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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-18993
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 No.)
5511 Cheviot Road, Cincinnati, Ohio 45247
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 385-3880
Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
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(Title of class)
Indicate by check mark whether the registrant (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 ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes --- No X
Based upon the last sale price quoted by The American Stock Exchange as of March
31, 2003, the aggregate market value of the voting stock held by non-affiliates
of the registrant on that date was $37.9 million.
On December 5, 2003, there were 4,482,254 of the registrant's common shares
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I of Form 10-K: Safe Harbor Under the Private Securities Litigation
Reform Act of 1995, Exhibit 99.1.
Part II of Form 10-K: Portions of the Annual Report to Shareholders for the
fiscal year ended September 30, 2003, Exhibit 13.
Part III of Form 10-K: Portions of Proxy Statement for 2004 Annual Meeting of
Shareholders.
PART I
ITEM 1. BUSINESS
GENERAL
Winton Financial Corporation, an Ohio corporation ("Winton Financial," the
"Corporation" or "WFC"), is a unitary savings and loan holding company which
owns all of the outstanding common shares of The Winton Savings and Loan Co., an
Ohio savings and loan association ("Winton Savings" or the "Company").
The activities of Winton Financial have been limited primarily to holding
the stock of Winton Savings. Organized in 1887 under the laws of the state of
Ohio as a mutual savings and loan association, Winton Savings completed its
conversion to stock form in fiscal 1988. Winton Savings conducts business from
its principal office in the Monfort Heights area of Cincinnati, Ohio, its six
branch offices in Hamilton County, Ohio, one loan production office in the
eastern area of Cincinnati and one loan production office in southeastern
Indiana.
Winton Savings is principally engaged in the business of making first
mortgage loans to finance the purchase, construction or improvement of
residential or other real property.
Winton Savings also invests in U.S. government guaranteed mortgage-backed
securities and investment securities issued by the U.S. government and agencies
thereof and municipal bonds. Funds for lending and investment are obtained
primarily from savings deposits, loan principal and interest repayments,
mortgage sales and borrowings from the Federal Home Loan Bank (the "FHLB") of
Cincinnati, of which Winton Savings is a member.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-K, the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including changes in economic conditions generally and in
Winton's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in Winton's market area and competition.
Factors listed above could affect WFC's financial performance and could cause
WFC's actual results for future periods to differ materially from any statements
expressed with respect to future periods. See Exhibit 99 hereto, "Safe Harbor
Under the Private Securities Litigation Reform Act of 1995," which is
incorporated herein by reference.
WFC does not undertake, and specifically disclaims any obligation, to
revise publicly any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
LENDING ACTIVITIES
GENERAL. Winton's principal lending activity involves the origination of
conventional fixed-rate and variable-rate mortgage loans for the acquisition or
construction of one- to four-family residences located in Winton's primary
market area, and of nonresidential and multifamily loans, including construction
and permanent mortgage loans on condominiums, multi-unit properties and
commercial properties. Each of such loans is secured by a mortgage on the
underlying property. Winton also originates loans insured by the Federal Housing
Administration and guaranteed by the Veterans Administration, both of which
Winton sells into the secondary market. In addition to residential and
nonresidential real estate lending, Winton originates consumer loans, including
passbook, automobile, home improvement and home equity line of credit loans.
-2-
LOAN PORTFOLIO COMPOSITION. The following table sets forth certain
information concerning the composition of Winton's loan portfolio at the dates
indicated:
At September 30,
---------------------------------------------------------------------------------------
2003 2002 2001
------------------------- ------------------------ -------------------------
Percent of Percent of Percent of
Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
Real estate loans:
One- to four-family (1) $ 290,114 59.5% $ 248,606 54.4% $ 226,684 52.6%
Multifamily 76,552 15.7 80,523 17.6 79,003 18.3
Land and lot 6,444 1.3 9,289 2.0 3,836 .9
Nonresidential 90,571 18.6 91,509 20.0 86,056 20.0
Construction loans (2) 33,646 6.9 31,946 7.0 36,431 8.4
Consumer and other loans (3) 10,096 2.1 12,179 2.7 15,186 3.5
--------- ----- --------- ----- --------- -----
Total 507,423 104.1 474,052 103.7 447,196 103.7
Less:
Loans in process (17,134) (3.5) (14,616) (3.2) (13,930) (3.2)
Deferred loan origination fees (544) (.1) (609) (.1) (748) (.2)
Allowance for loan losses (2,265) (.5) (1,850) (.4) (1,194) (.3)
--------- ----- --------- ----- --------- -----
Total loans $ 487,480 100.0% $ 456,977 100.0% $ 431,324 100.0%
========= ===== ========= ===== ========= =====
At September 30,
--------------------------------------------------------
2000 1999
------------------------- ------------------------
Percent of Percent of
Amount total loans Amount total loans
------ ----------- ------ -----------
(Dollars in thousands)
Real estate loans:
One- to four-family (1) $ 223,698 53.8% $ 226,586 54.8%
Multifamily 77,870 18.7 80,309 19.4
Land and lot 3,502 .8 4,546 1.1
Nonresidential 75,127 18.1 74,233 17.9
Construction loans (2) 37,638 9.1 32,655 7.9
Consumer and other loans (3) 15,241 3.7 11,709 2.8
--------- ----- --------- -----
Total 433,076 104.2 430,038 103.9
Less:
Loans in process (16,046) (3.9) (15,070) (3.6)
Deferred loan origination fees (583) (.1) (486) (.1)
Allowance for loan losses (1,000) (.2) (932) (.2)
--------- ----- --------- -----
Total loans $ 415,447 100.0% $ 413,550 100.0%
========= ===== ========= =====
- ----------
(1) Includes first and second mortgage loans, home equity lines of credit and
loans held for sale.
(2) Includes loans secured by one-to four-family, multifamily and
nonresidential real estate.
(3) Includes lines of credit that are available to businesses and that are
secured by assets other than real estate.
LOAN MATURITY. The following table sets forth certain information, as of
September 30, 2003, regarding the dollar amount of loans maturing in Winton's
portfolio based on their contractual terms to maturity, before giving effect to
net items. Demand loans, loans having no stated schedule of repayments or
without stated maturity and overdrafts are reported as due in one year or less.
Due over
Due in one year to Due over five
one year five years after years after
or less 9/30/03 9/30/03 Total
------- ------- ------- -----
(In thousands)
Real estate loans:
One- to four-family (1) $ 18,448 $ 43,156 $228,510 $290,114
Multifamily 2,191 10,407 63,954 76,552
Land and lot 1,514 2,518 2,412 6,444
Nonresidential 3,129 15,035 72,407 90,571
Construction loans (2) 33,604 42 -- 33,646
Consumer and other loans (3) 3,022 6,862 212 10,096
-------- -------- -------- --------
Total $ 61,908 $ 78,020 $367,495 $507,423
======== ======== ======== ========
- --------
(1) Includes first and second mortgage loans, home equity lines of credit and
loans held for sale.
(2) Includes loans secured by one-to four-family, multifamily and
nonresidential real estate.
(3) Includes lines of credit that are available to businesses and that are
secured by assets other than real estate.
-3-
The following table sets forth the dollar amount of all loans due after
September 30, 2004, before net items, that have predetermined interest rates and
floating or adjustable interest rates:
Predetermined Floating or
rates adjustable rates Total
----- ---------------- -----
(In thousands)
Real estate loans:
One- to four-family $202,816 $ 68,850 $271,666
Multifamily 26,635 47,726 74,361
Land and lot 465 4,465 4,930
Nonresidential 60,787 26,655 87,442
Construction loans -- 42 42
Consumer and other loans 3,354 3,720 7,074
-------- -------- --------
Total $294,057 $151,458 $445,515
======== ======== ========
ONE- TO FOUR-FAMILY REAL ESTATE LOANS. The primary lending activity of
Winton is the origination of conventional loans secured by one- to four-family
residential properties located within Winton's primary market area. At September
30, 2003, a total of $290.1 million, or approximately 59.5%, of Winton's total
loans consisted of one- to four-family residential real estate loans. The
outstanding balance of Winton's largest one- to four-family real estate loan was
$569,000 at September 30, 2003.
Subject to OTS regulations regarding safety and soundness, there are no
limits on the aggregate amount of assets Winton may invest in one- to
four-family loans. OTS regulations and Ohio law limit the amount that Winton may
lend to a single borrower in relationship to the appraised value of the real
estate and improvements thereon at the time of loan origination. In accordance
with such regulations, Winton makes loans on single-family residences up to 95%
of the value of the real estate and improvements (the "Loan-to-Value Ratio" or
"LTV"). Winton also makes loans over the 95% LTV, though most of those loans are
sold in the secondary market. Generally, Winton requires private mortgage
insurance and/or charges premium interest rates for loans over 80% LTV.
Winton offers fixed interest rates on its one- to four-family real estate
loans with terms of up to 30 years. Winton also offers mortgage loans with
adjustable interest rates ("ARMs") with adjustment periods of generally one or
three years. Winton determines the interest rates initially charged on ARMs and
the new rate at each adjustment date by adding a stated margin to the one-year
constant maturity treasury or three-year United States Treasury bill rate at the
time it originates the loan. Winton sets the initial interest rate for a
three-year ARM slightly higher than for the one-year ARM to compensate for the
increased exposure to risk resulting from interest-rate fluctuations during the
adjustment period. The maximum adjustment at each adjustment date for one-year
ARMs is usually 2%, with a maximum adjustment of 6% over the term of the loan.
The maximum adjustment on three-year ARMs presently originated by Winton is 2%
at each adjustment date, with a maximum adjustment of 6% over the life of the
loan. None of Winton's ARMs has negative amortization features.
The one- to four-family real estate mortgage loans offered by Winton are
usually originated for terms of 10 to 30 years. Due to the general long-term
nature of an investment in mortgage loans, such loans could have an adverse
effect upon the earnings spread of an association if such loans do not reprice
as quickly as the association's cost of funds. To minimize such an effect,
Winton sells certain fixed-rate mortgages in the secondary market. Furthermore,
experience during recent years reveals that, as a result of prepayments in
connection with refinancings and sales of the underlying properties, residential
loans generally remain outstanding for periods that are substantially shorter
than the maturity of such loans.
At September 30, 2003, Winton had nonperforming loans totaling $1.2
million in its one- to four-family portfolio. Winton considers a loan
nonperforming when, in the opinion of management, the collection of additional
interest on the loan is unlikely, the loan meets non-accrual criteria as
established by regulatory authorities, or the loan is accruing interest but is
more than 90 days past due.
MULTIFAMILY REAL ESTATE LOANS. Winton originates adjustable- and
fixed-rate loans secured by multifamily properties containing over four units.
At September 30, 2003, a total of $76.6 million, or approximately 15.7%, of
Winton's total loans consisted of multifamily real estate loans. The outstanding
balance of Winton's largest multifamily real estate loan was $3.7 million at
September 30, 2003.
-4-
Multifamily loans generally have terms of up to 25 years and a maximum LTV
of 80%. Adjustable-rate multifamily residential loans are currently made with
the same adjustment schedules, indexes and caps as for one- to four-family
residential ARMs, with a margin of 3% over the index.
Multifamily lending is generally considered to involve a higher degree of
risk than one- to four-family residential lending because the loan amounts are
larger and the borrower typically depends upon income generated by the project
to cover operating expenses and debt service. The profitability of a project can
be affected by economic conditions, government policies and other factors beyond
the control of the borrower. Winton attempts to reduce the risk associated with
multifamily lending by evaluating the credit-worthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. Winton requires that the borrower agree
to submit rent rolls and financial statements annually to enable Winton to
monitor the loan.
At September 30, 2003, Winton had no nonperforming loans in its
multifamily real estate portfolio.
LAND AND LOT LOANS. Winton originates loans to individuals and to builders
secured by mortgages on real estate upon which residential and nonresidential
properties will be constructed. At September 30, 2003, a total of $6.4 million,
or approximately 1.3%, of Winton's total loans consisted of land and lot loans.
Ohio regulations limit the amount of any land and lot loan for a single person
to two percent of total assets of the association. The outstanding balance of
Winton's largest land and lot loan was $1.4 million, or .26% of Winton's total
assets, at September 30, 2003. A developed building lot loan is generally made
for a 20-year term with a five-year balloon payment of principal due upon
expiration of the loan term and generally a maximum LTV of 75%.
Loans on development real estate are generally considered to be subject to
a higher degree of risk because the borrower typically depends on a sale of the
property or the later improvement of the property to cover debt service. The
ability to sell or develop unimproved real estate is affected by economic
conditions, government policies and other factors beyond the control of the
borrower. These risks are increased if the unimproved real estate is for an
entire subdivision rather than a single residential lot. Winton reviews the
viability of the unimproved real estate for improvement and sale and evaluates
the credit-worthiness of the borrowers for these loans.
At September 30, 2003, Winton had $16,000 of nonperforming loans in its
land and lot loan portfolio.
NONRESIDENTIAL REAL ESTATE LOANS. Winton originates real estate loans
secured by nonresidential real estate, including loans secured by retail, office
and other types of business facilities located in its primary market area. At
September 30, 2003, a total of $90.6 million, or approximately 18.6%, of
Winton's total loans consisted of nonresidential real estate loans. The
outstanding balance of Winton's largest nonresidential real estate loan was $2.5
million at September 30, 2003.
Federal regulations limit the amount of nonresidential mortgage loans that
an association may make to 400% of its capital, and Ohio regulations limit the
amount of nonresidential loans that an association may make to 20% of total
assets. At September 30, 2003, Winton's nonresidential permanent mortgage loans
of $90.6 million and nonresidential construction loans of $3.6 million totaled
213.1% of Winton's capital and 17.3% of Winton's total assets.
In recent years, nonresidential real estate loans have been made on an
adjustable-rate and fixed-rate basis, with loan terms generally up to a maximum
of 25 years. Winton typically originates these loans at a maximum 80% LTV.
Adjustable-rate nonresidential real estate loans have the same adjustment
schedules, index and caps as the residential ARMs described above in "One- to
Four-Family Real Estate Loans."
Nonresidential real estate lending is generally considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. If the cash flow on the property is
reduced, for example, as leases are not obtained or renewed, the borrower's
ability to repay may be impaired. Winton has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the quality of the management constructing and operating the
property, the debt service ratio, the quality and characteristics of the income
stream generated by the property and appraisals supporting the property's
valuation.
At September 30, 2003, Winton had $2.5 million of nonperforming loans in
its non-residential real estate portfolio.
-5-
CONSTRUCTION LOANS. Winton offers residential construction loans both to
owner-occupants and to builders for homes being built under contract with
owner-occupants. To a very limited extent, Winton also makes construction loans
to persons or businesses constructing projects for investment purposes, for
multifamily properties and for nonresidential projects. At September 30, 2003, a
total of $33.6 million, or approximately 6.9%, of Winton's total loans consisted
of construction loans. The outstanding balance of Winton's largest construction
loan was $2.6 million at September 30, 2003.
Construction loans generally have terms ranging from 6 to 12 months at
fixed and adjustable rates of interest over the construction period.
Adjustable-rate construction loan products are adjusted based on changes to the
prime rate. Residential construction loans and nonresidential construction loans
are interim loans which are replaced by permanent fixed- or adjustable-rate
loans at the end of the construction period. Such permanent loans may or may not
be obtained from Winton.
Construction loans generally involve greater underwriting and default
risks than do loans secured by mortgages on existing properties due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on real estate developments, developers,
managers and builders. In addition, such loans are more difficult to evaluate
and monitor. Winton advances loan funds upon the security of the project under
construction, which is more difficult to value before the completion of
construction. Moreover, because of the uncertainties inherent in estimating
construction costs, it is relatively difficult to evaluate accurately the LTVs
and the total loan funds required to complete a project. In the event a default
on a construction loan occurs and foreclosure follows, Winton would have to take
control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project. Almost all of Winton's
construction loans are secured by properties in its primary market area. The
economy of such lending area has been relatively stable over the three years
ended September 30, 2003.
At September 30, 2003, Winton had no nonperforming loans in its
construction loan portfolio.
CONSUMER AND OTHER LOANS. Winton originates various types of consumer
loans, including loans made to depositors on the security of their savings
deposits, automobile loans, loans secured by stocks of publicly-traded
companies, closed end and line of credit loans to businesses secured by non-real
estate assets and unsecured personal loans. At September 30, 2003, a total of
$10.1 million, or 2.1%, of Winton's total loans consisted of consumer and other
loans. The outstanding balance of Winton's largest consumer or other loan was
$536,000 at September 30, 2003.
Ohio regulations limit the amount of consumer loans that an association
may make to 20% of total assets. At September 30, 2003, Winton's consumer loans
represented approximately 1.9% of Winton's total assets.
Consumer loans are generally made at fixed rates of interest consistent
with the market rate for the type of collateral offered as security and for
terms of 90 days to five years.
Consumer loans, particularly consumer loans that are unsecured or are
secured by depreciating assets such as automobiles and mobile homes, entail
greater risk than residential loans. Repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance. The risk of default on consumer loans increases during periods of
recession, high unemployment and other adverse economic conditions.
At September 30, 2003, Winton had $22,000 of nonperforming loans in its
consumer and other loan portfolio.
LOAN SOLICITATION AND PROCESSING. Winton develops loan originations from a
number of sources, including commissioned loan originators, loan brokers,
continuing business with depositors, other borrowers and real estate developers,
solicitations by Winton's directors, officers and lending staff and walk-in
customers.
Winton's loan personnel take all loan applications for permanent mortgage
loans. Winton obtains a credit report, verification of employment and other
documentation concerning the credit-worthiness of the borrower. Generally, an
independent fee appraiser approved by the Board of Directors will prepare an
appraisal of the fair market value of the real estate that will be given as
security for the loan. An environmental study is conducted only if the appraiser
or management has reason to believe that an environmental problem may exist. For
multifamily and nonresidential mortgage loans, Winton generally requires a
personal guarantee. Winton also obtains information with respect to prior
projects completed by the borrower. Upon the completion of the appraisal and the
receipt of information on the borrower, the application for a loan is submitted
either to Winton's Loan Committee and/or the Board of Directors or to the
secondary market for approval or rejection. Any loan applications that are not
accepted by the secondary market are reviewed and accepted or rejected by
Winton's Loan Committee.
-6-
If a mortgage loan application is approved, Winton obtains an attorney's
opinion of title or a title insurance policy on the real estate that will secure
the mortgage loan. Winton requires borrowers to carry fire and casualty
insurance and flood insurance, if applicable, and to name Winton as an insured
mortgagee.
The procedure for approval of construction loans is the same as for
permanent mortgage loans, except that an appraiser evaluates the building plans,
construction specifications and estimates of construction costs. Winton also
evaluates the feasibility of the proposed construction project and the
experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Winton's mortgage loans carry provisions that the entire balance of the
loan is due upon sale of the property securing the loan.
LOAN ORIGINATIONS, PURCHASES AND SALES. Winton has been actively
originating 30-year, 20-year and 15-year fixed-rate and adjustable-rate loans.
Most residential fixed-rate loans made by Winton are originated on documentation
which will permit a possible sale of such loans to the Federal Home Loan
Mortgage Corporation ("FHLMC") or other secondary mortgage market participants.
Winton sold $243.5 million of fixed-rate loans and $6.8 million of
adjustable rate loans during fiscal 2003, compared to sales of $122.3 million of
fixed-rate loans and $1.4 million of adjustable-rate loans in fiscal 2002.
From time to time, Winton sells participation interests in mortgage loans
originated by Winton or purchases participation interests in loans originated by
other lenders. During fiscal 2003, Winton sold participation interests in loans
totaling $3.0 million to other lenders. During fiscal 2002, Winton sold
participation interests in loans totaling $1.1 million to other lenders. During
fiscal 2001, Winton did not sell participation interests in loans to other
lenders. Winton held participations in loans originated by other lenders of
approximately $3.7 million at September 30, 2003. Loans in which Winton
purchases participation interests must meet or exceed the underwriting standards
for the loans that Winton originates.
The following table presents Winton's mortgage loan origination, purchase,
sale and principal repayment activity for the periods indicated:
At September 30,
-----------------------------------------------------------------
2003 2002 2001
------------------ ------------------ -----------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(Dollars in thousands)
Loans originated:
Real estate loans:
One- to four-family:
Fixed-rate $ 355,504 69.5% $ 171,500 54.4% $ 123,784 52.2%
Adjustable-rate 26,495 5.2 19,256 6.1 6,711 2.8
FHA/VA 1,819 .4 1,696 .5 3,442 1.5
Multifamily:
Fixed-rate 7,797 1.5 4,897 1.6 8,458 3.6
Adjustable-rate 14,365 2.8 14,069 4.5 6,171 2.6
Nonresidential, land and lot:
Fixed-rate 8,750 1.7 18,441 5.8 12,322 5.2
Adjustable-rate 5,293 1.0 5,590 1.8 6,699 2.8
Construction loans 45,623 8.9 35,502 11.2 30,936 13.0
Consumer and other loans (1) 45,773 9.0 44,335 14.1 38,570 16.3
---------- ----- ---------- ----- ---------- -----
Total loans originated $ 511,420 100.0% $ 315,286 100.0% $ 237,093 100.0%
========== ===== ========== ===== ========== =====
Loans sold:
Loans $ 250,280 98.8% $ 123,674 99.1% $ 102,968 100.0%
Participations 3,029 1.2 1,100 .9 --
---------- ----- ---------- ----- ---------- -----
Total $ 253,309 100.0% $ 124,774 100.0% $ 102,968 100.0%
========== ===== ========== ===== ========== =====
Principal repayments on loans $ 227,155 $ 161,748 $ 118,004
========== ========== ==========
At September 30,
------------------------------------------
2000 1999
------------------- ---------------------
Amount % Amount %
------- --- ------ ---
(Dollars in thousands)
Loans originated:
Real estate loans:
One- to four-family:
Fixed-rate $ 39,948 26.5% $ 146,704 51.2%
Adjustable-rate 15,303 10.1 17,475 6.1
FHA/VA 6,258 4.1 5,518 1.9
Multifamily:
Fixed-rate 344 .2 15,477 5.4
Adjustable-rate 7,097 4.7 7,954 2.8
Nonresidential, land and lot:
Fixed-rate 4,641 3.1 15,978 5.6
Adjustable-rate 6,423 4.3 7,129 2.5
Construction loans 34,678 23.0 42,843 14.9
Consumer and other loans (1) 36,147 24.0 27,414 9.6
---------- ----- ---------- -----
Total loans originated $ 150,839 100.0% $ 286,492 100.0%
========== ===== ========== =====
Loans sold:
Loans $ 50,746 98.3% $ 99,255 97.3%
Participations 903 1.7 2,730 2.7
---------- ----- ---------- -----
Total $ 51,649 100.0% $ 101,985 100.0%
========== ===== ========== =====
Principal repayments on loans $ 96,794 $ 122,174
========== ==========
- ----------
(1) Consists primarily of auto and line of credit disbursements and change in
loans in process.
-7-
FEDERAL LENDING LIMIT. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based capital
purposes plus any loan reserves not already included in total capital (the
"Lending Limit Capital"). A savings association may lend to one borrower an
additional amount not to exceed 10% of the association's Lending Limit Capital,
if the additional amount is fully secured by certain forms of "readily
marketable collateral." Real estate is not considered "readily marketable
collateral." In applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated. An exception to this
limit permits loans of any type to one borrower of up to $500,000. In addition,
the OTS, under certain circumstances, may permit exceptions to the lending limit
on a case-by-case basis. Based on the 15% limit, Winton was able to lend
approximately $7.1 million to one borrower at September 30, 2003. Winton had no
outstanding loans in excess of such limit at September 30, 2003.
LOAN ORIGINATION AND OTHER FEES. Winton realizes loan origination fee and
other fee income from its lending activities and also realizes income from late
payment charges, application fees and fees for other miscellaneous services.
Loan origination fees and other fees are a volatile source of income, varying
with the volume of lending, loan repayments and general economic conditions. All
nonrefundable loan origination fees and certain direct loan origination costs
are deferred and recognized, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 91, as an adjustment to yield over the life of
the related loan.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Winton
attempts to minimize loan delinquencies through the assessment of late charges
and adherence to its established collection procedures. After a mortgage loan
payment is 15 days delinquent, Winton assesses a late charge of 5% of the amount
of the payment and contacts the borrower by mail or phone to request payment. In
certain limited instances, Winton may modify the loan or grant a limited
moratorium on loan payments to enable the borrower to reorganize the borrower's
financial affairs. If the loan continues in a delinquent status for 90 days or
more, Winton generally will initiate foreclosure proceedings.
Real estate acquired by Winton as a result of foreclosure or by deed in
lieu of foreclosure is classified as "real estate owned" until it is sold. When
Winton acquires such property, Winton records the property at the lower of the
loan's unpaid principal balance or fair value at the date of foreclosure less
estimated selling expenses. Periodically, Winton reviews its real estate owned
to ensure that fair value is not less than carrying value. Any allowance
resulting from the review is charged to earnings as a provision for losses on
real estate acquired through foreclosure. All costs incurred from the date of
acquisition are expensed in the period paid.
The following table reflects the amount of loans in delinquent status as
of the dates indicated:
At September 30,
------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Loans delinquent
30 to 59 days $ 3,988 $ 3,290 $10,678 $ 3,911 $ 6,259
60 to 89 days 1,011 1,440 381 1,107 384
90 or more days 3,759 3,398 2,744 1,227 246
------- ------- ------- ------- -------
Total delinquent loans $ 8,758 $ 8,128 $13,803 $ 6,245 $ 6,889
======= ======= ======= ======= =======
Ratio of total delinquent loans to total loans (1) 1.73% 1.71% 3.09% 1.44% 1.60%
======= ======= ======= ======= =======
- ----------
(1) Includes loans held for sale.
Winton reviews all delinquent loans on a regular basis and places loans on
non-accrual status when, in the opinion of management, the collection of
additional interest is doubtful. Winton places residential mortgage loans on
non-accrual status when either principal or interest is considered
uncollectible. Consumer loans generally are charged off when the loan becomes
over 120 days delinquent. Nonresidential real estate loans are evaluated for
non-accrual status when the loan is 90 days or more past due. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged against
interest income. Subsequent payments are either applied to the outstanding
principal balance or recorded as interest income, depending on the assessment of
the ultimate collectibility of the loan. The amount of interest that would have
been earned on nonaccruing loans, had such loans been current, for the year
ended September 30, 2003, was approximately $146,000.
-8-
The following table sets forth information with respect to Winton's
nonperforming assets for the periods indicated. During the periods shown, Winton
had no restructured loans within the meaning of SFAS No. 15. In addition, as of
September 30, 2003, Winton had no loans that were not reflected in the table as
non-accrual, 90 days past due or restructured, but which may become so in the
near future because management has concerns as to the ability of the borrowers
to comply with repayment terms.
At September 30,
------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis: (1)
Real estate loans:
Residential $ 696 $ 885 $ 595 $ 353 $ 104
Nonresidential 2,499 -- -- 220 --
Construction loans -- -- 1,833 -- --
------ ------ ------ ------ ------
Total 3,195 885 2,428 573 104
Accruing loans which are contractually past
due 90 days or more:
Real estate loans:
Residential 526 254 315 589 96
Nonresidential and land 16 2,210 -- -- --
Consumer and other loans 22 49 1 65 46
------ ------ ------ ------ ------
564 2,513 316 654 142
------ ------ ------ ------ ------
Total of non-accrual and 90 days past
due loans $3,759 $3,398 $2,744 $1,227 $ 246
====== ====== ====== ====== ======
Percentage of total loans .74% .72% .61% .28% .06%
====== ====== ====== ====== ======
Other nonperforming assets (2) $ 846 $2,462 $ 486 $ 716 $ 492
====== ====== ====== ====== ======
- ----------
(1) Non-accrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely. Payments received on a
non-accrual loan are either applied to the outstanding principal balance
or recorded as interest income, depending on management's assessment of
the collectibility of the loan.
(2) Consists of real estate acquired through foreclosure and other repossessed
assets that are carried at the lower of cost or fair value less estimated
selling expenses.
OTS regulations require that each thrift institution classify its assets
on a regular basis. Problem assets are classified as "substandard," "doubtful"
or "loss." "Substandard" assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (i) the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable and (ii) there is a
high possibility of loss. An asset classified "loss" is considered uncollectible
and of such little value that its continuance as an asset of the institution is
not warranted. The regulations also contain a "special mention" category,
consisting of assets which do not currently expose an institution to a
sufficient degree of risk to warrant classification, but which possess credit
deficiencies or potential weaknesses deserving management's close attention. At
September 30, 2003, Winton had approximately $658,000 of loans designated as
special mention.
Generally, Winton classifies as "substandard" all loans that are
delinquent more than 60 days, unless management believes the delinquency status
is short-term due to unusual circumstances. Loans delinquent fewer than 60 days
may also be classified if the loans have the characteristics described above
rendering classification appropriate. At September 30, 2003, Winton's classified
assets consisted of substandard assets of approximately $4.1 million and $24,000
in loans classified as doubtful. No loans were classified as a loss at September
30, 2003.
Federal examiners are authorized to classify an association's assets. If
an association does not agree with an examiner's classification of an asset, the
association may appeal the classification to the appropriate Regional Director
of the
-9-
OTS. Winton had no disagreements with the examiners regarding the classification
of assets at the time of the last examination.
OTS regulations require that Winton establish prudent general allowances
for loan losses for any loan classified as substandard or doubtful. If an asset,
or portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount.
ALLOWANCE FOR LOAN LOSSES. The Board of Directors reviews on a quarterly
basis the allowance for loan losses as it relates to a number of relevant
factors, including, but not limited to, trends in the level of nonperforming
assets and classified loans, current and anticipated economic conditions in the
primary lending area, past loss experience and possible losses arising from
specific problem assets. To a lesser extent, management also considers loan
concentrations to single borrowers and changes in the composition of the loan
portfolio. While the Board of Directors believes that it uses the best
information available to determine the allowance for loan losses, unforeseen
market conditions could result in adjustments. Net earnings could be
significantly affected by these adjustments if circumstances differ
substantially from the assumptions used in making the final determination. At
September 30, 2003, Winton's allowance for loan losses totaled $2.3 million.
It is Winton's policy to provide valuation allowances for estimated losses
on loans based on past loss experience, current trends in the level of
delinquent and problem loans, loan concentrations to single borrowers, changes
in the composition of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current and anticipated economic conditions in its primary lending areas.
When the collection of a loan becomes doubtful, or otherwise troubled, Winton's
records a charge-off equal to the difference between the fair value of the
property securing the loan and the loan's carrying value. Major loans, including
development projects, and major lending areas are reviewed periodically to
determine potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries).
Winton accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires that
impaired loans be measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. In
applying the provisions of SFAS No. 114, Winton considers its investment in one-
to four-family residential loans and consumer installment loans to be
homogeneous and therefore excluded from separate identification for evaluation
of impairment. With respect to Winton's investment in nonresidential and
multifamily residential real estate loans, and its evaluation of impairment
thereof, such loans are generally collateral dependent and, as a result, are
carried as a practical expedient at the lower of cost or fair value.
Collateral dependent loans that are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
At September 30, 2003, Winton had no loans defined as impaired under SFAS
No. 114.
As a result of an analysis of historical experience, the volume and type
of lending conducted by Winton, the status of past due principal and interest
payments, and general economic conditions, particularly as such conditions
relate to Winton's loan portfolio, management recorded a $605,000 provision for
losses on loans during the fiscal year ended September 30, 2003, compared to a
provision of $1.3 million recorded in the 2002 period. There can be no assurance
that the allowance for loan losses of Winton will be adequate to cover losses on
nonperforming assets in the future.
-10-
The following table sets forth an analysis of Winton's allowance for
loan losses for the periods indicated.
Year ended September 30,
----------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of period $ 1,850 $ 1,194 $ 1,000 $ 932 $ 917
Charge-offs:
Real estate loans:
One- to four-family (35) (42) -- (75) (48)
Multifamily and nonresidential -- (124) -- (8) (35)
Construction loans -- (349) -- -- (81)
Consumer loans (207) (155) (124) (41) (24)
------- ------- ------- ------- -------
Total (242) (670) (124) (124) (188)
Total recoveries (1) 52 66 18 67 43
------- ------- ------- ------- -------
Net charge-offs (190) (604) (106) (57) (145)
Provision for loan losses 605 1,260 300 125 160
------- ------- ------- ------- -------
Balance at end of period $ 2,265 $ 1,850 $ 1,194 $ 1,000 $ 932
======= ======= ======= ======= =======
Ratio of net charge-offs during
the period to average loans
outstanding during the period (2)
.04% .14% .03% .01% .04%
======= ======= ======= ======= =======
- ----------
(1) The recoveries were from consumer loans.
(2) During the respective periods there were $459.3 million, $443.2 million,
$420.5 million, $420.0 million and $382.7 million in average loans
outstanding.
The following table provides an allocation of Winton's allowance for loan
losses as of each of the following dates:
September 30,
-------------------------------------------------------------------------------------------
% of % of % of % of % of
Total Total Total Total Total
2003 Loans 2002 Loans 2001 Loans 2000 Loans 1999 Loans
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
Specific allowances
One- to four-family $ -- -- $ -- -- $ -- -- $ -- -- $ 48 --
General allowances Real estate loans:
One- to four-family 906 57.2% 792 52.4% 392 50.7% 455 51.7% 379 52.7%
Multifamily and nonresidential 974 32.9 659 36.3 539 36.9 208 35.3 375 35.9
Construction and development loans 249 7.9 290 8.7 132 9.0 203 9.5 15 8.7
Consumer loans 136 2.0 109 2.6 131 3.4 134 3.5 115 2.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total general allowances 2,265 100.0% 1,850 100.0% 1,194 100.0% 1,000 100.0% 884 100.0%
------ ----- ------ ===== ------ ===== ------ ===== ------ =====
Total allowance for loan losses $2,265 $1,850 $1,194 $1,000 $ 932
====== ====== ====== ====== ======
-11-
INVESTMENT ACTIVITIES
Winton Financial invests in municipal bonds, corporate securities, U.S.
government and agency obligations. Municipal bonds owned are primarily bank
qualified general obligations of states and municipalities whose interest in
non-taxable and include private insurance support as to principal. The following
table presents the amortized cost and market values of Winton's investment
securities available for sale at the dates indicated:
September 30,
--------------------------------------------------------------------
2003 2002 2001
------------------- --------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In thousands)
U.S. government and agency obligations $ 8,046 $ 8,103 $12,375 $12,537 $13,187 $13,578
Corporate equity securities 209 606 209 558 228 685
Municipal bonds 12,850 12,757 -- -- -- --
------- ------- ------- ------- ------- -------
Total $21,105 $21,466 $12,584 $13,095 $13,415 $14,263
======= ======= ======= ======= ======= =======
The following table presents the contractual maturities or terms to
repricing of U.S. Government and agency obligations and municipal bonds at
annualized cost and the weighted-average yields at September 30, 2003:
Maturing within Maturing within Maturing within Maturing
one year after five to after
after one to five years ten years after ten years from
September 30, 2003 September 30, 2003 September 30, 2003 September 30, 2003 Total
------------------- -------------------- -------------------- ------------------ --------------------
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
Available
for sale(1) $ 4,025 1.22% $ 3,441 2.72% $ 8,978 3.39% $ 4,452 3.39% $20,896 2.86%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
(1) Tax exempt municipal bonds are shown at stated yields.
Winton maintains a portfolio of mortgage-backed pass-through securities in
the form of FHLMC, Federal National Mortgage Association ("FNMA") and Government
National Mortgage Association ("GNMA") participation certificates.
Mortgage-backed pass-through securities generally entitle Winton to receive a
portion of the cash flows from an identified pool of mortgages and gives Winton
an interest in the pool of mortgages. FHLMC, FNMA and GNMA securities are each
guaranteed by their respective agencies as to principal and interest.
Winton has also invested in collateralized mortgage obligations ("CMOs").
CMOs are mortgage derivative products, secured by an underlying pool of
mortgages. Winton has no ownership interest in the mortgages, except to the
extent they serve as collateral. Payment streams from the mortgages serving as
collateral are reconfigured with varying terms and timing of payment to the CMO
investor. Though they can be used for hedging and investment, CMOs can expose
investors to higher risk of loss than direct investments in mortgage-backed
pass-through securities, particularly with respect to price volatility and the
lack of a broad secondary market in such securities. The OTS has deemed certain
CMOs and other mortgage derivative products to be "high-risk." None of Winton's
CMOs are in such "high-risk" category.
Although mortgage-backed securities and CMOs generally yield less than
individual loans originated by Winton, they present less credit risk because
mortgage-backed securities are guaranteed as to principal repayment by the
issuing agency and CMOs are secured by the underlying collateral. Because CMOs
and other mortgage-backed securities have a lower yield relative to current
market rates, however, retention of such investments could adversely affect
Winton's earnings, particularly in a rising interest rate environment. Although
CMOs and other mortgage-backed securities designated as available for sale
-12-
are a potential source of liquid funds for loan originations and deposit
withdrawals, the prospect of a loss on the sale of such investments limits the
usefulness of CMO investments for liquidity purposes.
The following table sets forth certain information regarding Winton's
investment in mortgage-backed securities at the dates indicated:
At September 30,2003 At September 30, 2002
-------------------------------------------- ---------------------------------------------
Gross Gross Gross Gross
Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
cost gains losses fair value cost gains losses fair value
---- ----- ------ ---------- ---- ----- ------ ----------
(In thousands)
Mortgage-backed securities
held to maturity:
FHLMC participation certificates $1,643 $ -- $ (34) $1,604 $2,240 $ -- $ (48) $2,192
FNMA participation certificates 2,287 2 (30) 2,259 2,953 2 (35) 2,920
GNMA participation certificates 151 2 -- 153 240 7 (1) 246
CMOs 188 -- -- 188 328 -- (1) 327
------ ---- ------- ------ ------ ---- ------- ------
4,269 4 (69) 4,204 5,761 9 (85) 5,685
Mortgage-backed securities
available for sale:
FNMA participation certificates 1,944 21 -- 1,965 -- -- -- --
GNMA participation certificates 137 1 -- 138 193 4 -- 197
------ ---- ------- ------ ------ ---- ------- ------
2,081 22 -- 2,103 193 4 -- 197
------ ---- ------- ------ ------ ---- ------- ------
$6,350 $ 26 $ (69) $6,307 $5,954 $ 13 $ (85) $5,882
====== ==== ======= ====== ====== ==== ======= ======
The combined amortized cost of mortgage-backed and related securities
designated as held to maturity or available for sale at September 30, 2003 and
2002, by contractual terms to maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers generally may prepay
obligations without prepayment penalties. Also, the timing of cash flows will be
affected by management's intent to sell securities designated as available for
sale under certain economic conditions.
Amortized cost at Amortized cost at
September 30, 2003 September 30, 2002
------------------ ------------------
(In thousands)
Due within three years $ 33 $ 45
Due after three years through five years -- 5
Due after five years through ten years 48 74
Due after ten years through twenty years 3,289 3,244
Due after twenty years 2,980 2,586
------ ------
$6,350 $5,954
====== ======
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of Winton's
funds for use in lending and other investment activities. In addition to
deposits, Winton derives funds from interest payments and principal repayments
on loans and mortgage-backed securities, advances from the FHLB, income on
earning assets, service charges and gains on the sale of assets. Loan payments
are a relatively stable source of funds, while deposit inflows and outflows
fluctuate more in response to general interest rates and money market
conditions. FHLB advances are used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a longer term
basis for general business purposes.
DEPOSITS. Historically, deposits have been attracted principally from
within Winton's primary market area through the offering of a broad selection of
deposit instruments, including checking accounts, regular passbook savings
accounts, term certificate accounts and individual retirement accounts. In the
recent past Winton has utilized the services of deposit brokers to market
certificates of deposit. At September 30, 2003, the total amount of brokered
deposits equaled approximately $12.2 million, or 3.4%, of total deposits.
Interest rates paid, maturity terms, service fees and withdrawal penalties
for the various types of accounts are established periodically by management of
Winton based on Winton's liquidity requirements, growth goals and interest rates
paid by competitors. Winton attempts to manage its interest rate risk by
lengthening the term to maturity of its deposit liabilities.
-13-
At September 30, 2003, Winton's certificates of deposit totaled $240.3
million, or 67.8% of total deposits. Of such amount, approximately $113.9
million in certificates of deposit mature within one year. Based on past
experience and Winton's prevailing pricing strategies, management believes that
a substantial percentage of such certificates will renew with Winton at
maturity, although brokered deposits are less likely to renew than other
certificates of deposit. If there is a significant deviation from historical
experience, Winton can, to a limited extent, utilize additional borrowings from
the FHLB as an alternative to this source of funds. See "Borrowings" and
"REGULATION - Federal Home Loan Banks."
During fiscal 2003, 2002 and 2001, Winton offered certificates of deposit
with terms from six months to five years at rates which adjust monthly with
designated market indices, which were the prime rate, the six-month CD resale
rate or the three-year Treasury rate. Approximately $6.0 million of these
certificates of deposit were outstanding at September 30, 2003. Because these
certificates of deposit are market rate sensitive, they increase Winton's
interest rate risk. See "Asset/Liability Management."
The following table sets forth the dollar amount of deposits in the
various types of savings programs offered by Winton at September 30, 2003:
Percent
of total
Amount deposits
------ --------
(In thousands)
Transaction accounts:
Passbook and club accounts (1) $ 75,583 21.33%
Checking accounts (2) 38,375 10.83
--------- ------
Total transaction accounts 113,958 32.16
Certificates of deposit (3):
Less than 2.00% 34,373 9.70
2.00 - 3.99% 152,967 43.18
4.00 - 5.99% 40,109 11.32
6.00 - 7.99% 12,877 3.64
8.00 - 9.99% 12 --
--------- -------
Total certificates of deposit 240,338 67.84
--------- ------
Total deposits $ 354,296 100.00%
========= ======
- ----------
(1) Winton's weighted-average interest rate on passbook accounts fluctuates
with the general movement of interest rates. The weighted-average interest
rate on passbook accounts was 1.26% at September 30, 2003.
(2) Winton's weighted-average interest rate paid on checking accounts
fluctuates with the general movement of interest rates. The
weighted-average rate on checking accounts was .56% at September 30, 2003.
(3) Includes Individual Retirement Accounts and jumbo certificates of deposit
(those with balances in excess of $100,000). Terms of certificates of
deposit offered range from 30 days to 15 years, with the average accounts
ranging from 90 days to five years.
-14-
The following table shows rate and maturity information for Winton's
certificates of deposit as of September 30, 2003:
Amount Due
-------------------------------------------------------------
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
- ---- -------- ------- ------- ------- -----
(In thousands)
Less than 2.00% $ 30,750 $ 3,446 $ 177 $ -- $ 34,373
2.00 - 3.99% 63,848 66,373 17,811 4,935 152,967
4.00 - 5.99 14,538 6,539 5,030 14,002 40,109
6.00 - 7.99 4,771 4,496 3,489 121 12,877
8.00 - 9.99 -- -- 12 -- 12
-------- ------- ------- ------- --------
Total certificates of deposit $113,907 $80,854 $26,519 $19,058 $240,338
======== ======= ======= ======= ========
The following table presents the amount of Winton's certificates of
deposit of $100,000 or more, by the time remaining until maturity at September
30, 2003:
Maturity At September 30, 2003
-------- ---------------------
(In thousands)
Three months or less $ 9,462
Over 3 months to 6 months 7,182
Over 6 months to 12 months 18,462
Over twelve months 39,838
--------
Total $74,944
=======
BORROWINGS. During the year ended September 30, 2003, WFC's borrowings
consisted of FHLB advances and a $2.0 million loan with a correspondent bank.
The following table sets forth the maximum amount of WFC's FHLB advances and
other borrowings outstanding at any month-end, during the periods shown, and the
average aggregate balances of FHLB advances for such periods:
Year ended September 30,
------------------------------------
2003 2002 2001
---- ---- ----
(In thousands)
Maximum amount of FHLB advances and
other borrowings $146,612 $135,411 $122,828
======== ======== ========
Average amount of FHLB advances and other
borrowings outstanding during period
$128,519 $126,053 $113,546
======== ======== ========
The following table sets forth certain information as to Winton's FHLB
advances and other borrowings at the dates indicated:
At September 30,
----------------
2003 2002 2001
---- ---- ----
(In thousands)
FHLB advances and other borrowings $138,612 $126,427 $ 114,668
======== ======== ===========
Weighted-average interest cost of FHLB advances
and other borrowings during
period based on month end balances 4.91% 5.55% 5.84%
======== ======== ===========
-15-
COMPETITION
Winton competes for deposits with other savings associations, commercial
banks and credit unions and with the issuers of commercial paper and other
securities, such as shares in money market mutual funds. The primary factors in
competing for deposits are interest rates and convenience of office location. In
making loans, Winton competes with other savings associations, commercial banks,
consumer finance companies, credit unions, leasing companies, mortgage brokers
and other lenders. Winton competes for loan originations primarily through the
interest rates and loan fees it charges and through the efficiency and quality
of services it provides to borrowers. Competition is affected by, among other
things, the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors which are not readily
predictable.
The size of financial institutions competing with Winton is likely to
increase as a result of changes in statutes and regulations eliminating various
restrictions on interstate and inter-industry branching and acquisitions. Such
increased competition may have an adverse effect upon Winton.
SUBSIDIARY ACTIVITIES
WFC's only subsidiary is Winton.
PERSONNEL
As of September 30, 2003, Winton had 136 full-time equivalent employees.
Winton believes that relations with its employees are good. Winton offers
health, disability, life and dependent care benefits. None of the employees of
Winton are represented by a collective bargaining unit.
REGULATION
GENERAL
WFC is a savings and loan holding company within the meaning of the Home
Owners Loan Act, as amended (the "HOLA"). Consequently, WFC is subject to
regulation, examination and oversight by the OTS and must submit periodic
reports to the OTS concerning its activities and financial condition. In
addition, as a corporation organized under Ohio law, WFC is subject to
provisions of the Ohio Revised Code applicable to corporations generally.
As an Ohio savings and loan association, Winton is subject to regulation,
examination and oversight by the Superintendent of the Division of Financial
Institutions (the "Ohio Superintendent"). Because Winton's deposits are insured
by the FDIC, Winton also is subject to regulatory oversight by the FDIC. Winton
must file periodic reports with the OTS concerning its activities and financial
condition. Examinations are conducted periodically by federal and state
regulators to determine whether Winton is in compliance with various regulatory
requirements and is operating in a safe and sound manner. Winton is a member of
the FHLB and is subject to certain regulations promulgated by the Board of
Governors of the Federal Reserve System (the "FRB").
OHIO CORPORATION LAW
MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code regulates
certain takeover bids affecting certain public corporations that have
significant ties to Ohio. This statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder"), for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted only
if, prior to the time such person first becomes an Interested Shareholder, the
Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination may
not occur unless (1) one of the specified exceptions applies, (2) the holders of
at least two-thirds of the voting shares, and of at least a majority of the
voting shares not beneficially owned by the Interested Shareholder, approve the
business combination at a meeting called for such purpose, or
-16-
(3) the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation may, under certain circumstances, "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. However,
the statute still prohibits for twelve months any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person who became an Interested Shareholder prior to the
adoption of such an amendment as if the amendment had not been adopted. Neither
WFC nor Winton has opted out of the protection afforded by Chapter 1704.
CONTROL SHARE ACQUISITION. Section 1701.831 of the Ohio Revised Code (the
"Control Share Acquisition Statute") requires that, with certain exceptions,
acquisitions of voting securities which would result in the acquiring
shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of
an Ohio corporation (a "Control Share Acquisition") must be approved in advance
by the holders of at least a majority of the outstanding voting shares of such
corporation represented at a meeting at which a quorum is present and a majority
of the portion of the outstanding voting shares represented at such a meeting
excluding the voting shares owned by the acquiring shareholder, by certain other
persons who acquire or transfer voting shares after public announcement of the
acquisition or by certain officers of the corporation or directors of the
corporation who are employees of the corporation. The Control Share Acquisition
Statute was intended, in part, to protect shareholders of Ohio corporations from
coercive tender offers.
TAKEOVER BID STATUTE. Ohio law provides that an offeror may not make a
tender offer or request or invitation for tenders that would result in the
offeror beneficially owning more than ten percent of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities (the "Securities Division") and provides such
information to the target company and the offerees within Ohio. The Securities
Division may suspend the continuation of the control bid if the Securities
Division determines that the offeror's filed information does not provide full
disclosure to the offerees of all material information concerning the control
bid. The statue also provides that an offeror may not acquire any equity
security of a target company within two years of the offeror's previous
acquisition of any equity security of the same target company pursuant to a
control bid unless the Ohio offerees may sell such security to the offeror on
substantially the same terms as provided by the previous control bid. The
statute does not apply to a transaction if either the offeror or the target
company is a savings and loan holding company and the proposed transaction
requires federal regulatory approval.
OHIO SAVINGS AND LOAN REGULATION
The Ohio Superintendent is responsible for the regulation and supervision
of Ohio savings and loan associations in accordance with the laws of the State
of Ohio and imposes assessments on Ohio associations based on their asset size
to cover the costs of supervision and examination. Ohio law prescribes the
permissible investments and activities of Ohio savings and loan associations,
including the types of lending that such associations may engage in and the
investments in real estate, subsidiaries and corporate or government securities
that such associations may make. The ability of Ohio associations to engage in
these state-authorized investments and activities is subject to oversight and
approval by the FDIC, if such investments or activities are not permissible for
a federally-chartered savings association. The Ohio Superintendent also has
approval authority over any mergers involving, or acquisitions of control of,
Ohio savings and loan associations. The Ohio Superintendent may initiate certain
supervisory measures or formal enforcement actions against Ohio associations.
Ultimately, if the grounds provided by law exist, the Superintendent may place
an Ohio association in conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically governing
savings and loan associations, Winton is also governed by Ohio corporate law, to
the extent such law does not conflict with the laws specifically governing
savings and loan associations.
OFFICE OF THRIFT SUPERVISION
REGULATORY CAPITAL REQUIREMENTS. Winton is required by OTS regulations to
meet certain minimum capital requirements. The tangible capital requirement
requires savings associations to maintain "tangible capital" of not less than
1.5% of their adjusted total assets. Tangible capital is defined in OTS
regulations as core capital minus any intangible assets.
"Core capital" is comprised of common stockholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts and
pledged
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deposits of mutual associations. OTS regulations require savings associations to
maintain core capital of at least 4% of their adjusted total assets, except for
associations with the highest examination rating and acceptable levels of risk.
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of their risk-weighted assets. Risk-based
capital is defined as core capital plus certain additional items of capital,
which in the case of Winton includes a general loan loss allowance of $2.3
million at September 30, 2003. The OTS may adjust the risk-based capital
requirement on an individualized basis to take into account risks due to
concentrations of credit and non-traditional activities.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings
associations. At each successively lower defined capital category, an
association is subject to more restrictive and more numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. Winton's capital at September 30, 2003, met the
standards for the highest category, a "well-capitalized" institution.
QUALIFIED THRIFT LENDER TEST. Savings associations must meet one of two
tests in order to be a qualified thrift lender ("QTL"). The first test requires
a savings association to maintain a specified level of investments in assets
that are designated as qualifying thrift investments ("QTIs"). Generally, QTIs
are assets related to domestic residential real estate and manufactured housing
and include credit card, student and small business loans and stock issued by
any FHLB, the FHLMC or the FNMA. Under the first test, at least 65% of an
institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business and 20% of liquid assets) must
consist of QTI on a monthly average basis in nine out of every 12 months. The
second test permits a savings association to qualify as a QTL by meeting the
definition of "domestic building and loan association" under the Internal
Revenue Code of 1986, as amended (the "Code"). In order for an institution to
meet the definition of a "domestic building and loan association" under the
Code, at least 60% of such institution's assets must consist of specified types
of property, including cash loans secured by residential real estate or
deposits, educational loans and certain governmental obligations. The OTS may
grant exceptions to the QTL tests under certain circumstances. If a savings
association fails to meet one of the QTL tests, the association and its holding
company become subject to certain operating and regulatory restrictions. At
September 30, 2003, Winton qualified as a QTL.
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to executive officers,
directors and principal shareholders and their related interests must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's Lending Limit Capital (or 200% of
Lending Limit Capital for qualifying institutions with less than $100 million in
deposits). Most loans to directors, executive officers and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the board of directors of the association, with any "interested"
director not participating. All loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions with the general public or as offered to all
employees in a company-wide benefit program, and loans to executive officers are
subject to additional limitations. Winton was in compliance with such
restrictions at September 30, 2003.
All transactions between savings associations and their affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA") and the
Federal Reserve Board's Regulation W. An affiliate of a savings association is
any company or entity that controls, is controlled by or is under common control
with the savings association. WFC and Alpine Terrace II, LLC, a wholly owned
subsidiary of Winton, are affiliates of Winton. Generally, Sections 23A and 23B
of the FRA (i) limit the extent to which a savings association or its
subsidiaries may engage in "covered transactions" with any one affiliate up to
an amount equal to 10% of such institution's capital stock and surplus, (ii)
limit the aggregate of all such transactions with all affiliates up to an amount
equal to 20% of such capital stock and surplus, and (iii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
association, as those provided in transactions with a non-affiliate. The term
"covered transaction" includes the making of loans, purchasing of assets,
acceptance of a security issued by the affiliate as collateral for an extension
of credit to any person, issuance of a guarantee and other similar types of
transactions. In addition to the limits in Sections 23A and 23B, a savings
association may not make any loan or other extension of credit to an affiliate
unless the affiliate is engaged only in activities permissible for a bank
holding company and may not purchase or invest in securities of any affiliate
except shares of a subsidiary. Winton was in compliance with these requirements
and restrictions at September 30, 2003.
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LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions
or requirements on the ability of associations to make capital distributions.
Capital distributions include, without limitation, payments of cash dividends,
repurchases and certain other acquisitions by an association of its shares and
payments to stockholders of another association in an acquisition of such other
association.
An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (i) if the
proposed distribution would cause total distributions for the calendar year to
exceed the savings association's retained net income for that year to date plus
the retained net income for the preceding two years; (ii) if the savings
association will not be at least adequately capitalized following the capital
distribution; (iii) if the proposed distribution would violate a prohibition
contained in any applicable statute, regulation or agreement between the savings
association and the OTS (or the FDIC), or violate a condition imposed on the
savings association in an OTS-approved application or notice. If a savings
association subsidiary of a holding company is not required to file an
application, it must file a 30-day notice of the proposed capital distribution
with the OTS.
HOLDING COMPANY REGULATION. As a savings and loan holding company within
the meaning of the HOLA, WFC has registered with the OTS and is subject to OTS
regulations, examination, supervision and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings association or savings and loan holding company,
without prior approval of the OTS, or from acquiring or retaining more than 5%
of the voting shares of a savings association or holding company thereof, which
is not a subsidiary. Under certain circumstances, a savings and loan holding
company is permitted to acquire, with the approval of the OTS, up to 15% of the
previously unissued voting shares of an undercapitalized savings association for
cash without such savings association being deemed to be controlled by WFC.
Except with the prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such holding company's stock may also acquire control of any
savings institution, other than a subsidiary institution, or any other savings
and loan holding company.
As a unitary savings and loan holding company in existence on May 4, 1999,
WFC generally has no restrictions on its activities. If the OTS determines that
there is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings association, however,
the OTS may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings association, (ii)
transactions between the savings association and its affiliates, and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of WFC and its affiliates may be imposed on the savings association.
Notwithstanding the foregoing rules as to permissible business activities of a
unitary savings and loan holding company, if the savings association subsidiary
of a holding company fails to meet the QTL test, then such unitary savings and
loan holding company would become subject to the activities restrictions
applicable to multiple holding companies. At September 30, 2003, Winton met the
QTL test.
FEDERAL REGULATION OF ACQUISITIONS OF CONTROL OF WFC AND WINTON. In
addition to the Ohio law limitations on the merger and acquisition of WFC,
federal limitations generally require regulatory approval of acquisitions at
specified levels. Under pertinent federal law and regulations, no person,
directly or indirectly, or acting in concert with others, may acquire control of
Winton or WFC without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquiror must obtain
approval, rather than give notice, of the acquisition.
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPOSIT INSURANCE AND ASSESSMENTS. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
federally insured banks and savings and loan associations and safeguards the
safety and soundness of the banking and savings and loan industries. The FDIC
administers two separate insurance funds, the Bank Insurance Fund ("BIF") for
commercial banks and state savings banks and the SAIF for savings associations.
Winton is a member of the SAIF and its deposit accounts are insured by the FDIC
up to the prescribed limits. The FDIC has examination authority over all insured
depository institutions, including Winton, and has authority to initiate
enforcement actions against federally-insured savings associations if the FDIC
does not believe the OTS has taken appropriate action to safeguard safety and
soundness and the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in the SAIF
and in the BIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within
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a reasonable time and may decrease such rates if such target level has been met.
The FDIC has established a risk-based assessment system for both SAIF and BIF
members. Under this system, assessments vary based on the risk the institution
poses to its deposit insurance fund. The risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
STATE-CHARTERED ASSOCIATION ACTIVITIES. The ability of state-chartered
associations to engage in any state-authorized activities or make any
state-authorized investments is limited if such activity is conducted or
investment is made in a manner different than that permitted for, or subject to
different terms and conditions than those imposed on, federally chartered
savings associations. Engaging as a principal in any such activity or investment
not permissible for a federal association is subject to approval by the FDIC.
Such approval will not be granted unless certain capital requirements are met
and there is not a significant risk to the FDIC insurance fund. All of Winton's
activities and investments at September 30, 2003, were permissible for a federal
association.
FRB RESERVE REQUIREMENTS
FRB regulations require savings associations to maintain reserves of 3% of
net transaction accounts (primarily NOW accounts) up to $45.4 million (subject
to an exemption of up to $6.6 million), and of 10% of net transaction accounts
in excess of $45.4 million. At September 30, 2003, Winton was in compliance with
the present reserve requirements and the requirements then in effect.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. Winton
is a member of the FHLB of Cincinnati and must maintain an investment in the
capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1%
of the aggregate outstanding principal amount of Winton's residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances from the FHLB of Cincinnati. Winton was in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $8.2 million at September 30, 2003.
The FHLB is required to establish standards of community investment or service
that its members must maintain for continued access to long-term advances. The
standards take into account a member's performance under the Community
Reinvestment Act and its record of lending to first-time home buyers. All
long-term advances by the FHLB must be made only to provide funds for
residential housing finance.
TAXATION
FEDERAL TAXATION
WFC and Winton are each subject to the federal tax laws and regulations
which apply to corporations generally. In addition to the regular income tax,
WFC and Winton may be subject to an alternative minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum
taxable income" (which is the sum of a corporation's regular taxable income,
with certain adjustments, and tax preference items), less any available
exemption. Such tax preference items include interest on certain tax-exempt
bonds issued after August 7, 1986. In addition, 75% of the amount by which a
corporation's "adjusted current earnings" exceeds its alternative minimum
taxable income computed without regard to this preference item and prior to
reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may be
used as credits against regular tax liabilities in future years. However, the
Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain
"small corporations" for tax years beginning after December 31, 1997. A
corporation initially qualifies as a small corporation if it had average gross
receipts of $5,000,000 or less for the three tax years ending with its first tax
year beginning after December 31, 1996. Once a corporation is recognized as a
small corporation, it will continue to be exempt from the alternative minimum
tax for as long as its average gross receipts for the prior three-year period
does not exceed $7,500,000. In determining if a corporation meets this
requirement, the first year that it achieved small corporation status is not
taken into consideration.
Winton's average gross receipts for the three tax years ending on
September 30, 2003, is $37.1 million and as a result, Winton does not qualify as
a small corporation exempt from the alternative minimum tax.
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Certain thrift institutions, such as Winton, are allowed deductions for
bad debts under methods more favorable than those granted to other taxpayers.
Qualified thrift institutions may compute deductions for bad debts using either
the specific charge-off method of Section 166 of the Code or the experience
method of Section 593 of the Code. The experience method is also available to
small banks. Under the "experience" method, a thrift institution is generally
allowed a deduction for an addition to its bad debt reserve equal to the greater
of (i) an amount based on its actual average experience for losses in the
current and five preceding taxable years, or (ii) an amount necessary to restore
the reserve to its balance as of the close of the base year.
Thrift institutions that are treated as small banks are allowed to utilize
the experience method applicable to such institutions, while thrift institutions
that are treated as large banks are required to use only the specific charge off
method.
A thrift institution required to change its method of computing reserves
for bad debt will treat such change as a change in the method of accounting,
initiated by the taxpayer and having been made with the consent of the Secretary
of the Treasury. Section 481(a) of the Code requires certain amounts to be
recaptured with respect to such change. Generally, the amounts to be recaptured
will be determined solely with respect to the "applicable excess reserves" of
the taxpayer. The amount of the applicable excess reserves will be taken into
account ratably over a six-taxable year period, commencing with the first
taxable year beginning after 1995, subject to the residential loan requirement
described below. In the case of a thrift institution that is treated as a large
bank, the amount of the institution's applicable excess reserves generally is
the excess of (i) the balances of its reserve for losses on qualifying real
property loans (generally loans secured by improved real estate) and its reserve
for losses on nonqualifying loans (all other types of loans) as of the close of
its last taxable year beginning before January 1, 1996, over (ii) the balances
of such reserves as of the close of its last taxable year beginning before
January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift
institution that is treated as a small bank, like Winton, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans and its
reserve for losses on nonqualifying loans as of the close of its last taxable
year beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been at
the close of its last year beginning before January 1, 1996, had the thrift
always used the experience method.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e), as modified by the Act, which require recapture in the case of
certain excessive distributions to shareholders. The pre-1988 reserves may not
be utilized for payment of cash dividends or other distributions to a
shareholder (including distributions in dissolution or liquidation) or for any
other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the pre-1988 reserves; and third, out of such other accounts as may be proper.
To the extent a distribution by Winton to WFC is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and the gross
income of Winton for tax purposes would be increased by the amount which, when
reduced by the income tax, if any, attributable to the inclusion of such amount
in its gross income, equals the amount deemed paid out of the pre-1988 reserves.
As of September 30, 2003, the pre-1988 reserves of Winton for tax purposes
totaled approximately $1.8 million. Winton believes it had approximately $35.1
million of accumulated earnings and profits for tax purposes as of September 30,
2003, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. No representation
can be made as to whether Winton will have current or accumulated earnings and
profits in subsequent years.
The tax returns of Winton have been closed without audit through fiscal
year 1999. In the opinion of management, any examination of open returns would
not result in a deficiency which could have a material adverse effect on the
financial condition of Winton.
OHIO TAXATION
WFC is subject to the Ohio corporation franchise tax, which, as applied to
WFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.5% of computed Ohio taxable income in excess of $50,000 or (ii) .400% times
taxable net worth.
In computing its tax under the net worth method, WFC may exclude 100% of
its investment in the capital stock of Winton, as reflected on the balance sheet
of WFC in computing its taxable net worth as long as it owns at least 25% of the
issued and outstanding capital stock of Winton. The calculation of the exclusion
from net worth is based on the ratio of the excludable investment (net of any
appreciation or goodwill included in such investment) to total assets multiplied
by the net
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value of the stock. As a holding company, WFC may be entitled to various other
deductions in computing taxable net worth that are not generally available to
operating companies.
A special litter tax is also applicable to all corporations, including WFC,
subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
..22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
WFC may elect to be a "qualified holding company" and, as such, be exempt from
the net worth tax. A corporation franchise tax based solely on net earnings
would still apply. To be exempt, WFC must satisfy all the requirements of the
applicable statute, including making related member adjustments that could
affect the taxable net worth of WFC's subsidiary, Winton.
Winton is a "financial institution" for State of Ohio tax purposes. As such, it
is subject to the Ohio corporate franchise tax on "financial institutions,"
which is imposed annually at a rate of 1.3% of the taxable book net worth of
Winton determined in accordance with generally accepted accounting principles.
As a "financial institution," Winton is not subject to any tax based upon net
income or net profits imposed by the State of Ohio.
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ITEM 2. PROPERTIES
The following table sets forth certain information at September 30, 2003,
regarding the properties on which the main office, each branch office and
lending office of Winton is located. The aggregate net book value of the
properties was $4.4 million at September 30, 2003.
Owned Date
Location or leased Acquired
- -------- --------- --------
Main office:
5511 Cheviot Road
Cincinnati, Ohio 45247 owned/leased (1) 1967
Branch offices:
4517 Vine Street
Cincinnati, Ohio 45217 owned 1932
10575 Harrison Avenue
Harrison, Ohio 45030 owned 1981
7014 Vine Street
Cincinnati, Ohio 45216 owned 1897
8670 Winton Road
Cincinnati, Ohio 45231 owned 1993
9409 Montgomery Road
Cincinnati, Ohio 45242 leased N/A
5440 Muddy Creek Road
Cincinnati, Ohio 45238 owned 2003
Lending offices:
8291 Beechmont Ave., Suite C
Cincinnati, Ohio 45255 leased 2003
211 Walnut Street
Lawrenceburg, Indiana 47025 leased 2003
- ---------------
(1) In January 1990, Winton entered into a lease agreement pursuant to which
it leases a building containing approximately 3,750 square feet adjacent
to Winton's main office on Cheviot Road. The initial term of the lease was
three years, renewable for seven successive three year periods. Winton has
the right to purchase the building during the term of the lease. In
January 2002, the lease was renewed for an additional three year period.
Winton also owns furniture, fixtures and various bookkeeping and
accounting equipment. The net book value of Winton's total investment in office
premises and equipment totaled $6.1 million at September 30, 2003.
ITEM 3. LEGAL PROCEEDINGS
Neither WFC nor Winton is presently engaged in any legal proceedings of a
material nature. From time to time, Winton is involved in legal proceedings to
enforce its security interest in collateral taken as security for its loans.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of WFC
during the last quarter of the fiscal year ended September 30, 2003.
PART II
ITEM 5. MARKET FOR WFC'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information contained in those portions of the Annual Report to
Shareholders for the fiscal year ended September 30, 2003 (the "Annual Report"),
which are included in Exhibit 13 hereto under the caption "MARKET PRICE OF
WINTON FINANCIAL'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS" is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in those portions of the Annual Report included
in Exhibit 13 hereto under the caption "SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information contained in those portions of the Annual Report included
in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information contained in those portions of the Annual Report included
in Exhibit 13 hereto under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset/Liability Management" is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in those portions of the Annual Report that are included in
Exhibit 13 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
WFC's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of WFC's disclosure controls and procedures (as defined under
Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that WFC's
disclosure controls and procedures are effective. There were no changes in WFC's
internal controls which materially affected, or are reasonably likely to
materially affect, WFC's internal controls over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF WFC
The information contained in the definitive Proxy Statement for the 2004
Annual Meeting of Shareholders of WFC (the "Proxy Statement") under the captions
"PROPOSAL ONE - REELECTION OF DIRECTORS," "EXECUTIVE OFFICERS AND COMPENSATION,"
"SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" and "AUDIT COMMITTEE
REPORT" is incorporated herein by reference.
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WFC's Board of Directors has adopted a Code of Business Conduct and Ethics
that applies to all employees and directors of WFC and Winton. A copy of the
Code of Business Conduct and Ethics will be available at no charge to any person
upon written request to:
Winton Financial Corporation
Attention: Gregory P. Niesen, Secretary/Treasurer
5511 Cheviot Road
Cincinnati, Ohio 45247-7095
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption
"EXECUTIVE OFFICERS AND COMPENSATION" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information contained in the Proxy Statement under the caption
"OWNERSHIP OF WFC COMMON SHARES" is incorporated herein by reference.
The following table shows, as of September 30, 2003, the number of shares
issuable upon the exercise of outstanding stock options under both the 1988
Option Plan, the 1999 Option Plan and the 2003 Option Plan, the weighted-average
exercise price of those stock options, and the number of common shares remaining
for future issuance under the 1999 Option Plan and the 2003 Option Plan,
excluding shares issuable upon the exercise of outstanding stock options:
(a) (b) (c)
-------------------- ------------------ ------------------------------------
Number of securities remaining
available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation plans (excluding
exercise of exercise price of securities
Plan Category outstanding options outstanding options reflected in column (a))
------------------- ------------------- ------------------------
Equity compensation plans approved by
security holders........................ 674,130 $8.86 452,985
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement under the caption
"CERTAIN TRANSACTIONS WITH WINTON" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation, as amended through 1999, of Winton
Financial Corporation
3.2 Regulations of Winton Financial Corporation, as amended
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10.1 The Winton Savings and Loan Co. 401(k) Profit Sharing Plan
10.2 Winton Financial Corporation, Stock Option and Incentive Plan,
as Amended
10.3 The Winton Financial Corporation 1999 Stock Option and
Incentive Plan
10.4 The Winton Financial Corporation 2003 Stock Option and
Incentive Plan
10.5 Employment Agreement between WFC, Winton and Robert L. Bollin,
dated July 1, 2002
10.6 Employment Agreement between WFC, Winton and Gregory J.
Bollin, dated July 1, 2002
10.7 Employment Agreement between WFC, Winton and Jill M. Burke,
dated July 1, 2002
10.8 Severance Agreement between Winton and Gregory P. Niesen,
dated July 1, 2003
13 Portions of the Winton Financial Corporation 2003 Annual
Report to Shareholders
20 Proxy Statement for the 2004 Annual Meeting of Shareholders of
Winton Financial Corporation
21 Subsidiaries of the Registrant
23 Consent of Grant Thornton LLP regarding WFC's Consolidated
Financial Statements and Forms S-8 for WFC's 1988 Stock Option
Plan, 1999 Stock Option Plan and 401(k) Profit Sharing Plan
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
99.1 Safe Harbor Under the Private Securities Litigation Reform Act
of 1995
(b) On July 15, 2003, WFC filed a Form 8-K reporting operating results
for the quarter ended June 30, 2003.
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on December 19, 2003.
WINTON FINANCIAL CORPORATION
By: /s/ Robert L. Bollin
-----------------------------
Robert L. Bollin,
President, Chief Executive
Officer and a Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /s/ Jill M. Burke By: /s/ Thomas H. Humes
----------------------------- -------------------
Jill M. Burke, Thomas H. Humes,
Principal Financial Officer Director
and Principal Accounting
Officer
Date: December 19, 2003 Date: December 19, 2003
By: /s/ Robert E. Hoeweler By: /s/ Henry L. Schulhoff
----------------------------- -----------------------
Robert E. Hoeweler, Henry L. Schulhoff,
Director Director
Date: December 19, 2003 Date: December 19, 2003
By: /s/ Timothy M. Mooney By: /s/ J. Clay Stinnett
----------------------------- --------------------
Timothy M. Mooney, J. Clay Stinnett,
Director Director
Date: December 19, 2003 Date: December 19, 2003
-27-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATION
3.1 Articles of Incorporation, as amended Incorporated by reference to the Annual Report on Form
through 1999, of Winton Financial Corporation 10-K for the fiscal year ended September 30, 2001, filed
by WFC with the SEC on December 26, 2001 (the "2001 10-K"),
Exhibit 3.1.
3.2 Regulations of Winton Financial Corporation, Incorporated by reference to Exhibit B of the definitive
as amended Proxy Statement for the 2003 Annual Meeting of
Shareholders filed by WPC with the SEC on December 30,
2002 (the "2003 Proxy").
10.1 The Winton Savings and Loan Co. 401(k) Profit Incorporated by reference to the Form S-8 Registration
Sharing Plan Statement filed by WFC with the SEC on August 28, 2002,
Exhibit 4.1.
10.2 Winton Financial Corporation, Stock Option and Incorporated by reference to the 2001 10-K, Exhibit 10.4.
Incentive Plan, as Amended
10.3 The Winton Financial Corporation 1999 Stock Incorporated by reference to the definitive Proxy
Option and Incentive Plan Statement for the 1999 Annual Meeting of Shareholders
filed by WFC with the SEC on December 18, 1998.
10.4 The Winton Financial Corporation 2003 Stock Incorporated by reference to Exhibit A of the 2003 Proxy.
Option and Incentive Plan
10.5 Employment Agreement between WFC, Winton and Incorporated by reference to the Annual Report on Form
Robert L. Bollin, dated July 1, 2002 10-K for the fiscal year ended September 30, 2002, filed
by WFC with the SEC on December 30, 2002 (the "2002
10-K"), Exhibit 10.6.
10.6 Employment Agreement between WFC, Winton and Incorporated by reference to the 2002 10-K, Exhibit 10.7.
Gregory J. Bollin, dated July 1, 2002
10.7 Employment Agreement between WFC, Winton and Incorporated by reference to the 2002 10-K, Exhibit 10.8.
Jill M. Burke, dated July 1, 2002
10.8 Severance Agreement between Winton and Gregory
P. Niesen, dated July 1, 2003
13 Portions of the Winton Financial Corporation
2003 Annual Report to Shareholders
20 Proxy Statement for the 2004 Annual Meeting of Incorporated by reference to the definitive Proxy
Shareholders of Winton Financial Corporation Statement for the 2004 Annual Meeting of Shareholders to
be filed by WFC with the SEC on or about December 29, 2003.
21 Subsidiaries of the Registrant Incorporated by reference to the 2002 Form 10-K, Exhibit
21.
23 Consent of Grant Thornton LLP regarding WFC's
Consolidated Financial Statements and Forms S-8
for WFC's 1988 Stock Option Plan, 1999 Stock
Option Plan and 401(k) Profit Sharing Plan
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------ ----------- --------
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.1 Certification of Chief Executive Officer
32.2 Certification of Chief Financial Officer
99.1 Safe Harbor Under the Private Securities
Litigation Reform Act of 1995