase in unrealized gains
on securities designated as available for sale were partially offset by cash
dividends paid totaling $685,000.
The Federal Deposit Insurance Corporation prescribes minimum regulatory capital
ratio guidelines to which the Savings Bank is subject. At March 31, 1998, the
Savings Bank's Tier 1 capital of $25.8 million, or 8.7% of adjusted total
assets, exceeded the required Tier 1 leverage ratio of 5%, or $14.9 million, by
$10.9 million. The Savings Bank's risk-based capital of $26.8 million, or 13.4%
of total risk-weighted assets, exceeded the 8% risk-based capital requirement of
$16.0 million by $10.8 million.
10
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Months ended March 31, 1998 and
1997
General
Net earnings totaled $1.9 million for the nine months ended March 31, 1998,
compared to $620,000, for the same period in 1997. The increase in net earnings
is primarily attributable to the one-time $1.35 million, or $891,000 after tax,
assessment which the Savings Bank paid during the fiscal 1997 period as part of
legislation to recapitalize the Savings Association Insurance Fund ("SAIF") and
an increase of $578,000 in net interest income for the 1998 period compared to
the 1997 period. Excluding the effects of the special SAIF assessment, net
earnings for the nine months ended March 31, 1997, would have been $1.5 million
and net earnings for the nine months ended March 31, 1998, would represent an
increase of $437,000, or 28.9%, over the 1997 period.
Net Interest Income
Interest income on loans and mortgage-backed securities for the nine months
ended March 31, 1998, increased by $1.4 million, or 9.3%, over the same period
in 1997. This increase resulted from growth of $17.3 million in the loan
portfolio outstanding year to year. Interest on investments and interest-bearing
deposits increased by $10,000, or 2.0%, over the same period in 1997.
Interest expense on deposits increased by $103,000, or 1.3%, for the nine months
ended March 31, 1998, compared to the comparable period in 1997, due primarily
to an increase in average deposit balances for the nine month period year to
year, which was partially offset by a decline in cost of funds. Interest on
borrowings increased by $711,000, or 78.4%, due to an increase in the overall
level of borrowings from year to year.
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 $238,000 for the nine months ended March 31, 1998, as compared to
$170,000 for the same period in 1997, an increase of $68,000, or 40.0%. The
provision increased primarily as a result of the $17.3 million, or 7.2%, growth
in the loan portfolio over the year and the Savings Bank'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 March 31, 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.
11
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Months ended March 31, 1998 and
1997 (continued)
Other Income
Other income for the nine months ended March 31, 1998, decreased by $60,000, or
8.1%, primarily as a result of the absence of gains on sales of securities and
real estate acquired through foreclosure during the 1997 period. Also, in
January 1998, Glenway Financial Corporation sold a strip shopping center for
$1.6 million which resulted in a loss on sale of $57,000. Other operating income
for the nine months ended March 31, 1998, increased by $116,000, or 23.9%, due
to increases in service charges, loan fees and implementation of surcharges on
non-customer automated teller machine transactions.
General, Administrative and Other Expense
General, administrative and other expense decreased $1.6 million, or 26.2%, for
the nine months ended March 31, 1998, compared to the nine months ended March
31, 1997, due primarily to a $1.4 million decrease in federal deposit insurance
premiums, a decrease of $183,000, or 20.0%, in other operating expense, a
decrease of $50,000 in amortization of goodwill, a $10,000 decrease in employee
compensation and benefits and a $4,000 decrease in franchise taxes. These
decreases were partially offset by a $90,000, or 21.0%, increase in occupancy
and equipment and a $9,000 increase in data processing fees. As a result of the
one-time SAIF assessment, federal deposit insurance premiums were reduced from
23 basis points to 6 basis points per $100 of deposits. The premium decrease
resulted in an approximate $30,000 monthly reduction in federal deposit
insurance 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 and 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 $1.0 million for the nine months
ended March 31, 1998, an increase of $674,000 over the $373,000 recorded in
1997. The increase resulted primarily from a $2.0 million increase in earnings
before taxes over the fiscal 1997 period. The effective tax rates were 35.0% and
37.6%, for the nine months ended March 31, 1998 and 1997, respectively.
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 March 31, 1998 and
1997
General
Net earnings for the three months ended March 31, 1998 amounted to $684,000,
compared to net earnings of $552,000 for the fiscal 1997 quarter, an increase of
$132,000, or 23.9%. Such increase in earnings is principally attributable to a
$209,000 increase in net interest income after provision for losses on loans and
a decrease in general, administrative and other expense of $9,000, which were
partially offset by an increase in the provision for federal income taxes of
$72,000 and a decline in other income of $14,000.
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $507,000,
or 10.1%, during the current quarter as a result of the growth in loans
receivable. Interest on investment and interest-bearing deposits increased by
$19,000, or 12.5%.
Interest expense on deposits for the 1998 quarter decreased by $42,000, or 1.5%.
Interest on borrowings increased by $315,000, or 100.6%, due primarily to the
increase in the average outstanding balances year to year.
Provision for Losses on Loans
The provision for losses on loans totaled $75,000 for the three month period
ended March 31, 1998, an increase of $44,000 from the comparable 1997 quarter,
due to growth in the loan portfolio.
Other Income
Other income for the three months ended March 31, 1998, decreased by $14,000, or
6.5%, compared to the 1997 quarter, primarily as a result of the sale of real
estate resulting in a loss of $57,000 and a decline of $7,000 in loan servicing
fees. This decline was partially offset by a $30,000, or 17.3%, increase in
other operating income, due to increased service charges and implementation of
surcharges on non-customer automated teller machine transactions, and a $21,000
gain on sale of loans.
General, Administrative and Other Expense
General, administrative and other expense decreased $9,000, or 0.6%, for the
three months ended March 31, 1998, due to a $24,000, or 8.8%, decrease in other
operating expenses, a decrease in franchise tax of $22,000 and a decrease in
amortization of goodwill of $17,000. These decreases were partially offset by a
$26,000, or 16.5%, increase in office occupancy and equipment expense and an
increase in employee compensation and benefits of $20,000, or 2.6%.
13
<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 March 31, 1998 and
1997 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $370,000 for the quarter ended
March 31, 1998, an increase of $72,000, or 24.2%, over the comparable 1997
quarter. The increase resulted primarily from a $204,000, or 24.0%, increase in
pretax earnings. The effective tax rates were 35.1% for each of the three months
ended March 31, 1998 and 1997, respectively.
Year 2000 Issues
The Savings Bank's operations, like those of most financial institutions, depend
almost entirely on computer systems. The Savings Bank is addressing 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. The
Savings Bank is working with the companies that supply or service its
computer-operated or -dependent systems to identify and remedy any year-2000
related problems.
At this time, no specific expenses have been identified which are reasonably
likely to be incurred in connection with year-2000 issues and the Savings Bank
does not expect to incur significant expense to implement corrective measures.
No assurance can be given at this time, however, that significant expense will
not be incurred in future periods. In the event that the Savings Bank is
ultimately required to purchase replacement computer systems, programs and
equipment, or that substantial expense must be incurred to make the Savings
Bank's current systems, programs and equipment year-2000 compliant, the
Corporation's net earnings and financial condition could be adversely affected.
While the Savings Bank is endeavoring to ensure that its computer-dependent
operations are year-2000 compliant, no assurance can be given that some
year-2000 problems will not occur.
In addition to possible expense related to its own systems, the Corporation
could incur losses if year-2000 issues adversely affect the Savings Bank's
depositors or borrowers. Such problems could include delayed loan payments due
to year-2000 problems affecting any of the Savings Bank's significant borrowers
or impairing the payroll systems of large employers in the Savings Bank's
primary market area. Because the Savings Bank's loan portfolio is highly
diversified with regard to individual borrowers and types of businesses and the
Savings Bank's primary market area is not significantly dependent upon one
employer or industry, the Savings Bank does not expect any significant or
prolonged year-2000 related difficulties that will affect net earnings or cash
flow.
14
<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
None
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
nine months ended March 31, 1998.
27.2: Restated financial data schedule for the
nine months ended March 31, 1997.
15
<PAGE>
Glenway Financial Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 1998 By: /s/Robert R. Sudbrook
--------------------------- ---------------------
Robert R. Sudbrook
President
Date: May 12, 1998 By: /s/Gregory P. Niesen
--------------------------- --------------------
Gregory P. Niesen
Chief Financial Officer
16
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