FORM 10-Q
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 June 30, 2002
----------------------------------
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. 0-18993
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WINTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 31-1303854
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road, Cincinnati, Ohio 45247
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(Address of principal executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 August 8, 2002, the latest practicable date, 4,464,554 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 19
Winton 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 10
PART II - OTHER INFORMATION 18
SIGNATURES 19
2
ITEM 1 FINANCIAL STATEMENTS
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, September 30,
ASSETS 2002 2001
Cash and due from banks $ 1,482 $ 1,877
Interest-bearing deposits in other financial institutions 9,539 3,732
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Cash and cash equivalents 11,021 5,609
Investment securities available for sale - at market 15,380 14,263
Mortgage-backed securities available for sale - at market 209 262
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $5,329 and $6,936 at
June 30, 2002 and September 30, 2001, respectively 5,206 7,036
Loans receivable - net 425,788 427,485
Loans held for sale - at lower of cost or market 18,357 3,839
Office premises and equipment - at depreciated cost 3,459 3,247
Real estate acquired through foreclosure 674 486
Federal Home Loan Bank stock - at cost 7,736 7,458
Accrued interest receivable 3,037 3,205
Prepaid expenses and other assets 724 667
Intangible assets - net of amortization 173 219
Prepaid federal income taxes 126 -
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Total assets $491,890 $473,776
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $318,617 $316,960
Advances from the Federal Home Loan Bank 126,597 112,668
Other borrowed money 2,000 2,000
Accounts payable on mortgage loans serviced for others 637 682
Advance payments by borrowers for taxes and insurance 787 1,409
Other liabilities 2,480 1,570
Accrued federal income taxes - 25
Deferred federal income taxes 1,552 1,772
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Total liabilities 452,670 437,086
Commitments - -
Shareholders' equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued - -
Common stock - 18,000,000 shares without par value authorized;
4,455,054 and 4,438,014 shares issued at June 30, 2002 and
September 30, 2001, respectively - -
Additional paid-in capital 10,253 10,142
Retained earnings - restricted 28,582 25,985
Less 500 shares of treasury stock - at cost (5) -
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 390 563
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Total shareholders' equity 39,220 36,690
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Total liabilities and shareholders' equity $491,890 $473,776
======= =======
2
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Nine months ended Three months ended
June 30, June 30,
2002 2001 2002 2001
Interest income
Loans $24,629 $25,041 $8,333 $8,259
Mortgage-backed securities 223 549 67 160
Investment securities 484 773 153 229
Interest-bearing deposits and other 306 427 106 172
------ ------ ----- -----
Total interest income 25,642 26,790 8,659 8,820
Interest expense
Deposits 9,530 12,488 2,946 4,134
Borrowings 5,291 5,358 1,817 1,679
------ ------ ----- -----
Total interest expense 14,821 17,846 4,763 5,813
------ ------ ----- -----
Net interest income 10,821 8,944 3,896 3,007
Provision for losses on loans 712 135 75 45
------ ------ ----- -----
Net interest income after provision
for losses on loans 10,109 8,809 3,821 2,962
Other income
Mortgage banking income 1,474 968 330 376
Gain on sale of investment securities 224 131 10 52
Gain on sale of deposits 250 - - -
Other operating 483 482 168 160
------ ------ ----- -----
Total other income 2,431 1,581 508 588
General, administrative and other expense
Employee compensation and benefits 3,871 3,406 1,332 1,134
Occupancy and equipment 816 856 272 281
Franchise taxes 286 287 98 96
Data processing 320 309 104 106
Amortization of intangible assets 46 46 15 15
Advertising 179 153 63 55
Other operating 1,216 1,133 377 416
------ ------ ----- -----
Total general, administrative and other expense 6,734 6,190 2,261 2,103
------ ------ ----- -----
Earnings before income taxes 5,806 4,200 2,068 1,447
Federal income taxes
Current 2,105 1,425 743 532
Deferred (131) 11 (40) (37)
------ ------ ----- -----
Total federal income taxes 1,974 1,436 703 495
------ ------ ----- -----
NET EARNINGS $ 3,832 $ 2,764 $1,365 $ 952
====== ====== ===== =====
EARNINGS PER SHARE
Basic $.86 $.62 $.30 $.21
=== === === ===
Diluted $.84 $.61 $.30 $.21
=== === === ===
Dividends per share $.2775 $.2475 $.0925 $.0825
===== ===== ===== =====
4
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Nine months ended Three months ended
June 30, June 30,
2002 2001 2002 2001
Net earnings $3,832 $2,764 $1,365 $ 952
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities during the period,
net of taxes (benefits) of $(13), $121, $33 and $76 for the nine
and three months ended June 30, 2002 and 2001, respectively (25) 234 64 147
Reclassification adjustment for realized gains included in
earnings, net of tax of $76, $45, $3 and $18 for the nine
and three months ended June 30, 2002 and 2001, respectively (148) (86) (7) (34)
----- ----- ----- -----
Comprehensive income $3,659 $2,912 $1,422 $1,065
===== ===== ===== =====
Accumulated comprehensive income $ 390 $ 589 $ 390 $ 589
===== ===== ===== =====
5
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30,
(In thousands)
2002 2001
Cash flows from operating activities:
Net earnings for the period $ 3,832 $ 2,764
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums on investments and
mortgage-backed securities 74 47
Amortization of deferred loan origination fees (131) (51)
Depreciation 337 346
Amortization of intangible assets 46 46
Provision for losses on loans 712 135
Gain on sale of mortgage loans (1,243) (783)
Loans disbursed for sale in the secondary market (90,552) (71,593)
Proceeds from sale of loans in the secondary market 77,277 72,835
Loss on sale of real estate acquired through foreclosure - 5
Gain on sale of deposits (250) -
Gain on sale of investment securities (224) (131)
Federal Home Loan Bank stock dividends (278) (388)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 168 170
Prepaid expenses and other assets (57) (144)
Accounts payable on mortgage loans serviced for others (45) (82)
Other liabilities 910 (251)
Federal income taxes
Current (151) (214)
Deferred (131) 11
------- ------
Net cash provided by (used in) operating activities (9,706) 2,722
Cash flows from investing activities:
Proceeds from maturity of investment securities - 1,750
Proceeds from maturity/calls of investment securities designated as
available for sale 2,685 6,900
Proceeds from sale of investment securities designated as available for sale 3,889 10,953
Proceeds from sale of mortgage-backed securities designated as
available for sale 1,927 -
Purchase of investment securities designated as available for sale (7,776) (13,936)
Purchase of mortgage-backed securities designated as available for sale (1,917) -
Principal repayments on mortgage-backed securities 1,846 4,644
Loan principal repayments 132,050 84,406
Loan disbursements (131,136) (90,113)
Proceeds from the sale of real estate acquired through foreclosure - 119
Purchase of office premises and equipment (535) (207)
Additions to real estate acquired through foreclosure - (28)
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Net cash provided by investing activities 1,033 4,488
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Net cash provided by (used in) operating and investing
activities (balance carried forward) (8,673) 7,210
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6
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended June 30,
(In thousands)
2002 2001
Net cash provided by (used in) operating and investing
activities (balance brought forward) $(8,673) $ 7,210
Cash flows from financing activities:
Net increase in deposit accounts 9,713 10,003
Sale of deposits (7,806) -
Proceeds from Federal Home Loan Bank advances 67,500 37,000
Repayment of Federal Home Loan Bank advances (53,571) (46,373)
Advances by borrowers for taxes and insurance (622) (709)
Proceeds from exercise of stock options 111 170
Dividends paid on common stock (1,235) (1,097)
Purchase of treasury stock (5) -
------ ------
Net cash provided by (used in) financing activities 14,085 (1,006)
------ ------
Net increase in cash and cash equivalents 5,412 6,204
Cash and cash equivalents at beginning of period 5,609 2,023
------ ------
Cash and cash equivalents at end of period $11,021 $ 8,227
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 2,230 $ 1,320
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Interest on deposits and borrowings $14,932 $18,081
====== ======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 202 $ 28
====== ======
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ (173) $ 148
====== ======
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 198 $ 44
====== ======
Transfer of investment securities from held to maturity to an
available for sale classification $ - $14,002
====== ======
7
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine- and three-month periods ended June 30, 2002 and 2001
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q 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 accounting principles generally accepted in
the United States of America. Accordingly, these financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto of Winton Financial Corporation ("Winton
Financial" or the "Corporation") included in the Annual Report on Form
10-K for the year ended September 30, 2001. However, all adjustments
(consisting of only 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 nine- and three-month periods ended June 30, 2002, 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 Winton Financial and its wholly-owned subsidiary, The Winton Savings
and Loan Co. ("Winton Savings" or the "Company"). All significant
intercompany items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill
and Intangible Assets," which prescribes accounting for all purchased
goodwill and intangible assets. Pursuant to SFAS No. 142, acquired
goodwill is not amortized, but is tested for impairment at the
reporting unit level annually and whenever an impairment indicator
arises.
An acquired intangible asset, other than goodwill, should be amortized
over its useful economic life. The useful life of an intangible asset
is indefinite if it extends beyond the foreseeable horizon. If an
asset's life is indefinite, the asset should not be amortized until the
life is determined to be finite. Intangible assets being amortized
should be tested for impairment in accordance with SFAS No. 144.
Intangible assets not being amortized should be tested for impairment,
annually and whenever there are indicators of impairment, by comparing
the asset's fair value to its carrying amount.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001, and is not expected to have a material effect on the
Corporation's financial position or results of operations.
The foregoing discussion of the effects of recent accounting
pronouncements contains forward-looking statements that involve risks
and uncertainties. Changes in economic circumstances could cause the
effects of the accounting pronouncements to differ from management's
foregoing assessment.
8
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine- and three-month periods ended June 30, 2002 and 2001
4. Earnings Per Share
Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the period.
Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under the Company's stock
option plan. The computations are as follows:
For the nine months ended For the three months ended
June 30, June 30,
2002 2001 2002 2001
Weighted-average common shares
outstanding (basic) 4,448,059 4,426,769 4,453,620 4,438,014
Dilutive effect of assumed exercise
of stock options 115,362 100,463 137,701 90,364
--------- --------- --------- ---------
Weighted-average common shares
outstanding (diluted) 4,563,421 4,527,232 4,591,321 4,528,378
========= ========= ========= =========
Options to purchase 155,500 and 427,500 shares of common stock, with a
respective weighted-average exercise price of $13.03 and $10.49, were
outstanding at June 30, 2002 and 2001, respectively, but were excluded
from the computation of common share equivalents because their exercise
prices were greater than the average market price of the common shares.
9
Winton Financial Corporation
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In the following pages, management presents an analysis of the financial
condition of Winton Financial as of June 30, 2002, and the results of operations
for the nine- and three-month periods ended June 30, 2002 compared to the same
periods in the prior year. In addition to this historical information, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, Winton Financial's operations and Winton
Financial's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein, but also include changes in
the economy and interest rates in the nation and in Winton Financial's general
market area.
Without limiting the foregoing, some of the statements in the following sections
of this discussion and analysis are forward-looking and are, therefore, subject
to such risks and uncertainties:
1. Management's analysis of the interest rate risk of Winton Savings;
2. Management's discussion of the liquidity of Winton Savings' assets and the
regulatory capital of Winton Savings;
3. Management's determination of the amount and adequacy of the allowance for
loan losses;
4. Management's opinion as to the effects of recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 2001 to June 30,
2002
The Corporation had total assets of $491.9 million at June 30, 2002, an increase
of $18.1 million, or 3.8%, over the September 30, 2001 total. The increase in
assets was comprised of a $12.8 million increase in loans receivable, including
loans held for sale, an increase in cash and interest-bearing deposits of $5.4
million and an increase in investments available for sale of $1.1 million, which
were partially offset by a decrease in mortgage-backed securities of $1.9
million. The growth in assets was funded primarily by a $13.9 million increase
in advances from the Federal Home Loan Bank ("FHLB"), undistributed earnings of
$2.6 million and an increase in deposits of $1.7 million. On December 7, 2001,
Winton Savings completed a sale of deposits associated with one of its branches
to another financial institution, and subsequently closed the branch.
Cash and cash equivalents totaled $11.0 million at June 30, 2002, an increase of
$5.4 million over the balance at September 30, 2001. Investment securities
totaled $15.4 million at June 30, 2002, an increase of $1.1 million, or 7.8%,
over September 30, 2001 levels. The increase in investment securities resulted
from purchases of $7.8 million, which was partially offset by sales and
maturities totaling $6.6 million.
Mortgage-backed securities totaled $5.4 million at June 30, 2002, a decrease of
$1.9 million, or 25.8%, from September 30, 2001, due primarily to principal
repayments during the period.
Loans receivable totaled $425.8 million at June 30, 2002, a decrease of $1.7
million, or .4%, compared to the September 30, 2001 total. The decrease resulted
primarily from $131.1 million in portfolio loan originations, which were
exceeded loan principal repayments totaling $132.1 million. Loan originations
during the nine-month period ended June 30, 2002, were comprised predominately
of loans secured by one- to four-family residential real estate. During this
period, consumers' preference remained focused on fixed-rate loans. As part of
the Company's efforts to manage its interest rate risk, loans held for sale
increased by $14.5 million as loans originated for sale totaling $90.6 million
more than exceeded the $76.0 million of loans sold. The Company's held for sale
portfolio at June 30, 2002 had a market value of $18.6 million which exceeded
the portfolio cost carrying value by approximately $290,000.
10
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 2001 to June 30,
2002 (continued)
At June 30, 2002, the Company's allowance for loan losses totaled $1.8 million,
an increase of $642,000, or 53.8%, over the total at September 30, 2001. At June
30, 2002, the allowance represented approximately .40% of the total loan
portfolio and 57.0% of total nonperforming loans. Nonperforming loans totaled
$3.2 million and $2.7 million at June 30, 2002 and September 30, 2001,
respectively. The nonperforming loans at June 30, 2002, were comprised primarily
of a $1.5 million construction loan, $1.2 million of loans secured by one- to
four-family residential real estate and $470,000 of loans secured by
multi-family and nonresidential real estate. At June 30, 2002, the ratio of
total nonperforming loans to total loans amounted to .70%, compared to .62% at
September 30, 2001. Although management believes that its allowance for loan
losses at June 30, 2002 is adequate based on the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect Winton
Financial's results of operations.
Deposits totaled $318.6 million at June 30, 2002, an increase of $1.7 million,
or 0.5%, over September 30, 2001 levels. In the first quarter of fiscal 2002,
the Company sold $8.1 million of deposits to another financial institution.
Exclusive of the sale, deposits increased during the nine months ended June 30,
2002, by $9.7 million, or 3.1%, due primarily to management's continuing
marketing efforts and pricing strategies. Advances from the FHLB and other
borrowings totaled $128.6 million at June 30, 2002, an increase of $13.9
million, or 12.1%, over September 30, 2001 levels. FHLB advances were used
primarily to fund both asset growth and payment for deposit liabilities sold.
Shareholders' equity totaled $39.2 million at June 30, 2002, an increase of $2.5
million, or 6.9%, over September 30, 2001. The increase resulted from net
earnings of $3.8 million and proceeds from the exercise of stock options of
$111,000, which were partially offset by dividends totaling $1.2 million, a
decrease in unrealized gains on available for sale securities of $173,000 and
purchases of treasury shares of $5,000.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At June 30, 2002, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Nine-Month Periods ended June 30, 2002
and 2001
General
The Corporation recorded net earnings for the nine months ended June 30, 2002,
totaling $3.8 million, an increase of $1.1 million, or 38.6%, compared to net
earnings for the same period in 2001. The increase in earnings was comprised of
a $1.9 million increase in net interest income and an $850,000 increase in other
income, which were partially offset by a $577,000 increase in the provision for
losses on loans, a $544,000 increase in general, administrative and other
expense and a $538,000 increase in the provision for federal income taxes.
11
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods ended June 30, 2002
and 2001 (continued)
Net Interest Income
Interest income on loans and mortgage-backed securities decreased by $738,000,
or 2.9%, for the nine months ended June 30, 2002, compared to the same period in
2001. The decrease resulted primarily from a decrease in the average yield of 58
basis points, to 7.41% for the nine months ended June 30, 2002, which was
partially offset by an increase in the weighted-average balance outstanding of
$20.0 million, or 4.5%, year to year.
Interest income on investment securities and interest-bearing deposits decreased
by $410,000, or 34.2%, for the nine months ended June 30, 2002, compared to the
same period in 2001, due primarily to a decrease of 182 basis points in the
average yield, to 3.74% for the 2002 period and a decrease of $615,000, or 2.1%,
in the average balance outstanding year to year.
Interest expense on deposits decreased by $3.0 million, or 23.7%, for the nine
months ended June 30, 2002, compared to the same period in 2001. The decrease
was primarily attributable to a 126 basis point decrease in the weighted-average
cost of deposits, which was partially offset by a $413,000 increase in the
weighted-average balance of deposits outstanding year to year. The
weighted-average cost of deposits amounted to 4.05% and 5.31% for the nine month
periods ended June 30, 2002 and 2001, respectively.
Interest expense on borrowings decreased by $67,000, or 1.3%, during the nine
months ended June 30, 2002, compared to the same period in 2001, due primarily
to a decrease in the weighted-average cost of borrowings of 80 basis points, to
5.58% for the nine months ended June 30, 2002, which was partially offset by a
$14.4 million, or 12.9%, increase in the weighted-average balance of borrowings
outstanding year to year. The decreases in yields on interest-earning assets and
the cost of interest-bearing liabilities were due primarily to the overall
decrease in interest rates in the economy during calendar 2001. This low
interest rate environment continued during the first six months of calendar
2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $1.9 million, or 21.0%, to $10.8 million for
the nine months ended June 30, 2002, compared to the same period in 2001. The
interest rate spread increased by 46 basis points, to 2.70% for the nine months
ended June 30, 2002, while the net interest margin increased by 42 basis points,
to 3.03% for the nine months ended June 30, 2002, compared to 2.61% for the nine
months ended June 30, 2001.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Company, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to the Company's loan portfolio, management recorded a $712,000 provision
for losses on loans during the nine-month period ended June 30, 2002, compared
to a provision of $135,000 recorded in the 2001 period. Management deemed it
prudent to increase the provision due to an increase in the level of
nonperforming loans and the potential impact on the loan portfolio of a general
weakening of the economic environment.
12
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods ended June 30, 2002
and 2001 (continued)
Provision for Losses on Loans (continued)
The following tables set forth information regarding delinquent loans,
nonperforming assets and the allowance for loan losses.
June 30, September 30,
2002 2001
(Dollars in thousands)
Loans delinquent
30 to 89 days $6,769 $11,059
90 or more days 3,224 2,744
----- ------
Total delinquent loans $9,993 $13,803
===== ======
Loans accounted for on nonaccrual basis $2,839 $ 2,428
Loans greater than 90 days and still accruing 385 316
Real estate acquired through foreclosure 674 486
----- ------
Total nonperforming assets $3,898 $ 3,230
===== ======
Allowance for loan losses $1,836 $ 1,194
===== ======
Allowance for loan losses to total loans 0.40% 0.27%
Allowance for loan losses to nonperforming loans 56.95% 43.51%
Allowance for loan losses to nonperforming assets 47.10% 36.97%
Nonperforming loans to total loans 0.72% 0.62%
While management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover known losses and losses
inherent in the Company's loan portfolio at this time, no assurance can be given
that the level of the allowance will be sufficient to cover future loan losses
or that future adjustments to the allowance will not be necessary if economic
and/or other conditions differ substantially from the economic and other
conditions considered by management in evaluating the adequacy of the current
level of the allowance.
Other Income
Other income totaled $2.4 million for the nine months ended June 30, 2002, an
increase of $850,000, or 53.8%, compared to the 2001 period, due primarily to a
$506,000, or 52.3%, increase in mortgage banking income, a $93,000 increase in
gain on sale of securities and a $250,000 gain on sale of deposits. Net mortgage
servicing fees and related amortization amounted to $33,000 of additional
revenue for the nine months ended June 30, 2002, compared to revenue of $141,000
for the 2001 period. The gain on sale of loans increased by $614,000, or 74.2%,
due primarily to a $4.0 million, or 5.5% increase in sales volume, as the
Company elected to sell fixed-rate loans originated in the current low interest
rate environment.
13
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods ended June 30, 2002
and 2001 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $6.7 million for the nine
months ended June 30, 2002, an increase of $544,000, or 8.8%, compared to the
same period in 2001. The increase was due primarily to an increase in employee
compensation and benefits of $465,000, or 13.7%, and an increase in other
operating expense of $83,000, or 7.3%. Employee compensation and benefits
increased due to normal merit increases, overtime paid in the first quarter due
to increased business activity and $202,000 of expense related to an incentive
bonus plan. Other operating expenses increased due to an increase in legal fees
incurred in connection with delinquent loans, an increase in costs attendant to
the increase in loan volume and pro-rata increases in operating costs due to the
Corporation's overall growth year to year.
Federal Income Taxes
The provision for federal income taxes amounted to $2.0 million for the nine
months ended June 30, 2002, an increase of $538,000, or 37.5%, compared to the
same period in 2001. The increase was due primarily to the increase in earnings
before income taxes of $1.6 million, or 38.2%, as the effective tax rates were
34.0% and 34.2% for the nine-month periods ended June 30, 2002 and 2001,
respectively.
Comparison of Operating Results for the Three-Month Periods ended June 30, 2002
and 2001
General
The Corporation recorded net earnings for the three months ended June 30, 2002,
totaling $1.4 million, an increase of $413,000, or 43.4%, compared to net
earnings of $952,000 for the same period in 2001. The increase in net earnings
was comprised of an $889,000 increase in net interest income, which was
partially offset by a $208,000 increase in the provision for federal income
taxes, a $158,000 increase in general, administrative and other expense, an
$80,000 decrease in other income and a $30,000 increase in the provision for
losses on loans.
Net Interest Income
Interest income on loans and mortgage-backed securities decreased by $19,000, or
0.2%, for the three months ended June 30, 2002, compared to the same quarter in
2001. The decrease resulted primarily from a decrease in the average yield of 46
basis points, to 7.39% for the three months ended June 30, 2002, which was
partially offset by an increase in the weighted-average balance outstanding of
$22.2 million, or 5.2%, year to year. During the quarter ended June 30, 2002,
the Company received full repayment of a non-performing loan resulting in
recognition of interest income totaling approximately $260,000.
Interest income on investment securities and interest-bearing deposits decreased
by $142,000, or 35.4%, for the three months ended June 30, 2002, compared to the
same quarter in 2001, due primarily to a decrease of 209 basis points in the
average yield, to 3.38% for the 2002 quarter, which was partially offset by an
increase of $1.3 million, or 4.5%, in the average balance outstanding year to
year.
Interest expense on deposits decreased by $1.2 million, or 28.7%, for the three
months ended June 30, 2002, compared to the same period in 2001. The decrease
was primarily attributable to a 147 basis point decrease in the weighted-average
cost of deposits, coupled with a $2.2 million decrease in the weighted-average
balance of deposits outstanding year to year. The weighted-average cost of
deposits amounted to 3.73% and 5.20% for the three months ended June 30, 2002
and 2001, respectively.
14
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods ended June 30, 2002
and 2001 (continued)
Net Interest Income (continued)
Interest expense on borrowings increased by $138,000, or 8.2%, during the three
months ended June 30, 2002, compared to the same quarter in 2001, primarily due
to a $21.8 million, or 20.0%, increase in the weighted-average balance of
borrowings outstanding year to year, which was partially offset by a 61 basis
point decrease in the weighted-average cost of borrowings, to 5.56% for the
three months ended June 30, 2002. The decreases in yields on interest-earning
assets and the cost of interest-bearing liabilities were due primarily to the
overall decrease in interest rates in the economy during calendar 2001. This low
interest rate environment continued into 2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $889,000, or 29.6%, to $3.9 million for the
three months ended June 30, 2002, compared to the same quarter in 2001. The
interest rate spread increased by 67 basis points, to 2.92% for the three months
ended June 30, 2002, while the net interest margin increased by 61 basis points,
to 3.24% for the three months ended June 30, 2002, compared to 2.63% for the
three months ended June 30, 2001.
Provision for Losses on Loans
As a result of an analysis of historical experience, the volume and type of
lending conducted by the Company, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to the Company's loan portfolio, management recorded a $75,000 provision
for losses on loans during the quarter ended June 30, 2002, compared to a
provision of $45,000 recorded in the 2001 period. Management deemed it prudent
to increase the provision due to the increase in nonperforming loans and the
potential impact on the loan portfolio of a general weakening of the economic
environment. There can be no assurance that the allowance for loan losses of the
Company will be adequate to cover losses on nonperforming assets in the future.
While management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the
Company's loan portfolio at this time, no assurance can be given that the level
of the allowance will be sufficient to cover future loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of the
allowance.
Other Income
Other income totaled $508,000 for the three months ended June 30, 2002, a
decrease of $80,000, or 13.6%, compared to the 2001 period, due primarily to a
$46,000, or 12.2%, decrease in gain on sale of loans, coupled with a $42,000
decrease in gains on sale of investment securities.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.3 million for the three
months ended June 30, 2002, an increase of $158,000, or 7.5%, compared to the
same period in 2001. The increase was due primarily to an increase in employee
compensation and benefits of $198,000, or 17.5%, which was partially offset by a
decline in other operating expenses of $39,000, or 9.4%. The decrease in other
operating expenses was primarily due to declines in legal expense due to
recoveries, a decline in stationery and printing costs and bad check losses,
which were partially offset by pro-rata increases in operating costs due to the
Corporation's overall growth year to year. Employee compensation and benefits
increased due to normal merit increases year to year and $51,000 of expense
related to an incentive bonus plan.
15
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods ended June 30, 2002
and 2001 (continued)
Federal Income Taxes
The provision for federal income taxes amounted to $703,000 for the three months
ended June 30, 2002, an increase of $208,000, or 42.0%, compared to the same
period in 2001. The increase was due primarily to the increase in earnings
before income taxes of $621,000, or 42.9%, as the effective tax rates were 34.0%
and 34.2% for the three-month periods ended June 30, 2002 and 2001,
respectively.
Liquidity and Capital Resources
Winton Savings maintains sufficient funds to meet deposit withdrawals, loan
commitments and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary sources
of funds are deposits, borrowings, principal and interest repayments on loans
and proceeds from the sale of mortgage loans.
At June 30, 2002, Winton Savings had $164.8 million of certificates of deposit
maturing within one year. It has been the Company's historic experience that
such certificates of deposit will be renewed at Winton Savings' market rates of
interest. It is management's belief that maturing certificates of deposit over
the next year will similarly be renewed at market rates of interest without a
material adverse effect on results of operations.
In the event that certificates of deposit cannot be renewed at prevailing market
rates, the Company can obtain additional advances from the FHLB of Cincinnati.
At June 30, 2002, the Company had $126.6 million of outstanding FHLB advances,
with the ability to borrow an additional $94.8 million. The Company has also
utilized brokered deposits as a supplement to its local deposits when such funds
are attractively priced in relation to the local market. As of June 30, 2002,
the Company had $13.6 million in brokered deposits.
Winton Financial believes that the Company's liquidity posture at June 30, 2002,
is adequate to meet outstanding loan commitments and other cash requirements.
16
Winton Financial Corporation
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There has been no adverse material change in the Corporation's market risk since
the Corporation's Form 10-K filed with the Securities and Exchange Commission
for the fiscal year ended September 30, 2001.
17
Winton 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
Not applicable
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995
99.2 Certification of Chief Executive Officer
99.3 Certification of Chief Financial Officer
(b) Reports on Form 8-K None.
18
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: August 14, 2002 By: /s/Robert L. Bollin
------------------------- -----------------------------------
Robert L. Bollin
President
Date: August 14, 2002 By: /s/Jill M. Burke
------------------------- -----------------------------------
Jill M. Burke
Chief Financial Officer
19