FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
Issuer's telephone number, including area code: (513) 922-5959
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of February 12, 1998, the latest practicable date, 2,282,494 shares of the
registrant's common stock, $.01 par value, were issued.
<PAGE>
Glenway Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial
Condition 3
Consolidated Statements of Earnings 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 16
SIGNATURES
-2-
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, June 30,
ASSETS 1997 1997
<S> <C> <C>
Cash and due from banks $4,601 $3,890
Interest-bearing deposits in other financial institutions - -
-------- -------
Cash and cash equivalents 4,601 3,890
Investment securities - at amortized cost, approximate market value of
$8,593 and $7,035 at December 31, 1997 and June 30, 1997, respectively 8,558 7,042
Mortgage-backed securities - at cost, approximate market value of
$12,065 and $12,946 at December 31, 1997 and June 30, 1997,
respectively 12,292 13,281
Mortgage-backed securities available for sale - at market 8,796 9,920
Loans receivable - net 256,859 239,648
Office premises and equipment - at depreciated cost 7,190 7,043
Real estate acquired through foreclosure 44 44
Federal Home Loan Bank stock - at cost 2,470 2,382
Accrued interest receivable on loans 1,206 1,214
Accrued interest receivable on mortgage-backed securities, investments
and interest-bearing deposits 268 267
Cash surrender value of life insurance 1,621 1,585
Prepaid expenses and other assets 320 404
Prepaid federal income taxes 99 -
Goodwill and other intangible assets - net of amortization 297 368
--------- ------------
Total assets $304,621 $287,088
======== ========
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
<S> <C> <C>
Deposits $228,750 $226,853
Advances from the Federal Home Loan Bank 41,886 28,114
Federal funds purchased 1,500 -
Checks issued in excess of bank balance - 2,422
Loan to Employee Stock Ownership Plan - 65
Advances by borrowers for taxes and insurance 1,436 235
Accounts payable on mortgage loans serviced for others 866 229
Accrued interest payable 108 61
Other liabilities 1,234 1,189
Accrued federal income taxes - 102
Deferred federal income taxes 535 580
------------ ----------
Total liabilities 276,315 259,850
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 December 31, 1997 and June
30, 1997, respectively 24 12
Additional paid-in capital 13,340 13,267
Retained earnings - substantially restricted 15,845 15,038
Required contributions for shares acquired by employee benefit plans (119) (216)
Treasury stock - 93,244 and 47,372 shares at December 31, 1997 and
June 30, 1997, respectively - at cost (949) (965)
Unrealized gains on securities designated as available for sale, net
of related tax effects 165 102
------------ ------------
Total stockholders' equity 28,306 27,238
---------- ----------
Total liabilities and stockholders' equity $304,621 $287,088
-------- ========
</TABLE>
-4-
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Six months ended Three months ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans $10,073 $8,962 $5,147 $4,537
Mortgage-backed securities 718 954 346 465
Investment securities 242 254 134 103
Interest-bearing deposits and other 106 103 50 50
--------- --------- --------- ---------
Total interest income 11,139 10,273 5,677 5,155
Interest expense
Deposits 5,618 5,473 2,817 2,707
Borrowings 990 594 567 289
--------- -------- ------- --------
Total interest expense 6,608 6,067 3,384 2,996
-------- ------- ------ -------
Net interest income 4,531 4,206 2,293 2,159
Provision for losses on loans 163 139 63 121
-------- -------- ------- -------
Net interest income after provision for losses on loans 4,368 4,067 2,230 2,038
Other income
Gain on sale of loans - 39 - 32
Gain on sale of investments and mortgage-backed securities - 63 - 63
Gain on sale of real estate acquired through foreclosure - 20 - (1)
Loan servicing fees 76 86 37 43
Other operating 399 313 202 158
------- -------- ------ -------
Total other income 475 521 239 295
General, administrative and other expense
Employee compensation and benefits 1,600 1,630 811 842
Occupancy and equipment 334 270 163 155
Federal deposit insurance premiums 71 1,476 35 (1)
Franchise taxes 185 167 91 82
Data processing 156 154 75 97
Amortization of goodwill and other intangible assets 71 104 36 52
Other operating 485 644 256 309
-------- -------- ------ --------
Total general, administrative and other expense 2,902 4,445 1,467 1,536
------- ------- ----- -------
Earnings before income taxes 1,941 143 1,002 797
Federal income tax
Current 763 185 426 426
Deferred (86) (110) (75) (136)
--------- -------- --------- --------
Total federal income taxes 677 75 351 290
-------- --------- ------ --------
NET EARNINGS $ 1,264 $ 68 $ 651 $ 507
======= ========= ====== =======
BASIC EARNINGS PER SHARE $.56 $.03 $.29 $.22
==== ==== ==== ====
DILUTED EARNINGS PER SHARE $.54 $.03 $.28 $.21
==== ==== ==== ====
</TABLE>
-5-
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the six months ended December 31,
1997 1996
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings for the period $1,264 $ 68
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation of fixed assets 171 128
Provision for losses on loans 163 139
Gain on sale of loans - (39)
Gain on sale of investments and mortgage-backed securities - (63)
Loans disbursed for sale in the secondary market - (440)
Proceeds from sale of loans - 444
Amortization of deferred loan origination fees/costs (48) (51)
Amortization of goodwill and other intangible assets 71 104
Amortization of premiums and discounts on loans, investments and
mortgage-backed securities - net 17 17
Amortization of expense related to employee benefit plans 142 118
Gain on sale of real estate acquired through foreclosure - (20)
Federal Home Loan Bank stock dividends (88) (78)
Increases (decreases) in cash due to changes in:
Accrued interest receivable on loans 8 20
Accrued interest receivable on mortgage-backed securities,
investment securities, and interest-bearing deposits (1) 84
Prepaid expenses and other assets 84 142
Accounts payable on mortgage loans serviced for others 684 260
Other liabilities 45 21
Decrease in checks issued in excess of bank balance (2,422) (917)
Federal income taxes:
Current (201) (64)
Deferred (86) (110)
-------- ------
Net cash provided by (used in) operating activities (197) (237)
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 2,190 1,466
Proceeds from sale of investments and mortgage-backed securities
designated as available for sale - 6,762
Purchase of investment securities (2,008) (2,000)
Proceeds from maturities/calls of investment securities 500 1,000
Loan principal repayments 32,184 25,697
Loan disbursements (49,508) (33,700)
Purchase of office premises and equipment (318) (1,432)
Proceeds from sale of real estate acquired through foreclosure - 212
Increase in cash surrender value of life insurance (36) (92)
--------- --------
Net cash used in investing activities (16,996) (2,087)
-------- -------
Net cash used in operating and investing activities (subtotal
carried forward) (17,193) (2,324)
------- -------
</TABLE>
-6-
<PAGE>
<TABLE>
Glenway Financial Corporation
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
For the six months ended December 31,
1997 1996
<S> <C> <C>
Net cash used in operating and investing activities (subtotal
brought forward) $(17,193) $(2,324)
Cash flows provided by (used in) financing activities:
Net increase in deposit accounts 1,897 5,985
Proceeds from borrowings 51,150 23,550
Repayment of borrowings (35,878) (30,054)
Repayment of ESOP loan (65) (74)
Advances by borrowers for taxes and insurance 1,201 1,155
Dividends paid on common stock (457) (382)
Shares issued under stock option and benefit plans 56 175
--------- ---------
Net cash provided by financing activities 17,904 355
------ --------
Net increase (decrease) in cash and cash equivalents 711 (1,969)
Cash and cash equivalents at beginning of period 3,890 5,142
------- -------
Cash and cash equivalents at end of period $ 4,601 $ 3,173
--------- =======
Supplemental disclosure of cash flow information: Cash paid during period for:
Federal income taxes $ 671 $ 215
======== ========
Interest on deposits and borrowings $ 6,561 $ 6,054
======= =======
Supplemental disclosure of noncash investing activities:
Transfer from loans to real estate acquired through foreclosure $ - $ 355
========== ========
Unrealized gains on securities designated as available for sale, net of
related tax effects $ 63 $ 77
========= ========
Supplemental disclosure of noncash financing activities:
Issuance of treasury shares in exchange for outstanding shares related
to exercise of stock options $ 16 $ 40
========= ========
</TABLE>
-7-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six month periods ended
December 31, 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. 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 six month periods ended December 31, 1997, are not
necessarily indicative of the results which may be expected for an entire fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Corporation, Centennial Savings Bank (the "Savings Bank") and its wholly-owned
subsidiary, Centennial Savings and Loan Service Corporation. All significant
intercompany items have been eliminated.
3. Earnings Per Share
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 allocated ESOP shares, totaled 2,271,091 and 2,280,999 for the six and
three month periods ended December 31, 1997, respectively. Weighted-average
common shares outstanding, which gives effect to 27,400 unallocated ESOP shares,
totaled 2,308,694 and 2,314,284 for the six and three month periods ended
December 31, 1996.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares, i.e., shares issued upon
exercise of stock options. Weighted-average common shares deemed outstanding for
purposes of computing diluted earnings per share totaled 2,331,077 and 2,331,585
for the six and three month periods ended December 31, 1997, respectively, and
2,362,241 and 2,367,831 for the six and three months ended December 31, 1996,
respectively.
-8-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended
December 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
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.
-9-
<PAGE>
Glenway Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and six month periods ended
December 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements (continued)
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.
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.
-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, 1997 to
December 31, 1997
The Corporation's total assets amounted to $304.6 million at December 31, 1997,
an increase of $17.5 million, or 6.1%, over the $287.1 million total at June 30,
1997. The increase was funded primarily through growth in borrowings of $15.3
million.
Cash and due from banks and interest-bearing deposits in other financial
institutions increased by $711,000, or 18.3%, to a total of $4.6 million at
December 31, 1997, compared to $3.9 million at June 30, 1997. Investment
securities increased by $1.5 million, due to the purchase of $2.0 million of
U.S. Government and Agency securities, which was partially offset by maturities
and calls of $500,000. Mortgage-backed securities and mortgage-backed securities
available for sale decreased by $2.1 million, or 9.1%, as a result of principal
repayments.
Loans receivable increased $17.2 million, or 7.2%, during the current six month
period, as loan originations of $49.5 million exceeded principal repayments of
$32.2 million. The Corporation's allowance for loan losses amounted to $977,000
at December 31, 1997, an increase of $157,000, or 19.2%, over the total at June
30, 1997. The allowance for loan losses represented .37% of the total loan
portfolio at December 31, 1997, compared to .32% at June 30, 1997, and
represented 718.4% of non-performing loans, which totaled $136,000 at December
31, 1997, compared to 96.4% of nonperforming loans, which totaled $851,000, at
June 30, 1997.
Deposits increased by $1.9 million, or .8%, for the current six month period.
During the first quarter of fiscal 1998, the Savings Bank became a depository
for the State of Ohio. Under the B.R.I.D.G.E and interim deposit programs, the
Savings Bank 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 purchased federal funds are frequently reviewed to manage
the cost of funds. Total borrowings increased by $15.3 million, or 54.3%, from
June 30, 1997, to December 31, 1997.
Stockholders' equity increased $1.1 million during the current six month period,
as period earnings of $1.3 million, distributions of employee benefits and stock
awards totaling $196,000, and a $63,000 increase in unrealized gains on
securities designated as available for sale were partially offset by cash
dividends paid totaling $456,000.
The Federal Deposit Insurance Corporation prescribes minimum regulatory capital
ratio guidelines to which the Savings Bank is subject. At December 31, 1997, the
Savings Bank's Tier 1 capital of $25.2 million, or 8.4% of adjusted total
assets, exceeded the required Tier 1 leverage ratio of 5%, or $15.0 million, by
$10.2 million. The Savings Bank's risk-based capital of $26.2 million, or 13.8%
of total risk-weighted assets, exceeded the 8% risk-based capital requirement of
$15.2 million by $11.0 million.
-11-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Six Months ended December 31, 1997
and 1996
General
Net earnings totaled $1.3 million for the six months ended December 31, 1997,
compared to $68,000, for the same period in 1996. 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 1996 period as part of
legislation to recapitalize the Savings Association Insurance Fund ("SAIF") and
an increase of $300,000 in net interest income for the 1997 period compared to
the 1996 period. Excluding the special SAIF assessment, net earnings for the six
months ended December 31, 1996, would have been $959,000 and net earnings for
the six months ended December 31, 1997, would represent an increase of $305,000,
or 31.8%, over the 1996 period.
Net Interest Income
Interest income on loans and mortgage-backed securities for the six months ended
December 31, 1997, increased by $875,000, or 8.8%, over the same period in 1996.
This increase resulted from growth of $28.2 million in the loan portfolio
outstanding year to year. Interest on investments and interest-bearing deposits
increased by $9,000, or 2.5%, over the same period in 1996.
Interest expense on deposits increased by $145,000, or 2.7%, for the six months
ended December 31, 1997, compared to the comparable period in 1996, due
primarily to an approximate $1.5 million increase in average deposit balances
for the six month period year to year. Interest on borrowings increased
$396,000, or 66.7%, 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
allowance at a level management believes is adequate to absorb potential losses
in the loan portfolio. The provision for loan losses amounted to $163,000 for
the six months ended December 31, 1997, as compared to $139,000 for the same
period in 1996, an increase of $24,000, or 17.3%. The provision for loan losses
increased primarily as a result of the $28.2 million, or 11.0%, 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 December 31, 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.
-12-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Other Income
Other income for the six months ended December 31, 1997, decreased $46,000, or
8.8%, primarily as a result of the absence of gains on sales of securities,
loans, and real estate acquired through foreclosure during the 1997 period. For
the six months ended December 31, 1996, the Corporation realized a gain on sale
of investments and mortgage-backed securities of $63,000, a gain on sale of
loans of $39,000, and a gain on sale of real estate acquired through foreclosure
of $20,000. Other operating income for the six months ended December 31, 1997,
increased by $86,000, due to increases in service charges and implementation of
surcharges on non-customer automated teller machine transactions.
General, Administrative and Other Expense
General, administrative and other expense decreased $1.5 million, or 34.7%, for
the six months ended December 31, 1997, compared to the six months ended
December 31, 1996, due primarily to a $1.4 million decrease in federal deposit
insurance premiums, a decrease of $159,000 in other operating expense, a
decrease of $33,000 in amortization of goodwill, and a $30,000 decrease in
employee compensation and benefits. These decreases were partially offset by a
$64,000 increase in occupancy and equipment, an $18,000 increase in franchise
tax, and a $2,000 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 $677,000 for the six months ended
December 31, 1997, an increase of $602,000 over the $75,000 recorded in 1996.
The increase resulted primarily from a $1.8 million increase in earnings before
taxes over the prior year. The effective tax rates were 34.8% and 52.4%, for the
six months ended December 31, 1997 and 1996, respectively.
Comparison of Operating Results for the Three Months ended December 31, 1997
and 1996
General
Net earnings for the second quarter of fiscal 1998 amounted to $651,000,
compared to net earnings of $507,000 for the fiscal 1997 quarter, an increase of
$144,000, or 28.4%. Such increase in earnings is principally attributable to a
$192,000 increase in net interest income after provision for loan losses and a
decrease in general, administrative and other expense of $69,000. These
decreases were partially offset by an increase in the provision for federal
income taxes of $61,000 and a decline in other income of $56,000.
-13-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income
Interest income on loans and mortgage-backed securities increased by $491,000,
or 9.8%, during the current quarter as a result of the growth in loans
receivable. Interest on investment and interest-bearing deposits increased by
$31,000, or 20.3%.
Interest expense on deposits for the 1997 quarter increased by $110,000, or
4.1%. Interest on borrowings increased by $278,000, or 96.2%, due primarily to
the increase in the outstanding balances period to period.
Provision for Losses on Loans
The provision for losses on loans totaled $63,000 for the three month period
ended December 31, 1997, a decrease of $58,000 from the comparable 1996 quarter,
due to growth in the loan portfolio.
Other Income
Other income for the three months ended December 31, 1997, decreased by $56,000,
or 19.0%, compared to the 1996 quarter, primarily as a result of the absence of
gains on sale of assets during the 1997 quarter. This decline was partially
offset by a $44,000 increase in other operating income due to increased service
charges and implementation of surcharges on non-customer automated teller
machine transactions.
General, Administrative and Other Expense
General, administrative and other expense decreased $69,000, or 4.5%, for the
three months ended December 31, 1997, due to a $53,000 decrease in other
operating expenses, a decrease in employee compensation and benefits of $31,000,
a decrease in data processing expense of $22,000, and a decrease in amortization
of goodwill of $16,000. These decreases were partially offset by an increase in
federal deposit insurance premiums of $36,000, an increase in franchise tax of
$9,000, and a $8,000 increase in office occupancy and equipment expense. The
increase in federal deposit insurance premiums during the period resulted from a
refund obtained in the 1996 quarter after the special SAIF assessment.
Federal Income Taxes
The provision for federal income taxes totaled $351,000 for the quarter ended
December 31, 1997, an increase of $61,000, or 21.0%, over the comparable 1996
quarter. The increase resulted primarily from a $205,000, or 25.7%, increase in
pretax earnings. The effective tax rates were 35.0% and 36.4% for the three
months ended December 31, 1997 and 1996, respectively.
-14-
<PAGE>
Glenway Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 by 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.
-15-
<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: Financial data schedule for the
six months ended December 31, 1997.
-16-
<PAGE>
Glenway Financial Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 12, 1998 By: /s/Robert R. Sudbrook
Robert R. Sudbrook
President
Date: February 12, 1998 By: /s/Gregory P. Niesen
Gregory P. Niesen
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,601
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,796
<INVESTMENTS-CARRYING> 20,850
<INVESTMENTS-MARKET> 20,658
<LOANS> 256,859
<ALLOWANCE> 977
<TOTAL-ASSETS> 304,621
<DEPOSITS> 228,750
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,179
<LONG-TERM> 43,386
0
0
<COMMON> 24
<OTHER-SE> 28,282
<TOTAL-LIABILITIES-AND-EQUITY> 304,621
<INTEREST-LOAN> 10,073
<INTEREST-INVEST> 960
<INTEREST-OTHER> 106
<INTEREST-TOTAL> 11,139
<INTEREST-DEPOSIT> 5,618
<INTEREST-EXPENSE> 6,608
<INTEREST-INCOME-NET> 4,531
<LOAN-LOSSES> 163
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,902
<INCOME-PRETAX> 1,941
<INCOME-PRE-EXTRAORDINARY> 1,264
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,264
<EPS-PRIMARY> .56
<EPS-DILUTED> .54
<YIELD-ACTUAL> 3.95
<LOANS-NON> 66
<LOANS-PAST> 174
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 936
<ALLOWANCE-OPEN> 820
<CHARGE-OFFS> 23
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 977
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 977
</TABLE>
