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[FIDELITY FINANCIAL OF OHIO, INC. LOGO]
FIDELITY
FINANCIAL
OF OHIO, INC.
ANNUAL REPORT 1996
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CONTENTS
LETTER TO STOCKHOLDERS ....................................... 1
BUSINESS OF THE COMPANY ...................................... 2
MARKET PRICE OF STOCK AND RELATED
INFORMATION .............................................. 3
SELECTED CONSOLIDATED FINANCIAL AND OTHER
DATA ..................................................... 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ............................................... 6
INDEPENDENT AUDITORS' REPORT ................................. 15
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION ................................................ 16
CONSOLIDATED STATEMENTS OF
EARNINGS ................................................. 17
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY ..................................... 18
CONSOLIDATED STATEMENTS OF CASH
FLOWS .................................................... 19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ............................................... 21
DIRECTORS AND EXECUTIVE OFFICERS ............................. 36
LOCATIONS .................................................... 36
CORPORATE INFORMATION ........................................ 37
ANNUAL MEETING ............................................... 37
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TO OUR STOCKHOLDERS
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Dear Stockholders,
The year ended December 31, 1996 represented a period of unprecedented
growth for Fidelity Financial of Ohio, Inc. Pursuant to a long range strategic
plan formulated in late 1995, two significant events became the cornerstone in
Fidelity's implementation:
- In March 1996, Fidelity completed a "second step" stock offering with
the conversion from a mutual holding company form of ownership to a
full stock company. This process generated approximately $20.4 million
in additional capital thus allowing for future expansion and
flexibility in the financial market.
- In October 1996, Fidelity finalized the acquisition of People's
Savings Association of Sharonville and its holding company, Circle
Financial Corporation, to create one of the premier thrift franchises
in Southwest Ohio.
As a result of these events, during 1996, total assets grew from $231.1
million to $499.9 million, an increase of 116.3%. The deposit base also
expanded, from $180.7 million to $408.1 million, with Fidelity now offering full
banking services at ten locations as compared to three previously. This gives
Fidelity a dramatic increase in Hamilton and Butler counties.
Despite the tremendous growth of Fidelity, we still possess a healthy
tangible capital ratio of 11.9%. This level will permit further expansion of the
company well into the future when opportunities may present themselves.
From an industry standpoint, 1996 was a historic year. The SAIF insurance
fund was recapitalized and thrifts were put on a more level playing field with
bank competitors. In addition, a major tax issue dating back to 1953, relating
to the bad debt deduction, was resolved. Both items will benefit stockholders in
the long run.
I would like to commend the efforts of all the directors, officers and
employees who worked extremely long hours to effect the stock offering and the
merger of two excellent companies. After all, it is the people who make this
institution function and maintain its profitability. It is in that context that
I would like to acknowledge three individuals who passed away last year. Lloyd
Kuster, Fidelity's senior loan officer who recently retired after almost a
quarter century of originating millions of dollars in local loans; Leo Krapp, a
retired director of ten years; and Betty Duffy of our Groesbeck office who
always had a wonderful smile for our customers. They have all left their mark on
Fidelity.
As you read the remainder of the annual report, know that the entire staff
remains committed to the enhancement of stockholder value into the future. We
firmly believe that Fidelity can continue as "Your Community Bank" serving the
people of Southwest Ohio well into the next millennium.
Sincerely,
/s/ John R. Reusing
John R. Reusing
President & Chief Executive Officer
Fidelity Financial of Ohio Inc.
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BUSINESS OF THE COMPANY
Fidelity Financial of Ohio, Inc. (the "Corporation") is an Ohio corporation
which is the holding company for Fidelity Federal Savings Bank (the "Savings
Bank"). The Corporation was organized by the Savings Bank for the purpose of
acquiring all of the capital stock of the Savings Bank in connection with the
conversion of Fidelity Federal Mutual Holding Company, the former federally
chartered, mutual holding company parent of the Savings Bank, and the
reorganization of the Savings Bank to the stock holding company form, which was
completed on March 4, 1996 (the "Conversion and Reorganization"). The only
significant assets of the Corporation are the capital stock of the Savings Bank
and the net proceeds of the Conversion and Reorganization retained by the
Corporation.
On October 11, 1996, following receipt of all regulatory and stockholder
approvals, the Corporation completed the acquisition of Circle Financial
Corporation ("Circle") pursuant to the merger of Circle with and into a
subsidiary of the Corporation, and the subsequent merger of People's Savings
Association ("Peoples"), an Ohio-chartered savings association and a
wholly owned subsidiary of Circle, with and into the Savings Bank (collectively,
the "Merger"). The Merger was accounted for under the purchase method of
accounting. Consequently, the financial information and data presented herein
excludes Circle and Peoples for all periods prior to 1996.
The Savings Bank is a federally chartered savings bank which conducts
business through ten full-service offices located in the Cincinnati, Ohio
metropolitan area. The Savings Bank is primarily engaged in attracting deposits
from the general public through its offices and using those and other available
sources of funds to originate loans secured by single-family residences located
primarily in southwestern Ohio. Such loans amounted to $321.7 million or 80.0%
of the Savings Bank's total loan portfolio at December 31, 1996. To a lesser
extent, the Savings Bank originates loans secured by existing multi-family
residential and non-residential real estate, which amounted to $58.6 million, or
14.6% of the total loan portfolio at December 31, 1996, as well as construction
loans and consumer loans, which respectively amounted to $13.8 million, or 3.4%
of the total loan portfolio and $7.9 million or 2.0% of the total loan portfolio
at such date. The Savings Bank also invests in U.S. Government and federal
agency obligations and mortgage-backed securities which are insured by federal
agencies.
As a savings and loan holding company, the Corporation is subject to
regulation, supervision and examination by the Office of Thrift Supervision of
the United States Department of the Treasury ("OTS"). The Savings Bank is
subject to regulation and examination by the OTS as its chartering authority and
primary regulator, and by the Federal Deposit Insurance Corporation ("FDIC"),
which, through the Savings Association Insurance Fund ("SAIF") administered by
it, insures the Savings Bank's deposits up to applicable limits. The Savings
Bank is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati, which is
one of the 12 banks which comprise the FHLB System. The Savings Bank is further
subject to regulations of the Board of Governors of the Federal Reserve System
("Federal Reserve Board") governing reserves to be maintained against deposits
and certain other matters.
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MARKET PRICE OF STOCK AND RELATED INFORMATION
Shares of Fidelity Financial of Ohio, Inc.'s common stock are traded under
the symbol "FFOH" on the Nasdaq National Market System. At March 12, 1997, the
Corporation had 5,593,969 shares of common stock outstanding and had
approximately 1,079 stockholders of record. The number of stockholders does not
reflect the number of persons or entities who may hold stock in nominee or
"street" name through brokerage firms or others.
The following table sets forth the reported high and low sale prices of a
share of the Corporation's common stock as reported by Nasdaq (the Corporation's
common stock commenced trading on the Nasdaq National Market System on March 4,
1996).
For the year ended December 31, 1996 High Low
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1996 SALES PRICES
Quarter ending March 31, 1996 $ 11.00 $ 9.75
Quarter ending June 30, 1996 10.63 9.63
Quarter ending September 30, 1996 10.25 9.63
Quarter ending December 31, 1996 11.88 9.75
Prior to March 4, 1996, there was no active and liquid public trading
market for the Savings Bank's common stock. The Savings Bank has been informed
by brokers who have executed trades in the Savings Bank's common stock that
there were a number of trades during the years ended December 31, 1995 and 1994.
The transactions for which the Savings Bank has information took place at prices
that range from $6.67 to $10.89 for the year ended December 31, 1995, and from
$5.26 to $6.44 for the year ended December 31, 1994 (as adjusted to reflect the
2.25 to 1 exchange ratio which was utilized to convert the Savings Bank's common
stock into common stock of the Corporation in connection with the Conversion and
Reorganization).
Dividends with respect to the Corporation's common stock (including the
Savings Bank's common stock prior to the Conversion and Reorganization) for the
years ended December 31, 1996, 1995 and 1994 are set forth below.
Cash
For the year ended December 31, 1996 Dividends
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Quarter ending March 31 $ .094
Quarter ending June 30 .050
Quarter ending September 30 .050
Quarter ending December 31 .050
Cash
For the year ended December 31, 1995 Dividends
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Quarter ending March 31 .075
Quarter ending June 30 .075
Quarter ending September 30 .075
Quarter ending December 31 .075
Cash
For the year ended December 31, 1994 Dividends
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Quarter ending March 31 .058
Quarter ending June 30 .058
Quarter ending September 30 .058
Quarter ending December 31 .057
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SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA
The following tables set forth certain financial and other data of the
Corporation at the date and for the periods indicated. For additional financial
information about the Corporation, reference is made to "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Corporation and related notes included
elsewhere herein.
At December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------
(Dollars in thousands)
SELECTED CONSOLIDATED FINANCIAL CONDITION DATA:
Total assets $499,918 $231,137 $216,168 $202,991 $194,631
Federal funds sold and interest-bearing deposits 20,489 2,784 1,766 6,002 4,271
Investment securities available for sale--at market (1) 16,120 6,044 4,267 -- --
Investment securities--at cost -- -- -- 4,023 3,030
Mortgage-backed securities--at cost 10,744 -- 20,792 23,873 26,573
Mortgage-backed securities available for sale--at market (1) 30,760 29,378 6,280
Loans receivable--net (2) 396,541 185,132 175,222 162,392 153,409
Goodwill and other intangible assets 8,322 -- -- -- --
Deposits 408,159 180,697 173,198 157,642 154,659
FHLB advances 20,186 17,653 12,089 15,954 13,605
Stockholders' equity 66,712 30,113 28,540 26,905 24,270
Year Ended December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
(Dollars in thousands, except per share data)
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SELECTED OPERATING DATA:
Total interest income $ 22,738 $ 17,001 $ 15,748 $ 16,310 $ 17,142
Total interest expense 12,656 10,167 8,331 8,106 9,659
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Net interest income 10,082 6,834 7,417 8,204 7,483
Provision for losses on loans 129 71 44 52 72
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Net interest income after provision for losses on loans 9,953 6,763 7,373 8,152 7,411
Other income 165 355 347 250 324
General, administrative and other expense (7,638) (4,385) (4,172) (4,000) (3,692)
--------------------------------------------------------
Earnings before income taxes and cumulative effect of
changes in accounting methods 2,480 2,733 3,548 4,402 4,043
Federal income taxes (872) (919) (1,176) (1,464) (1,371)
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Earnings before cumulative effect of changes in
accounting methods 1,608 1,814 2,372 2,938 2,672
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Cumulative effect of changes in accounting methods -- -- -- -- (229)
--------------------------------------------------------
Net earnings $ 1,608 $ 1,814 $ 2,372 $ 2,938 $ 2,443
========================================================
Earnings per share (3) $ .38 $ .45 $ .58 $ .73 $ .44
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At or for the Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
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SELECTED OPERATING RATIOS (4):
Return on average assets (5) .53% .82% 1.14% 1.47% 1.29%
Return on average equity (5) 3.16% 6.17% 8.51% 11.41% 11.22%
Tangible equity to tangible assets at end of period 11.88% 13.03% 13.20% 13.25% 12.47%
Interest rate spread (6) 2.59% 2.44% 3.04% 3.63% 3.42%
Net interest margin (6) 3.40% 3.13% 3.63% 4.20% 4.03%
Non-performing loans to total loans at end of period (7) .28% .54% .47% .88% .27%
Non-performing assets to total assets at end of period (7) .23% .44% .43% .77% .46%
Allowance for loan losses to non-performing loans at end of period 137.88% 81.23% 95.71% 51.50% 171.03%
Average interest-earning assets to average interest-bearing liabilities 118.89% 114.74% 114.49% 113.91% 111.87%
Net interest income after provision for loan losses to total
general, administrative and other expenses (5) 130.31% 154.23% 176.73% 203.80% 200.73%
General, administrative and other expenses to
average total assets (5) 2.51% 1.97% 2.00% 2.01% 1.95%
Full service offices 10 4 4 3 3
<FN>
(1) The Corporation adopted SFAS No. 115 as of January 1, 1994. In connection
therewith, the Corporation classified certain of its debt securities as
available for sale. For additional information, see Notes A-2 and B of
Notes to Consolidated Financial Statements.
(2) At December 31, 1995, included $646,000 of loans classified as held for
sale. At December 31, 1996, 1994, 1993 and 1992, the Corporation did not
have any loans classified as held for sale.
(3) The Savings Bank converted to the stock form of ownership on May 11, 1992.
Earnings per share for the year ended December 31, 1992 has been computed
on a pro forma basis based on the number of days that the Savings Bank was
a stock institution during the year.
(4) With the exception of end of period ratios, all ratios are based on average
monthly balances during the periods.
(5) Before consideration of non-recurring charges incurred in 1996, including
the SAIF recapitalization assessment and merger related expenses, the
ratios set forth below would have been as follows:
Return on average assets .92%
Return on average equity 5.52%
Net interest income after provision for losses on loans to
total general, administrative and other expenses 170.95%
General, administrative and other expenses to average total assets 1.91%
(6) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities. Net interest margin represents net interest
income as a percentage of average interest-earnings assets.
(7) Non-performing loans consist of non-accrual loans and accruing loans that
are contractually past due 90 days or more, and non-performing assets
consist of non-performing loans and real estate acquired by foreclosure or
deed-in-lieu thereof.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since its formation, the Corporation's activities have been primarily
limited to holding the stock of the Savings Bank. As a result, the discussion
that follows focuses largely on the operations of the Savings Bank.
The operating results of the Savings Bank depend primarily upon its net
interest income, which is determined by the difference between interest and
dividend income on interest-earning assets, principally loans,
mortgage-backed securities and investment securities, and interest expense on
interest-bearing liabilities, which principally consist of customer deposits
and borrowings. The Savings Bank's net earnings also is affected by its
provision for losses on loans, as well as the level of its other income,
including gains and losses on sales of loans, investment securities and real
estate acquired through foreclosure, rental income and other miscellaneous
operating income, and its general, administrative and other expenses, such as
employee compensation and benefits, occupancy and equipment expense, federal
deposit insurance premiums, franchise taxes and miscellaneous other operating
expenses, and federal income tax expense.
In addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the Corporation's operations and actual
results could differ significantly from those discussed in the forward-looking
statements. Some of the factors that could cause or contribute to such
differences are discussed herein but also include changes in the economy and
interest rates in the nation and the Corporation's general market area. The
forward-looking statements contained herein include, but are not limited to,
those with respect to the following matters:
1. Management's determination of the amount of allowance for loan
losses;
2. The effect of changes in interest rates;
3. Changes in deposit insurance premiums;
4. Management's opinion as to the effects of recent accounting
pronouncements on the Corporation's consolidated financial
statements.
ASSET AND LIABILITY MANAGEMENT
In general, financial institutions are vulnerable to an increase in
interest rates to the extent that interest-bearing liabilities mature or reprice
more rapidly than interest-earning assets. The lending activities of financial
institutions, including the Savings Bank, have historically emphasized the
origination of long-term, fixed-rate loans secured by single-family residences,
and the primary source of funds of such institutions has been deposits, which
largely mature or are subject to repricing within a short period of time. This
factor, in combination with substantial investments in long-term, fixed-rate
loans, has historically caused the income earned by the Savings Bank on its loan
portfolio to adjust more slowly to changes in interest rates than its cost of
funds. While having liabilities that reprice more frequently than assets is
generally beneficial to net interest income in times of declining interest
rates, such an asset/liability mismatch is generally detrimental during periods
of rising interest rates.
The Savings Bank has established an Asset and Liability Management
Committee, which generally meets at least weekly in order to structure and price
the Savings Bank's assets and liabilities so as to maintain an acceptable
interest rate spread while reducing the effects of changes in interest rates.
The Committee reports monthly to the Board of Directors on interest rate risks
and trends, as well as with respect to the Savings Bank's liquidity and capital
ratios as compared to the respective regulatory requirements.
The Savings Bank's Asset and Liability Management Committee has in recent
periods implemented asset and liability management policies designed to better
match the maturities and repricing terms of the Savings Bank's interest-earning
assets and interest-bearing liabilities in order to minimize the adverse effects
on the Savings Bank's results of operations of material and prolonged increases
in interest rates. The Savings Bank has undertaken a variety of strategies to
reduce its exposure to interest rate fluctuations, including (i) subject to
market conditions, emphasizing the origination and purchase of adjustable-rate
mortgage loans and balloon loans (which amortize over a fifteen to thirty-year
period but are payable at the end of five or seven years); (ii) continuing to
invest excess cash in adjustable-rate and medium-term (primarily five years or
less) mortgage-backed securities; (iii) maintaining high levels of capital and
strong asset quality; (iv) attempting to attract, to the extent possible,
longer-term, fixed-rate deposit accounts; and (v) utilization of longer term
FHLB advances.
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As a result of implementing these asset and liability initiatives, at
December 31, 1996, $220.1 million, or 54.6% of the Savings Bank's total loan
portfolio consisted of adjustable-rate or balloon loans. As of such date, $157.6
million, or 48.9% of the Savings Bank's portfolio of single-family residential
mortgage loans consisted of adjustable-rate or balloon loans. In addition, at
December 31, 1996, $26.0 million, or 62.7% of the Savings Bank's mortgage-backed
securities portfolio consisted of adjustable-rate securities or had scheduled
maturities of five years or less.
Management presently monitors and evaluates the potential impact of
interest rate changes upon the market value of the Savings Bank's portfolio
equity and the level of net interest income on a quarterly basis. The OTS
adopted a final rule in August 1993 incorporating an interest rate risk
component into the risk-based capital rules. Under the rule, an institution with
a greater than "normal" level of interest rate risk will be subject to a
deduction of its interest rate risk component from total capital for purposes of
calculating the risk-based capital requirement. An institution with a greater
than "normal" interest rate risk is defined as an institution that would suffer
a loss of net portfolio value ("NPV") exceeding 2.0% of the estimated market
value of its assets in the event of a 200 basis point increase or decrease in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. A
resulting change in NPV of more than 2% of the estimated market value of an
institution's assets will require the institution to deduct from its capital 50%
of that excess change. The rule provides that the OTS will calculate the
interest rate risk component quarterly for each institution. The OTS has
indicated that no institution will be required to deduct an interest rate risk
component from capital for purposes of computing the risk-based capital
requirement until further notice.
At December 31, 1996, 2% of the present value of the Savings Bank's assets
was approximately $9.8 million. Because the interest rate risk of a 200 basis
point increase in market interest rates (which was greater than the interest
rate risk of a 200 basis point decrease) was $18.3 million at December 31, 1996,
the Savings Bank would have been required to deduct $4.3 million (50% of the
$8.5 million difference) from its capital in determining whether the Savings
Bank met its risk-based capital requirement. Despite such reduction, however,
the Savings Bank's risk-based capital at December 31, 1996, would still have
exceeded the regulatory requirement by approximately $23.9 million.
The following table presents the Savings Bank's NPV as of December 31, 1996,
as calculated by the OTS, based on information provided to the OTS by the
Savings Bank.
NET PORTFOLIO VALUE
ESTIMATED
CHANGE IN NPV AS A
INTEREST RATES ESTIMATED PERCENTAGE AMOUNT
(BASIS POINTS) NPV OF ASSETS OF CHANGE PERCENT
+400 $16,318 3.71% $(39,169) (71)%
+300 26,668 5.89 (28,819) (52)
+200 37,171 7.97 (18,316) (33)
+100 47,236 9.85 (8,251) (15)
-- 55,487 11.31 -- --
-100 61,366 12.28 5,879 11
-200 63,730 12.62 8,243 15
-300 64,790 12.72 9,303 17
-400 67,360 13.07 11,873 21
CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO DECEMBER 31, 1996
The Corporation's consolidated total assets amounted to $499.9 million at
December 31, 1996, an increase of $268.8 million, or 116.3%, over the $231.1
million total at December 31, 1995. The increase resulted primarily from
approximately $247.0 million of net assets acquired through the Corporation's
acquisition of Circle Financial Corporation (the "Merger"), which was completed
on October 11, 1996. In addition, the Merger contributed $207.8 million in
deposits, $8.5 million in net advances from the Federal Home Loan Bank ("FHLB")
and $14.9 million in stockholders' equity. Additionally, the growth in assets
was funded through the Corporation's secondary common stock offering, which was
completed in March 1996 and resulted in net proceeds totaling $20.4 million,
coupled with growth in deposits of $19.7 million and undistributed net earnings
of $677,000, which were partially offset by repayments of $7.0 million in FHLB
advances.
Cash and cash equivalents, comprised of cash and due from banks, federal
funds sold and interest-bearing deposits in other financial institutions,
amounted to $22.6 million at December 31, 1996, an increase of $18.1 million, or
404.0%, over the total in 1995. Regulatory liquidity, including certain
investment and qualifying mortgage-backed securities, totaled $29.5 million, or
7.2%, at December 31, 1996.
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Investment securities totaled $16.1 million at December 31, 1996, an
increase of $10.1 million, or 166.7%, over 1995 levels. The increase was due
primarily to $7.6 million of investment securities acquired as a result of the
Merger, coupled with purchases totaling $13.5 million, which were partially
offset by sales and maturities totaling $7.0 million and $4.1 million,
respectively.
Mortgage-backed securities (including securities classified as available
for sale) totaled $41.5 million at December 31, 1996, an increase of $12.1
million, or 41.3%, over the total in 1995. The increase in mortgage-backed
securities was due primarily to $44.4 million of such securities acquired as a
result of the Merger, coupled with purchases totaling $3.2 million, which were
partially offset by sales of $28.9 million and principal repayments of $6.5
million. Sales of mortgage-backed securities during the year reflected
management's desire to restructure the acquired portfolio in order to achieve an
interest rate risk position in accordance with the operating policies of the
Savings Bank, as well as to repay short-term FHLB advances which were acquired
as a result of the Merger.
Loans receivable increased by $211.4 million, or 114.2%, to a total of
$396.5 million at December 31, 1996, as compared to $185.1 million at December
31, 1995. The increase resulted primarily from loans acquired as a result of the
Merger totaling $189.4 million, coupled with loan disbursements of $59.5
million, which were partially offset by principal repayments totaling $37.1
million and sales of $547,000. Loans acquired as a result of the Merger
consisted primarily of one-to four-family and multi-family residential loans,
which totaled $168.4 million, or 88.9%, of total loans acquired in the Merger.
Loan originations during 1996 increased by $19.3 million, or 48%, over 1995
totals. The Savings Bank's originations during 1996 were primarily comprised of
one- to four-family and multi-family loans, which totaled $48.8 million, or
82.1%, of total loan originations.
The Savings Bank's allowance for loan losses totaled $1.6 million at
December 31, 1996, an increase of $740,000, or 90.5%, over the total at December
31, 1995. The increase consisted of $640,000 acquired as a result of the Merger
and a provision for losses on loans totaling $129,000 recorded in 1996. The
allowance represented .39% and .44% of total loans at December 31, 1996 and
1995, respectively, and 137.9% and 81.2% of nonperforming loans, which totaled
$1.1 million and $1.0 million at those respective dates. While management
believes the Savings Bank's allowance for loan losses is adequate at December
31, 1996, based upon the available facts and circumstances, there can be no
assurance that additions to the allowance will not be necessary in future
periods, which could adversely affect future operating results.
Deposits totaled $408.2 million at December 31, 1996, an increase of $227.5
million, or 125.9%, over 1995 levels. The increase was attributable to $207.8
million of deposits acquired in the Merger, coupled with overall growth in the
portfolio of $19.7 million. Deposits subject to daily repricing totaled $92.4
million, or 22.6% of total deposits at December 31, 1996, as compared to 21.5%
of total deposits at December 31, 1995. Certificates of deposit totaled $315.8
million, or 77.4% of total deposits at December 31, 1996, as compared to 78.5%
in 1995.
Advances from the Federal Home Loan Bank totaled $20.2 million at December
31, 1996, an increase of $2.5 million, or 14.3%, over 1995 levels. The increase
resulted primarily from advances acquired as a result of the Merger totaling
$27.4 million, coupled with $15.0 million in borrowings during 1996, which were
partially offset by repayments of $39.9 million. Advances acquired as a result
of the Merger totaling $2.5 million consisted of long-term, fixed-rate
borrowings which were retained in the Savings Bank's portfolio. These advances
were retained by management after consideration of the Corporation's overall
interest-rate risk profile.
Stockholders' equity totaled $66.7 million at December 31, 1996, an
increase of $36.6 million, or 121.5%, over the total at December 31, 1995. The
increase was due primarily to the net proceeds from the Corporation's common
stock offering of $20.4 million, stock issued in connection with the acquisition
of Circle totaling $14.9 million, and undistributed net earnings of $677,000.
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AVERAGE BALANCE, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. The table does
not reflect any effect of income taxes. All average balances are based on
average monthly balances during the periods.
Year ended December 31,
------------------------------------------
1996
------------------------------------------
Average Yield/
balance Interest rate
Interest-earning assets:
Loans receivable (2) $234,133 $18,872 8.06%
Mortgage-backed securities (3) 32,263 2,103 6.52
Investment securities (3) 13,087 833 6.37
Other interest-earning assets 16,896 930 5.50
------------------------------------------
Total interest-earning assets 296,379 22,738 7.67
Non-interest-earning assets 8,377
--------
Total assets $304,756
========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 14,100 280 1.99
Passbook and club accounts 23,673 516 2.18
Money market deposit accounts 13,198 415 3.14
Certificates of deposit accounts 180,521 10,343 5.73
Borrowings (4) 17,794 1,102 6.19
------------------------------------------
Total interest-bearing
liabilities 249,286 12,656 5.08
Non-interest-bearing liabilities 4,612
------------------------------------------
Total liabilities 253,898
Stockholders' equity 50,858
--------
Total liabilities and
stockholders' equity $304,756
========
Net interest income/
Interest rate spread $10,082 2 .59%
==========================================
Net interest margin (5) 3.40%
==========================================
Average interest-earning
assets to average interest-
bearing liabilities 118.89%
==========================================
Year ended December 31,
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1995 1994
----------------------------------------------------------------------------------------
Average Yield/ Average Yield/
balance Interest rate balance Interest rate
Interest-earning assets:
Loans receivable (2) $180,935 $14,697 8.12% $170,340 $13,927 8.18%
Mortgage-backed securities (3) 27,178 1,695 6.24 25,479 1,359 5.33
Investment securities (3) 5,020 307 6.12 4,068 258 6.34
Other interest-earning assets 5,071 302 5.96 4,288 204 4.76
---------------------------------------------------------------------------------------
Total interest-earning assets 218,204 17,001 7.79 204,175 15,748 7.71
Non-interest-earning assets 4,284 4,255
-------- --------
Total assets $222,488 $208,430
======== ========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 9,213 267 2.90 $ 7,647 190 2.48
Passbook and club accounts 16,297 432 2.65 18,483 516 2.79
Money market deposit accounts 12,953 417 3.22 15,916 495 3.11
Certificates of deposit accounts 137,564 8,151 5.93 122,857 6,277 5.11
Borrowings (4) 14,146 900 6.36 13,436 853 6.35
---------------------------------------------------------------------------------------
Total interest-bearing
liabilities 190,173 10,167 5.35 178,339 8,331 4.67
Non-interest-bearing liabilities 2,912 2,209
---------------------------------------------------------------------------------------
Total liabilities 193,085 180,548
Stockholders' equity 29,403 27,882
------- -------
Total liabilities and
stockholders' equity $222,488 $208,430
======== ========
Net interest income/
Interest rate spread $ 6,834 2.44% $ 7,417 3.04%
=======================================================================================
Net interest margin (5) 3.13% 3.63%
=======================================================================================
Average interest-earning
assets to average interest-
bearing liabilities 114.74% 114.49%
=======================================================================================
(1) At December 31, 1996, the yields earned and rates paid were as follows:
loans receivable, 7.79%; mortgage-backed securities, 7.32%; investment
securities, 6.49%; other interest-earning assets, 5.39%; total
interest-earning assets, 7.58%; deposits, 4.96%; borrowings, 6.22%; total
interest-bearing liabilities, 5.02%; interest rate spread, 2.56%.
(2) Includes loans classified as held for sale.
(3) Includes mortgage-backed and investment securities classified as available
for sale.
(4) Includes FHLB advances and a loan from a third-party financial institution
to the Savings Bank's Employee Stock Ownership Plan.
(5) Net interest margin is net interest income divided by average
interest-earning assets.
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RATE/VOLUME ANALYSIS
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Corporation's interest income and interest expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume), and (iii) total change in rate
and volume. The combined effect of changes in both rate and volume, which cannot
be separately identified, has been allocated proportionately to the change due
to rate and the change due to volume.
Year ended December 31,
1996 vs. 1995 1995 vs. 1994
------------------------------------------------------------
Increase Increase
(decrease) (decrease)
due to due to
Rate Volume Total Rate Volume Total
------------------------------------------------------------
(In thousands)
Interest-earning assets:
Loans receivable $ (110) $ 4,285 $ 4,175 $ (97) $ 867 $ 770
Mortgage-backed and related securities 81 327 408 241 95 336
Investment securities 15 511 526 (11) 60 49
Interest-earning deposits and other (19) 647 628 58 40 98
------------------------------------------------------------
Total $ (33) $ 5,770 5,737 $ 191 $1,062 1,253
============================================================
Interest-bearing liabilities:
Deposits $ (496) $ 2,783 2,287 $ 1,260 $ 529 1,789
Borrowings (25) 227 202 2 45 47
------------------------------------------------------------
Total $ (521) $ 3,010 2,489 $ 1,262 $ 574 1,836
============================================================
Increase (decrease) in net interest income $ 3,248 $ (583)
============================================================
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
-------------------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
Net earnings amounted to $1.6 million for the year ended December 31, 1996,
a decrease of $206,000, or 11.4%, from the $1.8 million in net earnings recorded
in 1995. The decline in net earnings resulted primarily from a non-recurring
$749,000 after-tax charge for the FDIC special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") in accordance with the recent
legislation enacted into law on September 30, 1996. In addition, the decline in
earnings also resulted from two non-recurring events related to the merger of
Circle during the fourth quarter of 1996: a $196,000 after-tax loss on the sale
of investment and mortgage-backed securities incurred as a result of
restructuring Circle's portfolio and using the proceeds to repay short-term FHLB
advances, and after-tax restructuring expenses of approximately $450,000
incurred relating to employee compensation and benefits, occupancy and
equipment, and general, administrative and other expenses. Absent the special
assessment and merger related non-recurring expenses, net earnings for the year
ended December 31, 1996 would have been approximately $3.0 million.
Net interest income totaled $10.1 million for the year ended December 31,
1996, an increase of $3.2 million, or 47.5%, over 1995. Interest income
increased by $5.7 million, or 33.7%, for the year ended December 31, 1996, as
compared to 1995. Interest income on loans and mortgage-backed securities
increased by $4.6 million, or 28.0%, due primarily to a $58.3 million, or 28.0%,
increase in the average balance outstanding year to year. Interest income on
investment securities and interest-bearing deposits increased by $1.2 million,
or 189.5%, during 1996 due primarily to a $19.9 million, or 197.1%, increase in
the average balance outstanding, which was partially offset by a 16 basis point
decline in the average yield, to 5.88% during 1996. The increases in the average
balances of interest-earning assets during 1996 over 1995 primarily reflect the
effects of the Merger which was consummated on October 11, 1996.
Interest expense on deposits increased by $2.3 million, or 24.7%, for the
year ended December 31, 1996, as compared to 1995. The increase was due
primarily to a $55.5 million, or 31.5%, increase in the average balance
outstanding, which was partially offset by a 27 basis point decline in the
average cost of deposits, to 4.99% for the year ended December 31, 1996, as
compared to 5.26% for 1995. Interest expense on borrowings increased by
$202,000, or 22.4%, due to a $3.6 million increase in the average balance of
outstanding borrowings during 1996, which was partially offset by a 17 basis
point decline in the cost of borrowings, to a rate of 6.19% for 1996. The
increases in the average balances of interest-bearing liabilities during 1996
over 1995 were primarily due to the effects of the Merger which was consummated
on October 11, 1996.
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13
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $3.2 million, or 47.5%, for the year
ended December 31, 1996 as compared to 1995. The interest rate spread increased
to 2.59% during 1996 from 2.44% in 1995, while the net interest margin increased
to 3.40% from 3.13% for the years ended December 31, 1996 and 1995,
respectively.
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Savings Bank, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Savings
Bank's market area, and other factors related to the collectibility of the
Savings Bank's loan portfolio. As a result of such analysis, management recorded
a $129,000 provision for losses on loans during the year ended December 31,
1996, an increase of $58,000 over the amount recorded in 1995. There can be no
assurance that the allowance for loan losses of the Savings Bank will be
adequate to cover losses on nonperforming assets in the future.
Other income decreased by $190,000, or 53.5%, to a total of $165,000 for
the year ended December 31, 1996, as compared to $355,000 in 1995. The decrease
was due primarily to a $274,000 increase in loss on sales of investment and
mortgage-backed securities, as previously discussed, which was partially offset
by a $38,000, or 27.5%, increase in rental income and a $46,000, or 19.6%,
increase in other operating income, which consisted primarily of service charges
and fees on deposit accounts.
General, administrative and other expense totaled $7.6 million for the year
ended December 31, 1996, an increase of $3.3 million, or 74.2%, over the 1995
total. The increase resulted primarily from a $1.2 million increase in federal
deposit insurance premiums due to the one-time assessment to recapitalize the
SAIF, coupled with a $1.0 million, or 48.2%, increase in employee compensation
and benefits, a $231,000, or 37.1%, increase in occupancy and equipment, a
$93,000, or 21.7%, increase in franchise taxes, a $143,000 increase in
amortization of goodwill and other intangible assets, an $80,000, or 42.6%,
increase in data processing and a $488,000, or 75.7%, increase in other
operating expenses.
Legislation enacted to recapitalize the SAIF in September 1996 provided for
a special assessment of $.657 per $100 of SAIF deposits held at March 31, 1995,
in order to increase SAIF reserves to the level required by law. The Savings
Bank had $173.1 million in SAIF deposits at March 31, 1995, resulting in an
assessment of approximately $1.1 million, or $749,000 after tax.
The legislation also provides for reduced premium rates for healthy savings
associations beginning in 1997, estimated to amount to $.064 per $100 of SAIF
insured deposits.
A component of the recapitalization plan provides for the merger of the
SAIF and BIF on January 1, 1999, assuming all federal savings association have
become banks. Legislation introduced in late September 1996 proposes the
elimination of the federal thrift charter or of the separate federal regulation
of thrifts. As a result, the Savings Bank would be regulated as a bank under
federal laws which would subject it to the more restrictive activity limits
imposed on national banks. Under separate legislation recently enacted into law,
the Savings Bank is required to recapture as taxable income approximately $2.7
million of its bad debt reserve, which represents the post-1987 additions to the
reserve, and will be unable to utilize the percent age of earnings method to
compute its reserve in the future. The Savings Bank has provided deferred taxes
for this amount and, as a result, repayment of the reserve will not result in a
charge to operations in future years. The Savings Bank is permitted by such
legislation to amortize the recapture of its bad debt reserve over six years.
The increase in employee compensation and benefits resulted primarily from
an increase in staffing levels, an increase in costs associated with stock
benefit plans and Merger-related severance benefits. The increase in
amortization of goodwill and other intangible assets was due to goodwill
recorded as a result of the Merger. Amortization of intangible assets, which
will be recorded over remaining terms ranging from six to fifteen years, is
expected to amount to approximately $700,000 for the year ended December 31,
1997.
Increases in occupancy and equipment, franchise taxes, data processing and
other operating expenses generally resulted from the effects of the Merger,
which was consummated on October 11, 1996. From that date through the end of the
year, operating expenses reflect the increased size of the Corporation, as
compared to the prior year.
The provision for federal income taxes totaled $872,000 for the year ended
December 31, 1996, a decrease of $47,000, or 5.1%, from the provision recorded
in 1995. The decline resulted primarily from a $253,000, or 9.3%, decrease in
pretax earnings year to year. The Corporation's effective tax rates were 35.2%
and 33.6% for the years ended December 31, 1996 and 1995, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
-------------------------------------------------------
DECEMBER 31, 1995 AND 1994
--------------------------
Net earnings for the year ended December 31, 1995 totaled $1.8 million, a
decrease of $558,000, or 23.5%, from the $2.4 million in net earnings recorded
in 1994. The decline in earnings resulted primarily from a $583,000 decrease in
net interest income, a $27,000 increase in the provision for losses on loans and
a $213,000 increase in general, administrative and other expense, which were
partially offset by an increase in other income of $8,000 and a decrease in the
provision for federal income taxes of $257,000.
11
14
Total interest income was $17.0 million for the year ended December 31,
1995, an increase of $1.3 million, or 8.0%, over the 1994 total. Interest income
on loans increased by $770,000, or 5.5%, to a total of $14.7 million. This
increase resulted primarily from a $10.6 million increase in the average
portfolio balance outstanding, which was partially offset by a six basis point
decline in the average yield year-to-year, from 8.18% in 1994 to 8.12% in 1995.
Interest income on mortgage-backed securities totaled $1.7 million for 1995, an
increase of $336,000, or 24.7%, over the 1994 total. This increase resulted from
a $1.7 million increase in the average balance outstanding, coupled with a 91
basis point increase in the average yield, which was 6.24% in 1995. Interest
income on investment securities and interest bearing deposits totaled $609,000
in 1995, an increase of $147,000, or 31.8%, over 1994. This increase resulted
primarily from an increase in the average balance of $1.7 million, coupled with
an increase in the average yield of approximately 51 basis points, to a yield of
6.04% in 1995.
Total interest expense for the year ended December 31, 1995, amounted to
approximately $10.2 million, an increase of $1.8 million, or 22.0%, over the
1994 amount. Interest expense on deposits totaled $9.3 million, an increase of
$1.8 million, or 23.9%, over 1994. This increase resulted primarily from an
$11.1 million increase in the average portfolio balance outstanding, (consisting
primarily of certificates of deposit) coupled with a 73 basis point increase in
the average cost of deposits, from 4.53% in 1994 to 5.26% in 1995. This increase
reflects the overall increase in interest rates in the economy during 1995.
Interest expense on borrowings increased by $47,000, or 5.5%, during 1995, as
compared to 1994, due primarily to a $710,000 increase in average borrowings
outstanding year-to-year.
As a result of the foregoing changes in interest income and interest
expense, net interest income declined by $583,000, or 7.9%, for the year ended
December 31, 1995 compared to 1994. The Savings Bank's interest rate spread was
2.44% for 1995, a decrease of 60 basis points from the 3.04% spread in 1994.
Similarly, the net interest margin declined by 50 basis points, to 3.13% in
1995, from 3.63% in 1994.
The provision for losses on loans totaled $71,000 for the year ended
December 31, 1995, an increase of $27,000, or 61.4% over 1994. The increase in
the provision in 1995 generally reflects management's desire to maintain an
adequate level of the allowance for loan losses given growth in the loan
portfolio over the period. As previously mentioned, nonperforming loans totaled
$1.0 million at December 31, 1995, compared to $839,000 in 1994. Charge-offs of
loans amounted to $36,000 during 1995, compared to $64,000 in 1994.
Other income totaled $355,000 for the year ended December 31, 1995, an
increase of $8,000, or 2.3%, over the 1994 total. The increase resulted
primarily from a $7,000 increase in gain on sale of loans, a $17,000, or 14.0%
increase in rental income and an $8,000, or 3.5%, increase in other operating,
which were partially offset by a $21,000 loss on sale of investment securities
during 1995 and a $3,000 increase in loss on sale of real estate acquired
through foreclosure.
General, administrative and other expense totaled $4.4 million for the year
ended December 31, 1995, an increase of $213,000, or 5.1%, over the $4.2 million
total in 1994. The increase resulted primarily from a $128,000, or 6.5%,
increase in employee compensation and benefits, a $32,000, or 5.4%, increase in
occupancy and equipment, a $28,000, or 7.6%, increase in federal deposit
insurance premiums and a $25,000, or 6.2%, increase in franchise taxes. The
increase in employee compensation and benefits resulted primarily from normal
merit increases and pro-rata increases in benefits expense. The increase in
occupancy and equipment was due primarily to increased costs related to the new
branch office location which opened in 1994. The increases in federal deposit
insurance premiums and franchise taxes resulted from the growth in the deposit
portfolio and stockholders' equity, respectively, during 1995.
The Savings Bank's provision for federal income taxes amounted to $919,000
for the year ended December 31, 1995, a decrease of $257,000, or 21.9%, from the
1994 provision. The decline resulted primarily from the decline in pretax
earnings of $815,000, or 23.0%, year-to-year. The effective tax rates were 33.6%
and 33.1% for the years ended December 31, 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Savings Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of United
States Government and government agency obligations and other similar
investments having maturities of five years or less. Such investments are
intended to provide a source of relatively liquid funds upon which the Savings
Bank may rely if necessary to fund deposit withdrawals and for other short-term
funding needs. The required level of such liquid investments is currently 5% of
certain liabilities as defined by the OTS and is changed from time to time to
reflect economic conditions.
The liquidity of the Savings Bank, as measured by the ratio of cash, cash
equivalents, (not committed, pledged or required to liquidate specific
liabilities), investment and qualifying mortgage-backed securities to the sum of
total deposits plus borrowings payable within one year, was 7.2% at both
December 31, 1996 and 1995. At December 31, 1996 the Savings Bank's "liquid"
assets totaled approximately $29.5 million, which was $9.2 million in excess of
the current OTS minimum requirement.
The Savings Bank's liquidity, represented by cash and cash equivalents, is
a product of its operating, investing and financing activities. The Savings
Bank's primary sources of funds are deposits, borrowings, amortization,
prepayments and maturities of outstanding loans and mortgage-backed securities,
maturities of investment and mortgage-backed securities and other short-term
investments, sales of loans and investment and mortgage-backed securities and
funds provided from operations. While scheduled
12
15
loan and mortgage-backed securities amortization and maturing investment
securities and short-term investments are relatively predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Savings Bank manages
the pricing of its deposits to maintain a steady deposit balance. In addition,
the Savings Bank invests excess funds in overnight deposits and other short-term
interest-earning assets which provides liquidity to meet lending requirements.
The Savings Bank generates cash through the retail deposit market and, to the
extent deemed necessary, utilizes borrowings for liquidity purposes (primarily
consisting of advances from the FHLB of Cincinnati). At December 31, 1996, the
Savings Bank had $20.2 million of outstanding advances from the FHLB of
Cincinnati. Furthermore, the Savings Bank has access to the Federal Reserve Bank
discount window.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as overnight deposits. On a longer-term basis, the Savings Bank maintains a
strategy of investing in various loans, mortgage-backed securities and
investment securities. The Savings Bank uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing savings certificates and savings
withdrawals, fund loan commitments and maintain a portfolio of investment and
mortgage-backed securities. At December 31, 1996, the total approved loan
commitments outstanding amounted to $4.6 million. At the same date, commitments
under unused lines of credit secured by one- to four-family residential property
amounted to $5.3 million, commitments under unused lines of credit secured by
multi-family and non-residential real estate totaled $3.4 million and the
unadvanced portion of construction loans approximated $4.1 million. Certificates
of deposit scheduled to mature in one year or less at December 31, 1996, totaled
$225.7 million. The Savings Bank believes that it has adequate resources to fund
all of its commitments and that it can adjust the rate of certificates of
deposit in order to retain deposits in changing interest rate environments.
The Savings Bank is subject to minimum capital standards promulgated by the
OTS. Such capital standards generally require the maintenance of regulatory
capital sufficient to meet each of the following three requirements: a tangible
capital requirement, a core capital requirement and a risk-based capital
requirement. At December 31, 1996, the Savings Bank's tangible and core capital
amounted to $47.4 million, or 9.8%, of total adjusted assets, which exceeded the
minimum requirements of 1.5% and 3.0% at that date by approximately $40.2
million and $33.0 million, or 8.3% and 6.8% of adjusted total assets,
respectively. The Savings Bank's risk-based capital totaled $48.3 million at
December 31, 1996, or 19.2%, of risk-weighted assets, which exceeded the current
requirement of 8% of risk-weighted assets by approximately $28.1 million, or
11.2% of risk-weighted assets.
The OTS has proposed an amendment to the core capital requirement that
would increase the minimum requirement to 4% of adjusted total assets for
substantially all savings associations. Management anticipates no material
change to the Savings Bank's excess regulatory capital position if the proposal
is adopted in its present form.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
------------------------------------------
In October 1994, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 119, "Disclosure
About Derivative Financial Instruments and Fair Value of Financial Instruments."
SFAS No. 119 requires financial statement disclosure of certain derivative
financial instruments, defined as futures, forwards, swaps, option contracts, or
other financial instruments with similar characteristics. In the opinion of
management, the disclosure requirements of SFAS No. 119 will have no material
effect on the Corporation's consolidated financial condition or results of
operations, as the Corporation does not invest in derivative financial
instruments, as defined. As a result, the applicability of SFAS No. 119 relates
solely to disclosure requirements pertaining to fixed-rate and adjustable-rate
loan commitments.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the assets, an impairment loss is recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that an entity expects to
hold and use should be based on the fair value of the asset. SFAS No. 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. Earlier application is encouraged. Management adopted SFAS No. 121 on
January 1, 1996, as required, without material effect on the Corporation's
consolidated financial position or results of operations.
In June 1994, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights", which requires that the Corporation recognize as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage-servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage-servicing rights. SFAS No. 122 requires that
securitization of mortgage loans be accounted for as sales of mortgage loans and
acquisitions of mortgage- backed securities. Additionally, SFAS No. 122 requires
that capitalized mortgage servicing rights be assessed for impairment.
Impairment is measured based on fair value. SFAS No. 122 was required for fiscal
years beginning after December 15, 1995, (January 1, 1996, as to the
Corporation) to transactions in which an entity acquires mortgage servicing
rights and to impairment
13
16
evaluations of all capitalized mortgage servicing rights whenever acquired.
Retroactive application is prohibited and earlier adoption was encouraged.
Management adopted SFAS No. 122 as of January 1, 1996, without material effect
on the Corporations consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", establishing financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 encourages all entities to
adopt a new method of accounting to measure compensation cost of all employee
stock compensation plans based on the estimated fair value of the award at the
date it is granted. Companies are, however, allowed to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting, which generally does not result in compensation expense recognition
for most plans. Companies that elect to remain with the existing accounting are
required to disclose in a footnote to the financial statements pro forma net
earnings and, if presented, earnings per share, as if SFAS No. 123 had been
adopted. The accounting requirements of SFAS No. 123 are effective for
transactions entered into during fiscal years that begin after December 15,
1995; however, companies are required to disclose information for awards granted
in their first fiscal year beginning after December 15, 1994. Management has
determined that the Corporation will continue to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25, and
therefore, the disclosure provisions of SFAS No. 123 will have no effect on its
consolidated financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights, and Extinguishment of Liabilities", that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 introduces an
approach to accounting for transfers of financial assets that provides a means
of dealing with more complex transactions in which the seller disposes of only a
partial interest in the assets, retains rights or obligations, makes use of
special purpose entities in the transaction, or otherwise has continuing
involvement with the transferred assets. The new accounting method, referred to
as the financial components approach, provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. SFAS No. 125 provides criteria for determining
whether control of assets has been relinquished and whether a sale has occurred.
If the transfer does not qualify as a sale, it is accounted for as a secured
borrowing. Transactions subject to the provisions of SFAS No. 125 include, among
others, transfers involving repurchase agreements, securitizations of financial
assets, loan participations, factoring arrangements, and transfers of
receivables with recourse.
An entity that undertakes an obligation to service financial assets
recognizes either a servicing asset or liability for the servicing contract
(unless related to a securitization of assets, and all the securitized assets
are retained and classified as held-to-maturity). A servicing asset or liability
that is purchased or assumed is initially recognized at its fair value.
Servicing assets and liabilities are amortized in proportion to and over the
period of estimated net servicing income or net servicing loss and are subject
to subsequent assessments for impairment based on fair value.
SFAS No. 125 provides that a liability is removed from the balance sheet
only if the debtor either pays the creditor and is relieved of its obligation
for the liability or is legally released from being the primary obligor.
SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishment of liabilities occurring after December 31, 1997, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Management does not believe that adoption of SFAS No. 125 will have a material
adverse effect on the Corporation's consolidated financial position or results
of operations.
IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------
The consolidated financial statements of the Corporation and related
consolidated financial data presented herein have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Corporation's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Corporation are monetary in nature. As a result,
interest rates have a greater impact on the Corporation's performance than do
the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
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[GRANT THORNTON LOGO]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Fidelity Financial of Ohio, Inc.
We have audited the accompanying consolidated statements of financial
condition of Fidelity Financial of Ohio, Inc. (formerly Fidelity Federal Savings
Bank) as of December 31, 1996 and 1995, and the related consolidated statements
of earnings, stockholders' equity, and cash flows for each of the three years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are fee of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the consolidated financial position of Fidelity
Financial of Ohio, Inc. As of December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years ended
December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
Cincinnati, Ohio
March 20, 1997
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18
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995
------------------------
ASSETS
Cash and due from banks $ 2,121 $ 1,702
Federal funds sold 13,820 2,176
Interest-bearing deposits in other financial institutions 6,669 608
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 22,610 4,486
Investment securities available for sale--at market 16,120 6,044
Mortgage-backed securities available for sale--at market 30,760 29,378
Mortgage-backed securities--at cost, approximate market value of $10,831
at December 31, 1996 10,744 --
Loans receivable--net 396,541 184,486
Loans held for sale--at lower of cost or market -- 646
Office premises and equipment--at depreciated cost 7,371 2,528
Federal Home Loan Bank stock--at cost 3,781 1,854
Accrued interest receivable on loans 1,950 1,023
Accrued interest receivable on mortgage-backed securities 310 222
Accrued interest receivable on investments 284 63
Prepaid expenses and other assets 371 382
Goodwill and other intangible assets, net of accumulated amortization 8,322 --
Prepaid federal income taxes 754 25
- -------------------------------------------------------------------------------------------------------------
Total assets $ 499,918 $ 231,137
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 408,159 $ 180,697
Advances from the Federal Home Loan Bank 20,186 17,653
Loan to Employee Stock Ownership Plan -- 336
Advances by borrowers for taxes and insurance 2,005 1,063
Accrued interest and other liabilities 2,706 1,232
Deferred federal income taxes 150 43
- -------------------------------------------------------------------------------------------------------------
Total liabilities 433,206 201,024
Commitments -- --
Stockholders' equity -- --
Preferred stock - authorized, 5,000,000 shares at $.10 par value; none issued
Common stock - authorized, 15,000,000 shares at $.10 par value; 5,593,969
and 1,810,380 shares issued and outstanding at December 31, 1996 and 1995 559 181
Additional paid-in capital 41,608 4,848
Retained earnings - restricted 26,311 25,497
Less shares acquired by Employee Stock Ownership Plan (ESOP) (1,938) (336)
Less shares acquired by Management Recognition Plan (MRP) -- (20)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 172 (57)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 66,712 30,113
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 499,918 $ 231,137
=============================================================================================================
The accompanying notes are an integral part of these statements.
16
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CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994
-----------------------------------
Interest income
Loans $18,872 $14,697 $13,927
Mortgage-backed securities 2,103 1,695 1,359
Investment securities 833 307 258
Interest-bearing deposits and other 930 302 204
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 22,738 17,001 15,748
Interest expense
Deposits 11,554 9,267 7,478
Borrowings 1,102 900 853
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 12,656 10,167 8,331
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 10,082 6,834 7,417
Provision for losses on loans 129 71 44
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 9,953 6,763 7,373
Other income (expense)
Loss on sale of investment and mortgage-backed securities (295) (21) --
Gain on sale of loans 3 8 1
Loss on sale of real estate acquired through foreclosure -- (5) (2)
Rental 176 138 121
Other operating 281 235 227
- ---------------------------------------------------------------------------------------------------------------------
Total other income 165 355 347
General, administrative and other expense
Employee compensation and benefits 3,122 2,107 1,979
Occupancy and equipment 853 622 590
Federal deposit insurance premiums 1,598 395 367
Franchise taxes 521 428 403
Amortization of goodwill and other intangible assets 143 -- --
Data processing 268 188 170
Other operating 1,133 645 663
- ---------------------------------------------------------------------------------------------------------------------
Total general, administrative and other expense 7,638 4,385 4,172
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 2,480 2,733 3,548
Federal income taxes
Current 916 774 1,025
Deferred (44) 145 151
- ---------------------------------------------------------------------------------------------------------------------
Total federal income taxes 872 919 1,176
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 1,608 $ 1,814 $ 2,372
=====================================================================================================================
Earnings per share $.38 $.45 $.58
=====================================================================================================================
The accompanying notes are an integral part of these statements.
17
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNREALIZED
GAINS
(LOSSES) ON
ADDITIONAL SHARES SHARES SECURITIES
COMMON PAID-IN RETAINED ACQUIRED ACQUIRED AVAILABLE
STOCK CAPITAL EARNINGS BY ESOP BY MRP FOR SALE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1994 $121 $ 4,828 $ 22,344 $ (315) $ (73) $ -- $ 26,905
Net earnings for the year ended
December 31, 1994 -- -- 2,372 -- -- -- 2,372
Exercise of 1,125 stock options -- 6 -- -- -- -- 6
Principal payments on loans to ESOP -- -- -- 58 -- -- 58
Cumulative effect of adopting SFAS
No. 115, net of related tax effect -- -- -- -- -- 160 160
Unrealized losses on securities designated as-
available for sale, net of related tax benefits -- -- -- -- -- (554) (554)
Amortization of MRP -- -- -- -- 31 -- 31
Stock dividend effected in the form of a
3-for-2 split 60 -- (60) -- -- -- --
Cash dividends of $.24 per share -- -- (438) -- -- -- (438)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 181 4,834 24,218 (257) (42) (394) 28,540
Net earnings for the year ended
December 31, 1995 -- -- 1,814 -- -- -- 1,814
Exercise of 3,335 stock options -- 14 -- -- -- -- 14
Principal payments on loans to ESOP -- -- -- 67 -- -- 67
Proceeds on additional borrowings on
loans to ESOP -- -- -- (146) -- -- (146)
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- -- -- 337 337
Amortization of MRP -- -- -- -- 22 -- 22
Cash dividends of $.30 per share -- -- (535) -- -- -- (535)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 181 4,848 25,497 (336) (20) (57) 30,113
Net earnings for the year ended
December 31, 1996 -- -- 1,608 -- -- -- 1,608
Proceeds from issuance of common stock 226 21,893 137 (1,822) -- -- 20,434
Issuance of shares in connection with merger 151 14,792 -- -- -- -- 14,943
Exercise of 6,750 stock options 1 32 -- -- -- -- 33
Principal payments on loans to ESOP -- 43 -- 220 -- -- 263
Unrealized gains on securities designated as
available for sale, net of related tax effects -- -- -- -- -- 229 229
Amortization of MRP -- -- -- -- 20 -- 20
Cash dividends of $.24 per share -- -- (931) -- -- -- (931)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $559 $41,608 $ 26,311 $(1,938) $ -- $ 172 $ 66,712
==================================================================================================================================
The accompanying notes are an integral part of these statements.
18
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994
--------------------------------------
Cash flows from operating activities:
Net earnings for the year $ 1,608 $ 1,814 $ 2,372
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 335 265 235
Amortization of premiums on investments and mortgage-backed securities 47 34 77
Amortization of deferred loan origination fees (117) (222) (263)
Amortization expense of stock benefit plans 63 22 31
Amortization of goodwill 143 -- --
Amortization of purchase accounting adjustments (480) -- --
Loss on sale of investment and mortgage-backed securities 295 21 --
Gain on sale of mortgage loans (3) (8) (1)
Loans disbursed for sale in the secondary market (71) (1,811) (180)
Proceeds from sale of loans in the secondary market 550 1,173 181
Federal Home Loan Bank stock dividends (165) (120) (93)
Provision for losses on loans 129 71 44
Loss on sale of real estate acquired through foreclosure -- 5 2
Increase (decrease) in cash, net of acquisition of Circle Financial
Corporation, due to changes in:
Accrued interest receivable on loans (328) (6) (105)
Accrued interest receivable on mortgage-backed securities 338 (38) (39)
Accrued interest receivable on investments (65) (20) (5)
Prepaid expenses and other assets 837 (270) 10
Accrued interest and other liabilities (499) 133 (178)
Federal income taxes
Current -- 37 73
Deferred (44) 145 151
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,573 1,225 2,312
Cash flows provided by (used in) investing activities:
Proceeds from sale of investment securities designated as available for sale 6,966 979 --
Purchase of investment securities designated as available for sale (13,540) (2,511) (500)
Maturities of investment securities designated as available for sale 4,079 4 --
Purchase of Federal Home Loan Bank stock (28) (38) --
Proceeds from sale of mortgage-backed securities designated as available for sale 28,943 -- --
Purchase of mortgage-backed securities designated as available for sale (3,173) (2,049) (989)
Purchase of mortgage-backed securities designated as held to maturity -- (4,538) (8,706)
Principal repayments on mortgage-backed securities designated as available for sale 6,182 1,389 3,448
Principal repayments on mortgage-backed securities designated as held to maturity 344 3,098 2,631
Loan disbursements (59,394) (34,947) (37,610)
Purchase of loan participations -- (3,409) (1,556)
Sale of loan participations -- 320 --
Principal repayments on loans 37,106 28,923 26,052
Purchases and additions to office premises and equipment (1,284) (257) (1,073)
Proceeds from sale of real estate acquired through foreclosure -- 91 520
Additions to real estate acquired through foreclosure -- (11) --
Acquisition of Circle Financial Corporation common stock--net (5,359) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 842 (12,956) (17,783)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating and investing activities
(subtotal carried forward) 3,415 (11,731) (15,471)
- -----------------------------------------------------------------------------------------------------------------------------------
19
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994
------------------------------------
Net cash provided by (used in) operating and investing activities
(subtotal brought forward) $ 3,415 $(11,731) $ (15,471)
Cash provided by (used in) financing activities:
Net increase in deposit accounts 19,880 7,499 15,556
Proceeds from Federal Home Loan Bank advances 15,000 10,000 1,000
Repayment of Federal Home Loan Bank advances (39,970) (4,436) (4,865)
Proceeds from the exercise of stock options 33 14 6
Proceeds from issuance of common stock 20,434 -- --
Dividends on common stock (931) (535) (438)
Advances by borrowers for taxes and insurance 263 78 87
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,709 12,620 11,346
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,124 889 (4,125)
Cash and cash equivalents at beginning of year 4,486 3,597 7,722
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 22,610 $ 4,486 $ 3,597
====================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 755 $ 737 $ 952
====================================================================================================================================
Interest on deposits and borrowings $ 12,574 $ 10,155 $ 8,347
====================================================================================================================================
Supplemental disclosure of noncash investing and financing activities:
Foreclosed mortgage loans transferred to real estate acquired
through foreclosure $ -- $ -- $ 503
====================================================================================================================================
Transfer of investment and mortgage-backed securities
to an available for sale classification $ -- $ 22,215 $ 13,136
====================================================================================================================================
Unrealized gains (losses) on securities designated as available
for sale, net of related tax effects $ 229 $ 337 $ (394)
====================================================================================================================================
Exchange of office premises and equipment for similar assets $ 61 $ -- $ --
====================================================================================================================================
Liabilities assumed and stock and cash paid in acquisition
of Circle Financial Corporation $ 265,904 $ -- $ --
Less: fair value of assets received 258,175
- ------------------------------------------------------------------------------------------------------------------------------------
Amount assigned to goodwill $ 7,729 $ -- $ --
====================================================================================================================================
The accompanying notes are an integral part of these statements.
20
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
In 1992, Fidelity Federal Savings and Loan Association ("Fidelity")
completed its reorganization into a federally-chartered, mutual holding company
(the "Reorganization"). The Reorganization was approved by the Board of
Directors, Fidelity's members and the Office of Thrift Supervision prior to its
implementation.
In accordance with the Reorganization, Fidelity organized Fidelity Federal
Savings Bank (the "Savings Bank"), a federally-chartered stock savings bank, and
transferred substantially all of its assets and all of its liabilities to the
Savings Bank in exchange for shares of common stock, $.10 par value per share,
and reorganized from a federally-chartered mutual savings and loan association
to a federally-chartered mutual holding company known as Fidelity Federal Mutual
Holding Company (the "Mutual Holding Company"). Concurrent with the
Reorganization, the Savings Bank issued additional shares of its common stock to
certain members of the public.
On October 10, 1995, the Boards of Directors of the Savings Bank and the
Mutual Holding Company adopted a Plan of Conversion (the "Plan") and in October
1995, the Savings Bank incorporated Fidelity Financial of Ohio, Inc. (the
"Corporation") under Ohio law as a first-tier wholly owned subsidiary of the
Savings Bank. Pursuant to the Plan, on March 4, 1996, (i) the Corporation
completed its stock offering in connection with the Savings Bank's conversion
from the mutual holding company form of organization to the stock holding
company form whereby 2,278,100 shares of the Corporation's common stock, $.10
par value per share, were sold at $10 per share; (ii) the Mutual Holding Company
converted to an interim federal stock savings institution and simultaneously
merged with and into the Savings Bank, pursuant to which the Mutual Holding
Company ceased to exist and the outstanding shares of the Savings Bank's common
stock held by the Mutual Holding Company were canceled; and (iii) an interim
savings bank ("Interim") formed as a wholly-owned subsidiary of the Corporation
solely for such purpose, was merged with and into the Savings Bank (the
"Conversion and Reorganization"). As a result of the merger of Interim with and
into the Savings Bank, the Savings Bank became a wholly-owned subsidiary of the
Corporation and the outstanding public Savings Bank's shares were converted into
shares of the Corporation pursuant to an exchange ratio of 2.25 shares for one,
which resulted in the holders of such shares owning in the aggregate
approximately the same percentage of the common stock to be outstanding upon the
completion of the Conversion and Reorganization as the percentage of Savings
Bank common stock owned in the aggregate immediately prior to consummation of
the Conversion and Reorganization. The costs of issuing the common stock were
deducted from the sale proceeds of the offering. The offering was completed on
March 4, 1996, and resulted in net capital proceeds totaling $20.4 million.
Future references to the Corporation or Savings Bank are utilized herein as the
context requires.
On April 29, 1996, the Corporation entered into an Agreement of Merger,
which was subsequently amended on June 13, 1996, with Circle Financial
Corporation ("Circle"), a savings and loan holding company, pursuant to which
Circle and its wholly owned subsidiary, Peoples Savings Association ("Peoples"),
would merge with and into the Corporation (the "Merger"). The transaction was
consummated on October 11, 1996, pursuant to the amended and restated Agreement
of Merger, and was accounted for using the purchase method of accounting. The
Corporation effected the acquisition through cash payments totaling $12.2
million and issuance of 1,513,967 shares of its common stock at a fair value of
$9.87 per share. The acquisition resulted in the Savings Bank recording goodwill
totaling $5.4 million, which will be amortized over a fifteen year term using
the straight-line method.
Presented below are pro-forma condensed consolidated statements of earnings
and earnings per share which have been prepared as if the acquisition had been
consummated as of the beginning of each of the respective years ended December
31, 1996 and 1995.
1996 1995
------------------
(In thousands,
except share data)
(unaudited)
Total interest income $35,313 $31,837
Total interest expense 19,924 18,049
- --------------------------------------------------------------------------------
Net interest income 15,389 13,788
Provision for losses on loans 129 71
Other income 555 1,030
General, administrative and other expense 12,645 9,077
- --------------------------------------------------------------------------------
Earnings before income taxes 3,170 5,670
Federal income taxes 1,170 2,051
- --------------------------------------------------------------------------------
Net earnings $ 2,000 $ 3,619
================================================================================
Earnings per share $ .38 $ .65
================================================================================
21
24
The Corporation is a savings and loan holding company whose activities are
primarily limited to holding the stock of the Savings Bank.
The Savings Bank conducts a general banking business in southwestern Ohio
which consists of attracting deposits from the general public and applying those
funds to the origination of loans for residential, consumer and nonresidential
purposes. The Savings Bank's profitability is significantly dependent on its net
interest income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or received
by the Savings Bank can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management's
control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general accounting
practices within the financial services industry. In preparing financial
statements in accordance with GAAP, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from such estimates.
The following is a summary of significant accounting policies which have
been consistently applied in the preparation of the accompanying consolidated
financial statements.
1. PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Corporation and the
Savings Bank. All significant intercompany balances and transactions have been
eliminated.
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Corporation accounts for investment and mortgage-backed securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held to maturity are carried at
cost only if the Corporation has the positive intent and ability to hold these
securities to maturity. Trading securities and securities available for sale are
carried at fair value with resulting unrealized gains or losses charged to
operations or stockholders' equity, respectively. In November 1995, the
Financial Accounting Standards Board (the "FASB") issued a Special Report on
Implementation of SFAS No. 115, which provided for the reclassification of
securities between the held-to-maturity, available for sale and trading
portfolios during a forty-five day period, without calling into question
management's prior intent with respect to such securities. Management elected to
restructure the Savings Bank's securities portfolio pursuant to the Special
Report, and transferred approximately $22.2 million of mortgage-backed
securities from the held-to-maturity portfolio to an available for sale
portfolio. As a result of the transfer, the Savings Bank recorded an unrealized
loss, net of related tax effects, of approximately $83,000 to stockholders'
equity.
At December 31, 1996 and 1995, the Corporation's equity accounts reflected
a net unrealized gain of $172,000 and a net unrealized loss of $57,000, net of
related tax effects, respectively.
Realized gains and losses on sales of securities are recognized using the
specific identification method.
3. LOANS RECEIVABLE
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees, the allowance for loan losses and
premiums and discounts on loans purchased and sold. Premiums and discounts on
loans purchased and sold are amortized and accreted to operations using the
interest method over the average life of the underlying loans. Interest is
accrued as earned, unless the collectibility of the loan is in doubt.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the extent
that cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments has returned to normal,
in which case the loan is returned to accrual status. If the ultimate
collectibility of the loan is in doubt, in whole or in part, all payments
received on nonaccrual loans are applied to reduce principal until such doubt is
eliminated. Loans held for sale are carried at the lower of cost or market,
determined in the aggregate. In computing cost, deferred loan origination fees
are deducted from the principal balances of the related loans. At December 31,
1995, loans held for sale were carried at cost.
4. LOAN ORIGINATION AND COMMITMENT FEES
The Savings Bank accounts for loan origination fees in accordance with the
provisions of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases". Pursuant to the provisions of SFAS No. 91, origination fees received
from loans, net of certain direct origination costs, are deferred and amortized
to interest income using the interest method, giving effect to actual loan
prepayments. Additionally, SFAS No. 91 generally limits the definition of loan
origination costs to the direct costs attributable to originating a loan, i.e.
principally actual personnel costs. Fees received for loan commitments that are
expected to be drawn upon, based on the Savings Bank's experience with similar
22
25
commitments, are deferred and amortized over the life of the loan using the
level-yield method. Fees for other loan commitments are deferred and amortized
over the loan commitment period on a straight-line basis.
5. ALLOWANCE FOR LOSSES ON LOANS
It is the Savings Bank's policy to provide valuation allowances for
estimated losses on loans based on past loan loss experience, changes in the
composition of the loan portfolio, trends in the level of delinquent and problem
loans, 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 the primary lending area. When the collection of a loan
becomes doubtful, or otherwise troubled, the Savings Bank records a loan loss
provision 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).
In 1993, the FASB issued 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 loans observable
market price or fair value of the collateral. The Savings Bank adopted SFAS No.
114, as subsequently amended, on January 1, 1995, without material effect on
financial condition or results of operations.
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, the Savings Bank 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 the Savings Bank's investment in
multi-family and nonresidential loans, and its evaluation of any impairment
thereon, such loans are collateral dependent and as a result are carried as a
practical expedient at the lower of cost or fair value.
It is the Savings Bank's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans which
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 December 31, 1996 and 1995, the Savings Bank had no loans that would be
defined as impaired under SFAS No. 114.
6. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. A loan charge-off is recorded for any
writedown in the loan's carrying value to fair value at the date of acquisition.
Real estate loss provisions are recorded if the properties' fair value
subsequently declines below the value determined at the recording date. In
determining the lower of cost or fair value at acquisition, costs relating to
development and improvement of property are considered. Costs relating to
holding real estate acquired through foreclosure, net of rental income, are
charged against earnings as incurred.
7. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and minor
renewals are expensed as incurred. For financial reporting, depreciation and
amortization are provided on the straight-line and accelerated methods over the
useful lives of the assets, estimated to be thirty to forty years for buildings,
five to fifteen years for building improvements, five to ten years for furniture
and equipment and five years for automobiles. An accelerated method is used for
tax reporting purposes.
8. FEDERAL INCOME TAXES
The Corporation accounts for federal income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 establishes financial accounting and
reporting standards for the effects of income taxes that result from the
Corporation's activities within the current and previous years. Pursuant to the
provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is
computed by applying the current statutory tax rates to net taxable or
deductible temporary differences between the tax basis of an asset or liability
and its reported amount in the consolidated financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax assets
are recorded only to the extent that the amount of net deductible temporary
differences or carryforward attributes may be utilized against current period
earnings, carried back against prior years' earnings, offset against taxable
temporary differences reversing in future periods, or utilized to the extent of
management's estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net deductible
temporary differences and carryforward attributes exceeds management's estimates
of taxes payable on future taxable income. Deferred tax liabilities are provided
on the total amount of net temporary differences taxable in the future.
The Corporation's principal temporary differences between pretax financial
income and taxable income result primarily from the different methods of
accounting for deferred loan origination fees, Federal Home Loan Bank stock
dividends, the general loan loss allowance, percentage of earnings bad debt
deductions and certain components of retirement expense. A temporary difference
is also recognized for depreciation expense computed using accelerated methods
for federal income tax purposes.
23
26
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill resulting from the acquisition of Circle, net of amortization
recorded in 1996, totaled approximately $7.7 million, and is being amortized
over a fifteen year period using straight-line method. specifically identifiable
intangible assets totaling $703,000 related to core deposits are being amortized
over an estimated useful life of seven and a half years using an accelerated
method.
Management periodically evaluates the carrying value of these intangible
assets in relation to the continuing earnings capacity of the acquired assets
and assumed liabilities.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
provides guidance on when to recognize and how to measure impairment losses of
long-lived assets and certain identifiable intangibles and how to value
long-lived assets to be disposed of. The Corporation adopted SFAS No. 121
effective January 1, 1996, as required, without material effect on consolidated
financial condition or results of operations.
10. RETIREMENT AND INCENTIVE PLANS
The Savings Bank has several retirement and incentive plans covering the
directors and substantially all employees. Such plans are more fully described
as follows.
The Savings Bank has a 401(k) profit-sharing plan whereby employees may
make voluntary tax deferred contributions up to 15% of their base annual
compensation. The Savings Bank will provide, at its discretion, matching funds
of each participant's contribution, subject to a maximum of 6% of base
compensation. The Savings Bank's 401(k) profit-sharing plan expense for the
years ended December 31, 1996, 1995 and 1994 amounted to $45,000, $46,000 and
$47,000, respectively.
The Savings Bank maintains an unfunded retirement plan for the specific
benefit of four retired outside directors. The directors' retirement plan
expense totaled approximately $18,000 for each of the years ended December 31,
1996, 1995 and 1994, respectively.
The Savings Bank has an Employee Stock Ownership Plan (ESOP), which
provides retirement benefits for all employees who have completed one year of
service and have attained the age of 21. The Corporation recognized expense
totaling $187,000, $93,000 and $77,000 related to the ESOP for the years ended
December 31, 1996, 1995 and 1994, respectively.
Additionally, the Corporation has a Management Recognition Plan (MRP). The
MRP purchased 50,625 shares (exchange and split adjusted) of the common stock.
All of the shares available under the plan were granted to executive officers of
the Savings Bank during 1992. Common stock granted under the MRP vests ratably
over a five-year period, commencing in May 1992. A provision of $20,000, $23,000
and $31,000 was charged to expense for the years ended December 31, 1996, 1995
and 1994, respectively.
11. EARNINGS PER SHARE AND DIVIDENDS PER SHARE
Earnings per share for 1996, 1995 and 1994 is based on net earnings divided
by 4,207,788, 4,053,980 and 4,068,000 weighted-average shares outstanding during
the respective periods. Weighted-average shares outstanding have been adjusted
for the 2.25 exchange ratio effected in the Corporation's Conversion and
Reorganization and a 3 for 2 stock split in 1994. There is no material dilutive
effect attendant to the Corporation's Stock Option Plan.
12. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks, federal funds sold and interest-bearing deposits in
other financial institutions with original maturities of less than 90 days.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value of financial instruments, both assets and
liabilities, whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value. For
financial instruments where quoted market prices are not available, fair values
are based on estimates using present value and other valuation methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair values
presented may not represent amounts that could be realized in an exchange for
certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at December 31,
1996 and 1995:
CASH AND CASH EQUIVALENTS: The carrying amounts presented in the
consolidated statement of financial condition for cash and cash equivalents
are deemed to approximate fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: For investment and
mortgage-backed securities, fair value is deemed to equal the quoted market
price.
LOANS RECEIVABLE: The loan portfolio has been segregated into categories
with similar characteristics, such as one-to-four family residential,
multi-family residential and nonresidential real estate. These loan
categories were further delineated into fixed-rate and adjustable-rate
loans. The fair values for the resultant loan categories were computed via
discounted
24
27
cash flow analysis, using current interest rates offered for loans with
similar terms to borrowers of similar credit quality or quoted market
prices, when available.
FEDERAL HOME LOAN BANK STOCK: The carrying amount presented in the
consolidated statement of financial condition is deemed to approximate fair
value.
DEPOSITS: The fair value of NOW accounts, passbook and club accounts, and
money market deposits is deemed to approximate the amount payable on demand
at December 31, 1996 and 1995. Fair values for fixed-rate certificates of
deposit have been estimated using a discounted cash flow calculation using
the interest rates currently offered for deposits of similar remaining
maturities.
FEDERAL HOME LOAN BANK ADVANCES: The fair value of Federal Home Loan Bank
advances have been estimated using discounted cash flow analysis, based on
the interest rates currently offered for advances of similar remaining
maturities.
LOAN TO EMPLOYEE STOCK OWNERSHIP PLAN (ESOP): The fair value of the ESOP
loan is deemed to approximate the historical carrying value due to the
daily repricing of the loan's interest rate.
COMMITMENTS TO EXTEND CREDIT: For fixed-rate and adjustable-rate loan
commitments, the fair value estimate considers the difference between
current levels of interest rates and committed rates. At December 31, 1996,
the difference between the fair value and notional amount of loan
commitments was not material.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at December 31:
1996 1995
-------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------
Financial assets (In thousands)
Cash and cash equivalents $ 22,610 $ 22,610 $ 4,486 $ 4,486
Investment securities 16,120 16,120 6,044 6,044
Mortgage-backed securities 41,504 41,591 29,378 29,378
Loans receivable 396,541 398,771 185,132 190,261
Federal Home Loan Bank stock 3,781 3,781 1,854 1,854
-----------------------------------------
$480,556 $482,873 $226,894 $232,023
=========================================
Financial liabilities
Deposits $408,159 $408,894 $180,697 $182,064
Advances from Federal Home Loan Bank 20,186 20,207 17,653 17,846
Loan to Employee Stock Ownership Plan -- -- 336 336
Advances by borrowers for taxes and insurance 2,005 2,005 1,063 1,063
-----------------------------------------
$430,350 $431,106 $199,749 $201,309
=========================================
14. ADVERTISING
Advertising costs are expensed when incurred.
15. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
NOTE B -- INVESTMENT AND MORTGAGE-BACKED SECURITIES
Amortized cost and estimated fair values of investment securities
designated as available for sale at December 31, 1996 and 1995 consist of the
following:
1996 1995
-----------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-----------------------------------------------
(In thousands)
U. S. Government agency obligations $ 8,502 $ 8,530 $ 5,016 $ 5,025
U. S. Government obligations 7,482 7,500 999 1,019
Corporate equity securities 64 90 -- --
----------------------------------------------
$16,048 $16,120 $ 6,015 $ 6,044
==============================================
At December 31, 1996, the market value appreciation of the Corporation's
investment securities in excess of amortized cost, totaling $72,000, was
comprised of gross unrealized gains of $87,000 and gross unrealized losses of
$15,000.
25
28
At December 31, 1995, the market value appreciation of the Corporation's
investment securities in excess of amortized cost, totaling $29,000, was
comprised of gross unrealized gains of $41,000 and gross unrealized losses of
$12,000.
The amortized cost and market value of U.S. Government and agency
obligations by contractual terms to maturity at December 31, 1996 and 1995 are
shown below:
1996 1995
-------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-------------------------------------------------
(In thousands)
Due within two years $ 8,490 $ 8,498 $ 3,006 $ 3,037
Due in two to five years 3,581 3,585 2,000 1,988
Due in five to ten years 2,987 3,021 -- --
More than ten years 926 926 1,009 1,019
-------------------------------------------------
$15,984 $16,030 $ 6,015 $ 6,044
=================================================
The amortized cost, gross unrealized gains, gross unrealized losses and
market values of mortgage-backed securities at December 31, 1996 and 1995
(including those designated as available for sale) are shown below.
1996
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------
(In thousands)
Available for sale:
Federal Home Loan Mortgage Corporation participation certificates $19,767 $ 186 $ 27 $19,926
Government National Mortgage Association participation certificates 6,028 43 9 6,062
Federal National Mortgage Association participation certificates 4,776 50 54 4,772
------------------------------------------------
Total available for sale 30,571 279 90 30,760
Held to maturity:
Federal Home Loan Mortgage Corporation participation certificates 696 -- 7 689
Government National Mortgage Association participation certificates 8,354 80 -- 8,434
Federal National Mortgage Association participation certificates 306 13 -- 319
Collateralized mortgage obligations of government agencies 1,388 1 -- 1,389
------------------------------------------------
Total held to maturity 10,744 94 7 10,831
------------------------------------------------
Total mortgage-backed securities $41,315 $ 373 $ 97 $41,591
================================================
1995
-----------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------
(In thousands)
Available for sale:
Federal Home Loan Mortgage Corporation participation certificates $14,346 $ 65 $ 115 $14,296
Government National Mortgage Association participation certificates 4,958 39 20 4,977
Federal National Mortgage Association participation certificates 8,456 46 96 8,406
Collateralized mortgage obligations of government agencies 1,732 -- 33 1,699
-----------------------------------------
Total mortgage-backed securities $29,492 $ 150 $ 264 $29,378
=========================================
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The amortized cost and market value of mortgage-backed securities at
December 31, 1996 and 1995, by contractual terms to maturity, are shown below
Expected maturities will differ from contractual maturities because borrowers
may generally prepay obligations without prepayment penalties. The Corporation
had no mortgage-backed securities designated as held to maturity at December 31,
1995.
1996 1995
---------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------------------------------------
(In thousands)
Available for sale:
Due within one year $ 1,790 $ 1,795 $ 2,109 $ 2,114
Due after one to three years 4,001 4,012 3,105 3,113
Due after three years to five years 2,445 2,465 1,577 1,585
Due after five years to ten years 7,898 7,966 3,316 3,309
Due after ten years to twenty years 9,033 9,095 8,760 8,698
Due after twenty years 5,404 5,427 10,625 10,559
-------------------------------------
30,571 30,760 29,492 29,378
Held to maturity:
Due within one year 193 194 -- --
Due after one to three years 426 429 -- --
Due after three years to five years 486 489 -- --
Due after five years to ten years 1,536 1,547 -- --
Due after ten years to twenty years 4,569 4,606 -- --
Due after twenty years 3,534 3,566 -- --
---------------------------------------
10,744 10,831 -- --
---------------------------------------
Total mortgage-backed securities $41,315 $41,591 $29,492 $29,378
=====================================
NOTE C -- LOANS RECEIVABLE
The composition of the loan portfolio at December 31, including loans held
for sale, is as follows:
1996 1995
--------------------------
(In thousands)
Residential real estate
One-to-four family residential $ 321,701 $ 142,246
Multi-family residential 25,580 18,833
Construction 11,039 3,791
Nonresidential real estate and land 33,055 20,773
Nonresidential construction 2,800 1,000
Consumer and other 7,850 1,203
-------------------------
402,025 187,846
Undisbursed portion of loans in process (4,055) (1,305)
Unamortized yield adjustments 129 (591)
Allowance for loan losses (1,558) (818)
-------------------------
$ 396,541 $ 185,132
=========================
The Savings Bank's lending efforts have historically focused on residential
and multi-family residential real estate loans, which comprised approximately
$352.6 million, or 89%, of the total loan portfolio at December 31, 1996, and
$162.2 million, or 88% of the total portfolio at December 31, 1995. Generally,
such loans have been underwritten on the basis of no more than an 80%
loan-to-value ratio, which has historically provided the Savings Bank with
adequate collateral coverage in the event of default. Nevertheless, the Savings
Bank, as with any lending institution, is subject to the risk that real estate
values could deteriorate in its primary lending area of southwestern Ohio,
thereby impairing collateral values. However, management is of the belief that
real estate values in the Savings Bank's primary lending area are presently
stable.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that the Savings Bank recognize as separate
assets, rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those
27
30
loans with servicing rights retained would allocate some of the cost of the
loans to the mortgage servicing rights. SFAS No. 122 requires that
securitization of mortgage loans be accounted for as sales of mortgage loans and
acquisitions of mortgage-backed securities. Additionally, SFAS No. 122 requires
that capitalized mortgage servicing rights and capitalized excess servicing
receivables be assessed for impairment. Impairment is measured based on fair
value. SFAS No. 122 is to be applied prospectively to fiscal years beginning
after December 15, 1995, (January 1, 1996, as to the Savings Bank) to
transactions in which an entity acquires mortgage servicing rights and to
impairment evaluations of all capitalized mortgage servicing rights and
capitalized excess servicing receivables whenever acquired. Management adopted
SFAS No. 122 as of January 1, 1996, as required, without material effect on
consolidated financial condition or results of operations.
In the normal course of business, the Savings Bank has made loans to its
directors, officers and their related business interests. Related party loans
are made on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. Loans to officers and
directors totaled approximately $985,000, $428,000 and $37,000, at December 31,
1996, 1995 and 1994, respectively. The increase in such loans during 1996 was
due primarily to loans acquired through the Merger.
NOTE D--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the year ended December
31 is as follows:
1996 1995 1994
---------------------------------
(In thousands)
Beginning balance $ 818 $ 783 $ 803
Allowance for loan losses of Circle 640 -- --
Provision for loan losses 129 71 44
Charge-off of loans (29) (36) (64)
---------------------------------
Ending balance $ 1,558 $ 818 $ 783
=================================
At December 31, 1996, the Savings Bank's allowance for loan losses was
comprised of a general loan loss allowance of $1,550,000, which is includible as
a component of regulatory risk-based capital, and a specific loan loss allowance
of $8,000.
At December 31, 1996, 1995 and 1994, the Savings Bank had loans of $1.1
million, $1.0 million and $839,000, respectively, which had been placed on
nonaccrual status due to concerns as to borrowers' ability to pay. Interest
income that would have been recognized had nonaccrual loans performed pursuant
to contractual terms totaled approximately $59,000, $12,000 and $51,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
NOTE E -- OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following at December 31:
1996 1995
-------------------
(In thousands)
Land $ 1,826 $ 718
Buildings and improvements 6,262 2,773
Furniture and equipment 3,630 1,088
Automobiles 38 24
--------------------
11,756 4,603
Less accumulated depreciation and amortization 4,385 2,075
--------------------
$ 7,371 $ 2,528
===================
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31
NOTE F -- DEPOSITS
Deposits consist of the following major classifications at December 31:
DEPOSIT TYPE AND WEIGHTED AVERAGE INTEREST RATE
1996 1995
-----------------------
(In thousands)
NOW accounts
December 31, 1996 - 1.77% $ 30,242
December 31, 1995 - 2.43% $ 10,314
Passbook and club accounts
December 31, 1996 - 2.11% 44,798
December 31, 1995 - 2.50% 15,753
Money market deposit accounts
December 31, 1996 - 3.19% 17,350
December 31, 1995 - 3.27% 12,800
-----------------------
Total demand, transaction passbook deposits 92,390 38,867
Certificates of deposit
Original maturities of:
Less than 12 months
December 31, 1996 - 5.57% 108,602
December 31, 1995 - 5.52% 21,059
12 months to 18 months
December 31, 1996 - 5.65% 109,668
December 31, 1995 - 6.14% 50,152
21 months to 33 months
December 31, 1996 - 6.07% 51,925
December 31, 1995 - 6.09% 45,716
36 months to 48 months
December 31, 1996 - 5.75% 11,996
December 31, 1995 - 5.53% 8,154
More than 48 months
December 31, 1996 - 6.49% 33,578
December 31, 1995 - 6.89% 16,749
-----------------------
Total certificates of deposit 315,769 141,830
-----------------------
Total deposits $408,159 $180,697
=======================
At December 31, 1996 and 1995, the Corporation had deposit accounts with
balances greater than $100,000 totaling $38.0 million and $16.9 million,
respectively.
Interest expense on deposits for the year ended December 31 is summarized
as follows:
1996 1995 1994
-----------------------------
(In thousands)
Passbook and money market deposit accounts $ 931 $ 849 $ 1,011
NOW accounts 280 267 190
Certificates of deposit 10,343 8,151 6,277
-----------------------------
$11,554 $ 9,267 $ 7,478
=============================
Maturities of outstanding certificates of deposit at December 31 are summarized
as follows:
1996 1995
----------------------------
(In thousands)
Less than one year $225,717 $ 87,815
One to three years 75,790 44,087
Over three years 14,262 9,928
---------------------------
$315,769 $141,830
===========================
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32
NOTE G -- ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank, collateralized at December 31,
1996 by pledges of certain residential mortgage loans totaling $30.4 million and
the Savings Bank's investment in Federal Home Loan Bank stock, are summarized as
follows:
DECEMBER 31,
1996 1995
-------------------------
(In thousands)
Due within one year $ 2,147 $ 4,168
Due after one to three years 8,405 4,566
Due after three to five years 4,851 4,907
Due after five to ten years 2,422 3,645
Due after ten to twenty years 2,361 367
-------------------------
$20,186 $17,653
=========================
Weighted-average interest rate 6.22% 6.16%
=========================
NOTE H -- LOAN TO EMPLOYEE STOCK OWNERSHIP PLAN
As discussed previously in Note A-10, the Savings Bank established an
Employee Stock Ownership Plan (the "ESOP") which initially acquired 135,000
shares (exchange and split adjusted) of common stock of the Savings Bank in the
initial common stock offering in 1992. In order to fund the acquisition of
stock, the ESOP borrowed $400,000 from an independent third-party lender,
payable over a seven year period. During 1995, the ESOP borrowed an additional
$146,000 from an independent third-party lender, payable over a seven year
period, to acquire approximately 21,950 shares (exchange and split adjusted) of
common stock. Share totals have been adjusted to give effect to a stock dividend
effected in the form of a 3-for-2 stock split and for the exchange of shares
effected in connection with the Conversion and Reorganization. During 1996, in
connection with the Corporation's common stock offering, the ESOP acquired
182,248 shares through funding from the Corporation, payable over a fifteen year
period. Additionally, the $146,000 loan was repaid in 1996 with proceeds from a
note payable to the Corporation. The sole security for the loans is the acquired
stock, and while the Savings Bank has not guaranteed the loans, future
contributions to retire the loans will be paid to the ESOP from current or
retained earnings. Accordingly, the Savings Bank has deducted the remaining
unpaid amount of the loans from the stockholders' equity and correspondingly
reflected such amount as a liability. At December 31, 1996, the ESOP held
remaining totaling 329,854 of the Corporation's common stock, with approximately
130,350 shares allocated to participants as of that date.
NOTE I -- FEDERAL INCOME TAXES
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate for the year ended December 31 as follows:
1996 1995 1994
-----------------------------
(In thousands)
Federal income taxes computed at the statutory rate $ 843 $ 929 $ 1,206
Increase (decrease) in taxes resulting from:
Amortization of goodwill 26 -- --
Other 3 (10) (30)
-----------------------------
Federal income tax provision per consolidated financial statements $ 872 $ 919 $ 1,176
=============================
30
33
The composition of the Corporation's net deferred tax liability at December
31 is as follows:
1996 1995
------------------
(In thousands)
Taxes (payable) refundable on temporary differences at statutory rate:
Deferred tax assets:
Deferred loan origination fees $ 175 $ 213
Retirement expense 388 217
General loan loss allowance 527 264
Unrealized losses on securities designated as available for sale -- 28
Valuation allowances from Circle acquisition 375 --
Other 164 46
------------------
Total deferred tax assets 1,629 768
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (533) (294)
Percentage of earnings bad debt deduction (908) (517)
Unrealized gains on securities designated as available for sale (89) --
Book vs. tax depreciation (126) --
Valuation allowances from Circle acquisition (123) --
------------------
Total deferred tax liabilities (1,779) (811)
------------------
Net deferred tax liability $ (150) $ (43)
==================
The Savings Bank was allowed a special bad debt deduction based on a
percentage of earnings, generally limited to 8% of otherwise taxable income, or
the amount of qualifying and nonqualifying loans outstanding and subject to
certain limitations based on aggregate loans and savings account balances at the
end of the year. This percentage of earnings bad debt deduction had accumulated
to approximately $14.2 million as of December 31, 1996. If the amounts that
qualify as deductions for federal income taxes are later used for purposes other
than bad debt losses, including distributions in liquidation, such distributions
will be subject to federal income taxes at the then current corporate income tax
rate. The approximate amount of unrecognized deferred tax liability relating to
the cumulative bad debt deduction is approximately $3.9 million at December 31,
1996. See Note K for additional information regarding future percentage of
earnings bad debt deductions.
NOTE J -- COMMITMENTS
The Savings Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers including commitments to extend credit. Such commitments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the statement of financial condition. The contract or
notional amounts of the commitments reflect the extent of the Savings Bank's
involvement in such financial instruments.
The Savings Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit
is represented by the contractual notional amount of those instruments. The
Savings Bank uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At December 31, 1996, the Savings Bank had total outstanding commitments of
approximately $3.2 million to originate residential one-to four-family and
multifamily real estate loans on the basis of an 80% loan to value ratio, of
which $1.3 million was comprised of adjustable rate loans at rates ranging from
6.75% to 8.50%, and $1.9 million was comprised of fixed rate loans at rates
ranging from 6.88% to 8.75%. The Savings Bank also had outstanding commitments
of approximately $1.4 million to originate nonresidential real estate loans.
Additionally, the Savings Bank had unused lines of credit under home equity
loans of approximately $5.3 million and unused collateralized lines of credit
under multi-family and nonresidential real estate of $3.4 million. In the
opinion of management, all loan commitments equaled or exceeded prevalent market
interest rates as of December 31, 1996, and such commitments have been
underwritten on the same basis as that of the existing loan portfolio.
Management believes that all commitments are able to be funded through cash flow
from operations and excess liquidity. Fees received in connection with loan
commitments have not been recognized in earnings.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Savings Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by the Savings Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral on loans may vary
but the preponderance of loans granted generally include a mortgage interest in
real estate as security.
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34
NOTE K -- STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
The Savings Bank is subject to minimum capital requirements promulgated by
the Office of Thrift Supervision (OTS). Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Savings Bank must meet specific capital guidelines that involve quantitative
measures of the Savings Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Savings Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Such minimum capital standards generally require the maintenance
of regulatory capital sufficient to meet each of three tests, hereinafter
described as the tangible capital requirement, the core capital requirement and
the risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as stockholders' equity less all
intangible assets) equal to 1.5% of adjusted total assets. The core capital
requirement provides for minimum core capital (tangible capital plus certain
forms of supervisory goodwill and other qualifying intangible assets) equal to
3.0% of adjusted total assets. An OTS proposal, if adopted in present form,
would increase the core capital requirement to a range of 4.0% - 5.0% of
adjusted total assets for substantially all savings associations. Management
anticipates no material change to the Savings Bank's excess regulatory capital
position as a result of this proposed change to the regulatory capital
requirement. The risk-based capital requirement currently provides for the
maintenance of core capital plus general loan loss allowances equal to 8.0% of
risk-weighted assets. In computing risk-weighted assets, the Savings Bank
multiplies the value of each asset on its statement of financial condition by a
defined risk-weighting factor, e.g., one-to-four family residential loans carry
a risk-weighted factor of 50%.
At December 31, 1996, management believes that the Savings Bank met all
regulatory capital requirements to which it was subject:
REGULATORY CAPITAL
---------------------------------------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL PERCENT CAPITAL PERCENT CAPITAL PERCENT
---------------------------------------------------------------
(In thousands)
Capital under generally accepted accounting principles $ 55,903 $ 55,903 $ 55,903
Nonincludable assets:
Unrealized gains on securities designated as available
for sale (154) (154) (154)
Goodwill (8,322) (8,322) (8,322)
Additional capital items:
General valuation allowances--limited -- -- 910
---------------------------------------------------------------
Regulatory capital computed 47,427 9.8 47,427 9.8 48,337 19.2
Minimum capital requirement 7,234 1.5 14,468 3.0 20,189 8.0
---------------------------------------------------------------
Regulatory capital--excess $ 40,193 8.3 $ 32,959 6.8 $ 28,148 11.2
===============================================================
At December 31, 1996, the Savings Bank met all regulatory requirements for
classification as a "well-capitalized" institution. A "well-capitalized"
institution must have risk-based capital of 10.0%, and core capital of 5.0%. The
Savings Bank's capital exceeded the minimum required amounts for classification
as a "well-capitalized" institution by $23.1 million and $23.3 million,
respectively.
Regulations of the Office of Thrift Supervision (OTS) impose limitations on
the payment of dividends and other capital distributions by savings
associations. Under such regulations, a savings association that, immediately
prior to, and on a pro forma basis after giving effect to, a proposed capital
distribution, has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital requirement is
generally permitted without OTS approval (but subsequent to 30 days prior notice
to the OTS of the planned dividend) to make capital distributions during a
calendar year in the amount of (i) up to 100% of its net earnings to date during
the year plus an amount equal to one-half of the amount by which its total
capital to assets ratio exceeded its fully phased-in capital to assets ratio at
the beginning of the year (ii) or 75% of its net earnings for the most recent
four quarters. Pursuant to such OTS dividend regulations, the Savings Bank had
the ability to pay dividends of approximately $6.9 million to the Corporation at
December 31, 1996.
The deposit accounts of the Savings Bank and of other savings associations
are insured by the FDIC through the Savings Association Insurance Fund ("SAIF").
The reserves of the SAIF were below the level required by law, because a
significant portion of the assessments paid into the fund were used to pay the
cost of prior thrift failures. The deposit accounts of commercial banks are
insured by the FDIC through the Bank Insurance Fund ("BIF"), except to the
extent such banks have acquired SAIF deposits. The reserves of the BIF met the
level required by law in May 1995. As a result of the respective reserve levels
of the funds, deposit insurance assessments paid by healthy savings associations
exceeded those paid by healthy commercial banks by approximately $.19 per $100
in deposits in 1995. In 1996, no BIF assessments were required for healthy
commercial banks except for a $2,000 minimum fee.
32
35
During 1996, legislation was enacted to recapitalize the SAIF and eliminate
the significant premium disparity that provided for a special assessment of
$.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase
SAIF reserves to the level required by law. The Savings Bank had $173.1 million
in deposits at March 31, 1995. The special assessment was finalized at $.657 per
$100 in deposits, resulting in an assessment of approximately $1.1 million, or
$749,000 after tax, which was recorded during 1996.
A component of the recapitalization plan provides for the merger of the
SAIF and BIF on January 1, 1999, assuming the elimination of the thrift charter
or of the separate federal regulation of thrifts prior to the merger of the
deposit insurance funds. Under other proposed legislation, the Savings Bank
would be regulated as a bank under federal laws which would subject it to the
more restrictive activity limits imposed on national banks. Under separate
legislation, the Savings Bank is required to recapture approximately $2.7
million of its bad debt reserve as taxable income, which represents the
post-1987 additions to the reserve, and will be unable to utilize the percentage
of earnings method to compute its reserve in the future. The Savings Bank has
provided deferred taxes for this amount and will be permitted to amortize the
recapture of its bad debt reserve over six years.
NOTE L -- STOCK OPTION PLAN
The Corporation has a Stock Option Plan that provides for the issuance of
168,750 shares of authorized, but unissued shares of common stock. The number of
shares under option have been adjusted to reflect the 3 for 2 stock split
effected during the year ended December 31, 1994, and the 2.25 for one exchange
ratio effected in the Corporation's Conversion and Reorganization.
The following summarizes stock option transactions for the years ended
December, 31, 1996, 1995 and 1994:
OPTION
NUMBER PRICE
OF SHARES PER SHARE TOTAL
----------------------------------
Outstanding at January 1, 1994 31,725 $2.96 $ 93,906
Options granted 16,875 5.04 85,050
Exercised (1,125) 5.04 (5,670)
----------------------------------
Balance at December 31, 1994 47,475 3.65 173,286
Options granted 16,875 6.67 112,556
Exercised (3,335) 4.20 (14,000)
----------------------------------
Balance at December 31, 1995 61,015 4.46 271,842
Exercised (6,750) 4.81 (32,501)
----------------------------------
Balance at December 31, 1996 54,265 $4.41 $ 239,341
==================================
At December 31, 1996, all of the stock options granted were subject to
exercise at the discretion of the grantees, subject to expiration as follows:
YEAR ENDED NUMBER OF SHARES
2002 27,000
2004 13,765
2005 13,500
------
54,265
======
On January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation cost
at the grant date based on the fair value of the award. Compensation is then
recognized over the service period, which is usually the vesting period.
Alternatively, SFAS No. 123 permits entities to continue to account for employee
stock options and similar equity instruments under Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
that continue to account for stock options using APB Opinion No. 25 are required
to make pro forma disclosures of net earnings and earnings per share, as if the
fair value-based method of accounting defined in SFAS No. 123 had been applied.
Such disclosures are not required for the Corporation since no stock options
were granted in 1996. The Corporation's employee stock option plan is accounted
for under APB Opinion No. 25.
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NOTE M -- CONDENSED FINANCIAL STATEMENTS OF FIDELITY FINANCIAL OF OHIO, INC.
The following condensed financial statements summarize the financial
position of Fidelity Financial of Ohio, Inc. as of December 31, 1996, and the
results of its operations for the period then ended.
FIDELITY FINANCIAL OF OHIO, INC.
STATEMENT OF FINANCIAL CONDITION
December 31, 1996
(In thousands)
ASSETS
Cash and due from banks $ 189
Interest-bearing deposits in other financial institutions 5,550
Investment securities available for sale at market 3,080
Loan receivable from ESOP 1,948
Investment in subsidiary 56,458
Prepaid expenses and other 205
- ---------------------------------------------------------------------------------
Total assets $67,430
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 718
Stockholders' equity
Common stock and additional paid-in capital 42,167
Retained earnings 24,540
Unrealized gains on securities designated as available for sale, net 5
- ---------------------------------------------------------------------------------
Total stockholders' equity 66,712
- ---------------------------------------------------------------------------------
Total liabilities and stockholders' equity $67,430
=================================================================================
FIDELITY FINANCIAL OF OHIO, INC.
STATEMENT OF EARNINGS
Period ended December 31, 1996
(In thousands)
Income
Interest income $ 289
Equity in earnings of subsidiary 1,443
- --------------------------------------------------------------------------------
Total income 1,732
General and administrative expenses 421
- --------------------------------------------------------------------------------
Earnings before income taxes 1,311
Federal income taxes 35
- --------------------------------------------------------------------------------
NET EARNINGS $1,276
================================================================================
NOTE N -- REORGANIZATION AND CHANGE OF CORPORATION
In 1992, Fidelity Federal Savings and Loan Association ("Fidelity")
completed its reorganization into a federally-chartered, mutual holding company
(the "Reorganization"). The Reorganization was approved by the Board of
Directors, Fidelity's members and the Office of Thrift Supervision prior to its
implementation.
In accordance with the Reorganization, Fidelity organized Fidelity Federal
Savings Bank (the "Savings Bank"), a federally-chartered stock savings bank, and
transferred all but $100,000 of its assets and all of its liabilities to the
Savings Bank in exchange for 1,012,500 shares (split adjusted) of common stock,
$.10 par value per share, and reorganized from a federally-chartered mutual
savings and loan association to a federally-chartered mutual holding company
known as Fidelity Federal Mutual Holding Company (the "Mutual Holding Company").
Concurrent with the Reorganization, the Savings Bank issued an additional
750,000 shares (split adjusted) of its common stock to certain members of the
public.
On October 10, 1995, the Boards of Directors of the Savings Bank and
the Mutual Holding Company adopted a Plan of Conversion (the "Plan") and in
October 1995, the Savings Bank incorporated Fidelity Financial of Ohio, Inc.
(the "Corporation") under Ohio law as a first-tier wholly owned subsidiary of
the Savings Bank. Pursuant to the Plan, (i) the Mutual Holding Company
converted to an interim federal stock savings institution and simultaneously
merged with and into the Savings Bank, pursuant to
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37
which the Mutual Holding Company ceased to exist and the 1,012,500
shares, or 55.9%, of the outstanding Savings Bank common stock held by the
Mutual Holding Company were canceled, and (ii) an interim savings bank
("Interim") formed as a wholly-owned subsidiary of the Corporation solely for
such purpose was merged with and into the Savings Bank. As a result of the
merger of Interim with and into the Savings Bank, the Savings Bank became a
wholly-owned subsidiary of the Corporation and the outstanding public Savings
Bank shares, which amounted to 797,880 shares, or 44.1%, of the outstanding
Savings Bank common stock at December 31, 1995, were converted into the exchange
shares pursuant to the exchange ratio of 2.25 shares to one, which resulted in
the holders of such shares owning in the aggregate approximately the same
percentage of the common stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e., the conversion stock and the exchange
shares) as the percentage of Savings Bank common stock owned by them in the
aggregate immediately prior to consummation of the conversion and
reorganization, before giving effect to (a) the payment of cash in lieu of
issuing fractional exchange shares, (b) any shares of conversion stock purchased
by the Savings Bank's stockholders in the offerings or the ESOP thereafter, and
(c) any exercise of dissenters' rights. The costs of issuing the common stock
were deducted from the sale proceeds of the offering. The offering was completed
on March 4, 1996 and resulted in capital proceeds totaling $20.4 million, after
consideration of offering expenses and shares acquired by the ESOP.
The rights of Fidelity's depositors in liquidation in the conversion to
stock form are maintained by the Savings Bank in an amount equal to the retained
earnings of the Savings Bank reflected in the statement of financial condition
used in the conversion offering circular. The liquidation account will be
maintained for the benefit of eligible savings account holders who maintained
deposit accounts in the Savings Bank after conversion.
NOTE O -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the Savings Bank's quarterly results for the
years ended December 31, 1996 and 1995. Certain amounts, as previously reported,
have been reclassified to conform to the 1996 presentation.
Three Months Ended
March 31, June 30, September 30, December 31,
-------------------------------------------------
1996: (In thousands, except per share data)
Total interest income $ 4,508 $ 4,652 $ 4,692 $ 8,886
Total interest expense 2,649 2,603 2,618 4,786
-------------------------------------------------
Net interest income 1,859 2,049 2,074 4,100
Provision for losses on loans 17 15 16 81
Other income (expense) 114 102 104 (155)
General, administrative and other expense 1,119 1,184 2,379 2,956
-------------------------------------------------
Earnings (loss) before income taxes (credits) 837 952 (217) 908
Federal income taxes (credits) 282 323 (71) 338
------------------------------------------------
Net earnings (loss) $ 555 $ 629 $ (146) $ 570
------------------------------------------------
Earnings (loss) per share $ .14 $ .16 $ (.04) $ .12
================================================
Three Months Ended
March 31, June 30, September 30, December 31,
1995: (In thousands, except per share data)
-------------------------------------------------
Total interest income $4,106 $4,199 $4,346 $4,350
Total interest expense 2,368 2,522 2,642 2,635
-------------------------------------------------
Net interest income 1,738 1,677 1,704 1,715
Provision for losses on loans 14 10 12 35
Other income 87 84 79 105
General, administrative and other expense 1,073 1,078 1,079 1,155
-------------------------------------------------
Earnings before income taxes 738 673 692 630
Federal income taxes 252 217 234 216
-------------------------------------------------
Net earnings $ 486 $ 456 $ 458 $ 414
-------------------------------------------------
Earnings per share $ .12 $ .11 $ .12 $ .10
=================================================
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DIRECTORS
JOHN R. REUSING President and Chief Executive Officer of Fidelity
Financial of Ohio, Inc., and Fidelity Federal
Savings Bank.
JOSEPH D. HUGHES Executive Vice President and Chief Lending Officer
of Fidelity Financial of Ohio, Inc., and Fidelity
Federal Savings Bank.
MICHAEL W. JORDAN General Manager of Jordan Realtors, Cincinnati,
Ohio.
DAVID A. LUECKE President and Chief Executive Officer of Riemeier
Lumber Company, Cincinnati, Ohio.
CONSTANTINE N. PAPADAKIS President of Drexel University, Philadelphia,
Pennsylvania.
THOMAS N. SPAETH Managing partner of Spaeth & Batterberry,
Cincinnati, Ohio.
PAUL D. STAUBACH Senior Vice President, Chief Financial Officer and
Secretary of Fidelity Financial of Ohio, Inc., and
Fidelity Federal Savings Bank.
ROBERT W. ZUMBIEL President of C.W. Zumbiel Company, Norwood, Ohio.
EXECUTIVE OFFICERS
JOHN R. REUSING President and Chief Executive Officer
JOSEPH D. HUGHES Executive Vice President, Chief Lending Officer
PAUL D. STAUBACH Senior Vice President, Chief Financial Officer
M. ROBIN RUHOLL-CASSADY Vice President, Retail Banking
ANITA C. GLASMEIER Vice President, Marketing
JERALD L. JONES Vice President , Security
RUTH A. MEYERS Vice President, Loan Servicing
JOHN P. OWENS Vice President, Mortgage Development and Production
DAVID R. PERSOHN Vice President, Internal Audit
DEBORAH A. PETER Vice President, Loan Operations
CAROLYN R. WATT Vice President, Controller
LOCATIONS
BLUE ASH 793-5196
4144 Hunt Road
Cincinnati, OH 45236
DELHI 451-5353
5030 Delhi Road
Cincinnati, OH 45238
GROESBECK 521-3385
8045 Colerain Avenue
Cincinnati, OH 45239
HARTWELL 821-8880
8434 Vine Street
Cincinnati, OH 45216
MADEIRA 272-4200
7136 Miami Avenue
Cincinnati, OH 45243
NORWOOD 351-6666
4555 Montgomery Rd.
Cincinnati, OH 45212
ROSS 738-1111
3777 Hamilton Cleves Rd.
Hamilton, OH 45013
SHARONVILLE 733-9300
11100 Reading Rd.
Cincinnati, OH 45241
TRI COUNTY MALL 671-0866
11700 Princeton Rd.
Cincinnati, OH 45246
WESTWOOD 481-2481
3316 Glenmore Avenue
Cincinnati, OH 45211
LOVELAND 683-1124
10640 Loveland-Madeira Road
Loveland, OH 45140
(Opening Second Quarter 1997)
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CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Fidelity Financial of Ohio, Inc.
4555 Montgomery Road
Cincinnati, OH 45212
(513) 351-6666
STOCK LISTING
The Nasdaq National Market
Symbol: FFOH
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank
Corporate Trust Services
Mail Location 1090F5
38 Fountain Square Plaza
Cincinnati, OH 45263
(513) 579-5320
(800) 837-2755
INDEPENDENT AUDITORS
Grant Thornton LLP
625 Eden Park Drive, Suite 900
Cincinnati, OH 45202-4181
SPECIAL LEGAL COUNSEL
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
ANNUAL MEETING
April 29, 1997, 2:00 P.M.
Quality Hotel Central
4747 Montgomery Road
Norwood, Ohio 45212
FORM 10-K
Fidelity Financial of Ohio, Inc. is required to file an annual report an Form
10-K for its fiscal year ended December 31, 1996 with the Securities and
Exchange Commission. Copies of this annual report and quarterly reports may be
obtained without charge by contacting:
Paul D. Staubach
Senior Vice President, Chief
Financial Officer and Secretary
Fidelity Financial of Ohio, Inc.
4555 Montgomery Road
Cincinnati, OH 45212
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