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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------------
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For
the transition period from______________ to ______________
Commission file number : 0-27868
FIDELITY FINANCIAL OF OHIO, INC.
State of Incorporation: Ohio IRS EIN: 31-1455721
4555 Montgomery Road, Cincinnati, Ohio 45212
(513) 351-6666
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date : Shares outstanding as of AUGUST 11,
1997, 5,579,419.
Page 1 of 22. Exhibit index on page 21.
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FIDELITY FINANCIAL OF OHIO, INC.
INDEX
Part I Financial Information Page
- ------ --------------------- Number
------
Financial Statements:
Consolidated Statements of Financial Condition
June 30, 1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Earnings (Unaudited)
For the Six Months and Three Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II Other Information
- ------- -----------------
Items 1 through 6 18
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FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
June 30, December 31,
1997 1996
=========== ============
ASSETS (unaudited)
Cash and due from banks $ 2,265 $ 2,121
Interest-bearing deposits in other financial institutions 12,276 20,489
----------- -----------
Cash and cash equivalents 14,541 22,610
Investment securities available for sale - at market 19,116 16,120
Mortgage-backed securities available for sale - at market 20,161 30,760
Mortgage-backed securities - at cost 14,983 10,744
Loans receivable - net 432,401 396,541
Loans held for sale - at lower of cost or market 287 --
Office premises and equipment - at depreciated cost 7,520 7,371
Federal Home Loan Bank stock - at cost 4,010 3,781
Accrued interest receivable on loans 2,243 1,950
Accrued interest receivable on mortgage-backed securities 247 310
Accrued interest receivable on investments 349 284
Prepaid expenses and other assets 534 371
Goodwill and other intangible assets, net of accumulated amortization 7,972 8,322
Prepaid federal income taxes 379 754
----------- -----------
TOTAL ASSETS $ 524,743 $ 499,918
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 430,487 $ 408,159
Advances from Federal Home Loan Bank 22,455 20,186
Advances by borrowers for taxes and insurance 1,600 2,005
Accrued interest and other liabilities 1,862 2,706
Deferred federal income taxes 434 150
----------- -----------
TOTAL LIABILITIES 456,838 433,206
----------- -----------
Preferred stock - authorized, 5,000,000 shares at $0.10 par value; none issued -- --
Common stock - authorized, 15,000,000 shares at $0.10 par value; 5,593,969
issued at June 30, 1997 and December 31, 1996 559 559
Additional paid-in capital 41,625 41,608
Retained earnings - restricted 28,036 26,311
Less shares acquired by Employee Stock Ownership Plan (ESOP) (1,860) (1,938)
Less 14,550 shares of common stock held in treasury - at cost (213) --
Less shares acquired by Management Recognition Plan (MRP) (282) --
Unrealized gains on securities designated as available for sale,
net of related tax effects 40 172
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 67,905 66,712
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 524,743 $ 499,918
=========== ===========
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FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data, unaudited)
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
========================= ============================
Interest income
Loans $ 16,252 $ 7,576 $ 8,288 $ 3,794
Mortgage-backed securities 1,455 909 680 449
Investment securities 593 310 311 217
Interest-bearing deposits and other 496 365 231 192
-------- ------- ------- -------
Total interest income 18,796 9,160 9,510 4,652
Interest expense
Deposits 10,269 4,786 5,229 2,380
Borrowings 673 466 348 223
------- ------- ------- -------
Total interest expense 10,942 5,252 5,577 2,603
------- ------- ------- -------
Net interest income 7,854 3,908 3,933 2,049
Provision for losses on loans 50 32 25 15
------- ------- ------- -------
Net interest income after provision for losses on loans 7,804 3,876 3,908 2,034
Other income
Gain on sale of investment and mortgage-backed securities 128 12 3 --
Gain on sale of loans 4 3 4 --
Gain on sale of real estate 6 -- -- --
Rental 116 77 56 38
Other operating 399 124 223 64
------- ------- ------- -------
Total other income 653 216 286 102
General, administrative and other expense
Employee compensation and benefits 2,047 1,064 995 563
Occupancy and equipment 736 356 350 176
Federal deposit insurance premium 123 207 58 104
Franchise tax 372 226 187 113
Amortization of goodwill and other intangible assets 350 -- 175 --
Other operating 1,041 450 520 228
------- ------- ------- -------
Total general, administrative and other expense 4,669 2,303 2,285 1,184
------- ------- ------- -------
Earnings before income taxes 3,788 1,789 1,909 952
Federal income taxes 1,359 605 688 323
------- ------- ------- -------
NET EARNINGS $ 2,429 $ 1,184 $ 1,221 $ 629
======= ======= ======= =======
EARNINGS PER SHARE $ 0.45 $ 0.30 $ 0.23 $ 0.16
======= ======= ======= =======
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FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands, unaudited)
1997 1996
============= =============
Cash flows from operating activities:
Net earnings for the period $ 2,429 $ 1,184
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 340 149
Amortization of premiums on investments and
mortgage-backed securities 22 29
Amortization of deferred loan origination fees (5) (113)
Amortization expense of stock benefit plans 187 23
Amortization of goodwill and other intangible assets 350 --
Amortization of purchase accounting adjustment (493) --
Gain on sale of investments and mortgage-backed securities (128) (12)
Gain on sale of mortgage loans (4) (3)
Loans disbursed for sale in the secondary market (536) (40)
Proceeds from sale of mortgage loans 253 212
Gain on sale of office premises and equipment (6) --
Federal Home Loan Bank stock dividends (136) (65)
Provision for losses on loans 50 32
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (293) (94)
Accrued interest receivable on mortgage-backed securities 63 18
Accrued interest receivable on investments (65) (128)
Prepaid expenses and other assets (163) (267)
Accrued interest and other liabilities (844) (19)
Federal income taxes 729 75
---------------- ----------------
Net cash provided by operating activities 1,750 981
Cash flows provided by (used in) investing activities:
Investment securities designated available for sale:
Purchases (9,489) (10,022)
Proceeds from sales 6,489 1,004
Principal repayments 19 36
Mortgage-backed securities designated as available for sale:
Purchases (6,426) (3,173)
Proceeds from sales 14,309 1,006
Principal repayments 2,589 3,377
Mortgage-backed securities designated as held to maturity:
Purchases (5,078) --
Principal repayments 840 --
Loans disbursements (58,992) (25,799)
Purchase of loan participations (5,038) --
Principal repayments on loans 28,402 19,244
Purchase of Federal Home Loan Bank stock (93) (28)
Proceeds from sale of office premises and equipment 135 --
Purchases and additions to office premises and equipment (622) (202)
---------------- ----------------
Net cash used in investing activities (32,955) (14,557)
---------------- ----------------
Net cash used in operating and investing activities
(subtotal carried forward) (31,205) (13,576)
---------------- ----------------
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FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(In thousands, unaudited)
1997 1996
================= ==================
Net cash used in operating and investing activities
(subtotal carried forward) $ (31,205) $ $(13,576)
Cash provided by (used in) financing activities:
Net increase in deposit accounts 22,569 3,782
Proceeds from Federal Home Loan Bank advances 9,000 --
Repayment of Federal Home Loan Bank advances (6,737) (3,891)
Proceeds from sale of common stock -- 20,434
Purchase of treasury stock (219) --
Purchase of stock for management recognition plan (292) --
Proceeds from the exercise of stock options 2 1
Dividends on common stock (782) (467)
Advances by borrowers for taxes and insurance (405) (714)
---------------- ----------------
Net cash provided by financing activities 23,136 19,145
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (8,069) 5,569
Cash and cash equivalents at beginning of period 22,610 4,486
---------------- ----------------
Cash and cash equivalents at end of period $ 14,541 $ 10,055
================ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 625 $ 530
================ ================
Interest on deposits and borrowings $ 10,901 $ 5,225
================ ================
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (173) $ (264)
================ ================
Exchange of office premises for similar assets $ -- $ 61
================ ================
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Fidelity Financial of Ohio, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
----------------------
In 1992, Fidelity Federal Savings and Loan Association ("Fidelity")
completed its reorganization into a federally chartered, mutual holding
company (the "Reorganization"). 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, $0.10 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 19, 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. ("Fidelity" or 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, $0.10 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.
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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 would merge with and into a wholly-owned subsidiary of the
Corporation, and Circle's wholly-owned subsidiary, People's Savings
Association ("People's"), would merge with and into the Savings Bank
(collectively 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 the 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 residual goodwill totaling $5.4 million, which
is being amortized over a fifteen-year term using the straight-line
method.
The unaudited financial statements were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include information
or footnotes necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with
generally accepted accounting principles. However, all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial statements have been included. Accordingly, these financial
statements should be read in conjunction with the consolidated
financial statements, and the notes thereto, included in the
Corporation's Form 10-K for the year ended December 31, 1996.The
results of operations for the three months and six months ended June
30, 1997 and 1996, are not necessarily indicative of the results which
may be expected for the entire year or any other period.
2. Effect of Recent Accounting Pronouncements
------------------------------------------
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("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 this Statement 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
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of SFAS No. 123 have no effect on its consolidated financial condition
or results of operations.
In June 1996 the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" which
established accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. The
standard is based on a consistent application of a financial components
approach that focuses on control. Under that approach, after a transfer
of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. SFAS No. 125
supersedes SFAS No. 122. SFAS No. 125 is effective for transactions
occurring after December 31, 1997. Management does not expect any
financial statement impact from adoption of SFAS No. 125.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which requires companies to present basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share, respectively. Basic earnings per share is
computed without including potential common shares, i.e., no dilutive
effect. Diluted earnings per share is computed taking into
consideration common shares outstanding and dilutive potential common
shares, including options, warrants, convertible securities and
contingent stock agreements. SFAS No. 128 is effective for periods
ending after December 15, 1997. Early application is not permitted.
Based upon the provisions of SFAS No. 128, the Corporation's basic and
diluted earnings per share for the six months ended June 30, 1997,
would have each been $0.45, and the basic and diluted earnings per
share for the six months ended June 30, 1996 would have each been
$0.30.
3. Earnings Per Share
------------------
Earnings per share for the six months and three months ended June 30,
1997 is based on approximately 5,456,683 and 5,462,501 weighted average
common and common equivalent shares outstanding, respectively.
Earnings per share for the six months and three months ended June 30,
1996 is based on approximately 3,903,000 and 3,906,000 weighted average
common and common equivalent shares outstanding, respectively.
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Fidelity Financial of Ohio, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the following pages, management presents an analysis of Fidelity's financial
condition as of June 30, 1997, and the results of operations for the six month
and three month periods ended June 30, 1997, as compared to the same periods in
1996. In addition to this historical information, the following discussion
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
Readers should be aware that all forward-looking statements are necessarily
speculative and not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Various risks and
uncertainties, including regional and national economic conditions, changes in
levels of market interest rates, credit risks of lending activities, and
competitive and regulatory factors, could affect the Corporation's financial
performance and could cause the Corporation's actual results for future periods
to differ materially from those anticipated or projected.
Discussion of Financial Condition Changes from December 31, 1996 to June 30,
1997
- -------------------------------------------------------------------------------
The Corporation's assets totaled $524.7 million at June 30, 1997, an increase of
$24.8 million, or 5.0%, from the December 31, 1996 total of $499.9 million. This
increase was primarily funded by an $22.3 million increase in deposit accounts
and an increase of $2.3 million of Federal Home Loan Bank (FHLB) advances.
Cash and cash equivalents, comprised of cash, interest-bearing deposits in other
financial institutions and federal funds sold, decreased by $8.1 million to
$14.5 million on June 30, 1997 from $22.6 million on December 31, 1996, as a
result of management's determination that such funds could be better utilized in
the mortgage lending and investing areas. Investment securities totaled $19.1
million at June 30, 1997, an increase of $3.0 million, or 18.6%, over the $16.1
million of investments at December 31, 1996. The increase was primarily due to
purchases of $5.5 million of two-year U.S. Treasury notes, $3.0 million of
Federal Farm Credit bonds and $1.0 million of FHLB bonds, which were partially
offset by the sale of $6.5 million of two-year U.S. Treasury notes. At June 30,
1997, all of the Corporation's investment securities were classified as
available for sale and Fidelity had approximately $37,000 of unrealized gains
(net of related tax effects) with respect to its investment securities
portfolio. Total mortgage-backed securities decreased $6.4 million from $41.5
million on December 31, 1996, to $35.1 million at June 30, 1997, due to the sale
of $14.1 million of fixed-rate mortgage-backed securities and repayments of
approximately $3.4 million, which were partially offset by the purchase of $11.5
million of adjustable-rate mortgage-backed securities.
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At June 30, 1997, $20.2 million of the Corporation's mortgage-backed securities
portfolio were classified as available for sale and Fidelity had approximately
$3,000 of unrealized gains (net of related tax effects) with respect to such
securities. The Savings Bank's investment in adjustable-rate and medium-term
(five years or less) fixed-rate mortgage-backed securities amounted to
approximately 90.7% of the total portfolio at June 30, 1997, as compared to
62.7% at December 31, 1996. Management's decision to invest in such a portfolio
was based on efforts to improve yields on liquid assets while reducing the
vulnerability of the Savings Bank's operations to changes in interest rates.
Loans receivable, including loans held for sale, totaled $432.7 million at June
30, 1997, as compared to $396.5 million at December 31,1996. Loans receivable
increased by $36.1 million, or 9.1%, during the six month period ended June
30,1997, primarily due to $59.0 million of loan originations and $5.0 million of
loan participations purchased, which were partially offset by $28.4 of principal
repayments and $250,000 of loan sales. At June 30, 1997, the Savings Bank's
allowance for loan losses totaled $1.6 million, an increase of $50,000 from the
level maintained at December 31, 1996. At June 30, 1997, the Savings Bank's
allowance represented approximately 0.37% of the total loan portfolio and 319.4%
of non-performing loans. At that date, the ratio of total non-performing loans
to total loans amounted to 0.10%, as compared to 0.28% at December 31,1996.
Although management of the Savings Bank believes that its allowance for loan
losses at June 30, 1997 was adequate based on facts and circumstances available
to it, there can be no assurances that additions to such allowance will not be
necessary in future periods, which could adversely affect the Corporation's
results of operations.
Deposits totaled $430.5 million at June 30, 1997, an increase of $22.3 million,
or 5.5%, over the $408.2 million of deposits at December 31, 1996. Deposit
accounts subject to daily repricing (passbook, money market deposit, NOW and
demand deposit accounts) decreased $2.0 million, or 2.1%, while certificates of
deposit accounts increased by $24.3 million, or 7.7%. A significant portion of
the increase in certificate of deposit accounts was due to increased marketing
efforts and attractive rates offered in order to increase deposit balances.
At June 30, 1997, FHLB advances totaled $22.5 million, which represented a $2.3
million, or 11.2%, increase from the $20.2 million balance at December 31, 1996.
The increase resulted primarily from management's decision to continue utilizing
advances to supplement deposits in funding new loan originations.
Stockholders' equity totaled $67.9 million at June 30, 1997, an increase of
approximately $1.2 million, or 1.8%, over the December 31, 1996 total. The
increase resulted from undistributed net earnings of approximately $1.6
million,which was partially offset by a decrease in unrealized gains on
available for sale securities of approximately $132,000, amortization of stock
benefit plan expense of approximately $78,000, the purchase of shares of common
stock for the management recognition plan of $282,000 and the purchase of shares
of common stock to be held in treasury of $213,000.
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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 Office of Thrift Supervision ("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 7.73% at June 30,
1997, as compared to 7.20% at December 31, 1996. At June 30, 1997, the Savings
Bank's "liquid" assets totaled approximately $30.9 million, which was $9.7
million in excess of the current OTS minimum requirements.
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 and prepayments
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 loan and mortgage-backed securities amortization and
maturing investment securities 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 provide 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 June 30, 1997, the Savings Bank had
$22.5 million of outstanding advances from the FHLB of Cincinnati. Additionally,
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 long-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 June 30, 1997, the total approved loan
commitments outstanding amounted to approximately $11.2 million. At the same
date, commitments under unused lines of credit secured by one- to four-family
residential property amounted to $3.4 million,
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commitments under unused lines of credit secured by multi-family and
non-residential real estate totaled $6.5 million and the unadvanced portion of
construction loans approximated $4.6 million. Certificates of deposit scheduled
to mature in one year or less at June 30, 1997, totaled $238.9 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.
As required by the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA") and regulations promulgated thereunder by the OTS, the
Savings Bank is required to maintain minimum levels of capital under three
separate standards. The Savings Bank is required to maintain regulatory capital
sufficient to meet tangible, core and risk-based capital ratios of 1.5% and 3.0%
of adjusted total assets and 8.0% of risk-weighted assets, respectively. At June
30, 1997, the Savings Bank exceeded each of its capital requirements, with
tangible, core and risk-based ratios of 9.9%, 9.9% and 19.3%, respectively.
The following table sets forth the Savings Bank's approximate regulatory capital
position, in dollars (millions) and as a percentage of applicable assets, at
June 30, 1997:
Actual Required Excess
----------------------------------------------------------
Tangible Capital $ 50.3 9.9% $ 7.6 1.5% $ 42.7 8.4%
Core Capital $ 50.3 9.9% $ 15.3 3.0% $ 35.0 6.9%
Risk-based Capital $ 51.9 19.3% $ 21.5 8.0% $ 30.4 11.3%
Comparison of Operating Results for The Six Month and Three Month Periods Ended
- -------------------------------------------------------------------------------
June 30, 1997 and 1996
- ----------------------
General
- -------
Net earnings for the six months and three months ended June 30, 1997, totaled
$2.4 million and $1.2 million, respectively, an increase of $1.2 million, or
105.2%, for the six month period and $592,000, or 94.1%, for the three month
period over the $1.2 million and $629,000 recorded for the six months and three
months ended June 30, 1996. The increase in earnings for the six month period
ended June 30, 1997, resulted from a $3.9 million increase in net interest
income and a $437,000 increase in total other income, which were partially
offset by a $2.4 million increase in general, administrative and other expense
along with an increase of $754,000 in Federal income taxes. The increase in
earnings for the three month period ended June 30, 1997, resulted from a $1.9
million increase in net interest income and a $184,000 increase in total other
income, which were partially offset by a $1.1 million increase in general,
administrative and other expense along with an increase of $365,000 in Federal
income taxes.
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Net Interest Income
- -------------------
Net interest income increased $3.9 million, or 101.0%, and $1.9 million, or
91.9%, for the six month period and the three month period ended June 30, 1997,
as compared to the same periods ended June 30, 1996. The increase in net
interest income for the six month period was primarily due to the increase in
average interest earning assets of $254.4 million, from $239.1 million for the
six months ended June 30, 1996 to $493.5 million for the six months ended June
30, 1997, which was partially offset by an increase in average interest-bearing
liabilities of $240.1 million, from $200.5 million for the six months ended June
30, 1996, to $440.6 million for the six months ended June 30, 1997. The increase
in net interest income for the three month period was primarily due to the
increase in average interest earning assets of $255.0 million, from $244.6
million for the three months ended June 30, 1996, to $499.6 million for the
three months ended June 30, 1997, which was partially offset by an increase in
average interest-bearing liabilities of $248.8 million, from $196.8 million for
the three months ended June 30, 1996 to $445.6 million for the three months
ended June 30, 1997. These increases in average balances primarily reflect the
effects of the October 11, 1996 acquisition of Circle. Increases in the interest
rate spread, which averaged 2.65% and 2.61% for the six month and three month
periods ended June 30, 1997, respectively, as compared to 2.42% and 2.32% for
the six month and three month periods ended June 30, 1996, also contributed to
the increase in net interest income.
Interest Income
- ---------------
For the six month period ended June 30, 1997, interest income on loans increased
$8.7 million, or 114.5%, compared to the same period ended June 30, 1996. This
increase was due primarily to an increase of $226.3 million in the average
balance of loans outstanding, which was partially offset by a slight decrease in
the average yield earned on the portfolio from 8.07% for the 1996 period, to
7.85% for the 1997 period. Interest income on mortgage-backed securities
increased $546,000, or 60.1%, for the six month period ended June 30, 1997, over
the comparable 1996 period, due primarily to an increase in the average balances
outstanding of $15.1 million. An increase in average yield from 6.33% for the
1996 period to 6.65% for the 1997 period also contributed to the increase in
interest income on mortgage-backed securities. Interest and dividends on
investment securities and other interest earning assets increased $414,000, or
61.3%, for the six month period ended June 30, 1997 over the comparable period
ended June 30, 1996. This increase was due primarily to an increase in the
average balances outstanding of $13.1 million. Also contributing to the increase
in interest and dividends on investment securities and other interest earning
assets was an increase in average yield from 5.96% for the 1996 period to 6.10%
for the 1997 period.
For the three month period ended June 30, 1997, interest income on loans
increased $4.5 million, or 118.5%, compared to the same period ended June 30,
1996. This increase was due primarily to an increase of $234.4 million in the
average balance of loans outstanding, which was partially offset by a slight
decrease in the average yield earned on the portfolio from 8.01% for the 1996
period, to 7.82% for the 1997 period. Interest income on mortgage-backed
securities increased
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$231,000, or 51.4%, for the three month period ended June 30, 1997, over the
comparable 1996 period, due primarily to an increase in the average balances
outstanding of $12.6 million. An increase in average yield from 6.25% for the
1996 period to 6.58% for the 1997 period also contributed to the increase in
interest income on mortgage-backed securities. Interest and dividends on
investment securities and other interest earning assets increased $133,000, or
32.5%, for the three month period ended June 30, 1997 over the comparable period
ended June 30, 1996. This increase was due primarily to an increase in the
average balances outstanding of $8.1 million. Also contributing to the increase
in interest and dividends on investment securities and other interest earning
assets was an increase in average yield from 6.19% for the 1996 period to 6.27%
for the 1997 period.
Interest Expense
- ----------------
Interest expense on deposits increased by $5.5 million, or 114.6%, for the six
months ended June 30, 1997, due to a $234.2 million increase in the average
balance of deposits outstanding, partially offset by a decrease in the average
rate paid on deposits, from 5.18% for the six months ended June 30, 1996, to
4.90% for the six months ended June 30, 1997. Interest expense on borrowings
increased by $207,000, or 44.4%, due to a $5.9 million increase in the average
balance of borrowings outstanding and an increase in the average rate paid, from
5.95% for the six months ended June 30, 1996, to 5.63% for the six months ended
June 30, 1997.
Interest expense on deposits increased by $2.8 million, or 119.7%, for the three
months ended June 30, 1997, due to a $240.9 million increase in the average
balance of deposits outstanding, partially offset by a decrease in the average
rate paid on deposits, from 5.22% for the three months ended June 30, 1996, to
4.94% for the three months ended June 30, 1997. Interest expense on borrowings
increased by $125,000, or 56.1%, due to a $7.9 million increase in the average
balance of borrowings outstanding and an increase in the average rate paid, from
6.23% for the three months ended June 30, 1996, to 6.27% for the three months
ended June 30, 1997.
Provision for Losses on Loans
- -----------------------------
Provisions for losses on loans are charged to earnings to bring the total
allowance 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 they relate to the Savings Bank's market area, and other factors
related to the collectability of the Savings Bank's loan portfolio.
The provision for loan losses totaled $50,000 and $25,000 for the six months and
three months ended June 30, 1997 and $32,000 and $15,000 for the six months and
three months ended June 30, 1996, respectively. The provision for loan losses
for the six months and three months ended June 30, 1997 and 1996 represented
additions to the Savings Bank's general allowance for loan losses primarily as a
result of growth in the loan portfolio.
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Other Income
- ------------
Total other income increased by $437,000, or 202.3%, for the six months ended
June 30, 1997 as compared to the six month period ended June 30, 1996. The
increase was primarily attributable to increases in other operating income of
$275,000, consisting primarily of service charges and fees on deposit account
resulting from the increase in number of transaction type accounts, including
income of approximately $68,000, in the 1997 period, in service charges on
demand deposit accounts which were not offered in the 1996 period. The increase
in other income was also attributable to an increase of $116,000 in gain on
sales of investment and mortgage-backed securities in the six month period ended
June 30, 1997 as compared to the six month period ended June 30, 1996. Rental
income also increased $39,000 during the 1997 period as compared to the 1996
period.
Total other income increased by $184,000, or 180.4%, for the three months ended
June 30, 1997 as compared to the three month period ended June 30, 1996. The
increase was primarily attributable to increases in other operating income of
$159,000, consisting primarily of service charges and fees on deposit account
resulting from the increase in number of transaction type accounts, in the 1997
period. The increase in other income was also attributable to an increase of
$18,000 in rental income during the 1997 period as compared to the 1996 period.
The 1997 period also included a $3,000 gain on sale of investment and
mortgage-backed securities and a $4,000 gain on sale of loans. There were no
such gains in the 1996 period.
General, Administrative and Other Expenses
- ------------------------------------------
General, administrative and other expenses for the six months ended June 30,
1997 increased by $2.4 million, or 102.7%, as compared to the same period in
1996. During the six month period ended June 30, 1997 employee compensation and
benefits increased approximately $983,000 and occupancy and equipment expense
increased approximately $380,000 over the comparable 1996 period, primarily due
to the increase in number of employees and maintenance and depreciation charges
related to the increased number of branches acquired in the merger with Circle
Financial Corporation. The 1997 six month period had a charge of $350,000 for
amortization of goodwill acquired in connection with the merger. There was no
such charge in the 1996 period. Franchise taxes increased during the 1997 period
$146,000 over the 1996 period, due to the increased net worth of the
Corporation. Other operating expenses increased during the 1997 period $591,000
over the 1996 period primarily due to increases in office supplies of
approximately $45,000, legal, accounting and other professional fees of
approximately $69,000, service and data processing charges of approximately
$154,000 and advertising of approximately $160,000.The six months ended June 30,
1997 reflected a decrease of approximately $84,000 for Federal deposit insurance
premiums, despite the $234.2 million increase in the average balances of deposit
accounts, due to the recapitalization of SAIF and the resulting reduction in
premium rates.
General, administrative and other expenses for the three months ended June 30,
1997 increased by $1.1 million, or 93.0%, as compared to the same period in
1996. During the three month
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period ended June 30, 1997 employee compensation and benefits increased
approximately $432,000, occupancy and equipment expense increased approximately
$174,000, Federal deposit insurance premiums decreased $46,000, and franchise
taxes increased $74,000 over the comparable 1996 period, as discussed above.The
1997 three month period had a charge of $175,000 for amortization of goodwill
acquired in connection with the merger. There was no such charge in the 1996
period. Other operating expenses increased during the 1997 period $292,000 over
the 1996 period primarily due to increases in office supplies of approximately
$11,000, legal, accounting and other professional fees of approximately $29,000,
service and data processing charges of approximately $55,000 and advertising of
approximately $76,000.
Federal Income Taxes
- --------------------
The provision for federal income taxes for the six month and three month periods
ended June 30, 1997 increased by $754,000, or 124.6%, and $365,000, or 113.0%,
as compared to the same periods ended June 30, 1996, due primarily to an
increase in earnings before income taxes of approximately $2.0 million, or
111.7%, and $957,000, or 100.5%, respectively. The Corporation's effective tax
rates amounted to 35.9% and 33.8% during the six months ended June 30, 1997 and
1996, respectively, and 36.0% and 33.9% during the three months ended June 30,
1997 and 1996, respectively.
Impact of Inflation and Changing Prices
- ---------------------------------------
The consolidated financial statements and related 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 changes in relative
purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Corporation's assets and
liabilities are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than does the
effect of inflation.
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Fidelity Financial of Ohio, Inc.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
N/A
Item 2 Changes in Securities
N/A
Item 3 Default upon Senior Securities
N/A
Item 4 Submission of Matters to a Vote of Security Holders
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AT THE ANNUAL MEETING HELD ON APRIL 29, 1997
1. Election of Directors
---------------------
The nominees and voting were as follows:
Nominees For Against
-------- --- -------
David A. Luecke 4,972,428 35,414
John R. Reusing 4,969,808 38,034
Robert W. Zumbiel 4,968,518 39,324
There were 586,127 non-votes.
2. Proposal to adopt the 1997 Stock Option Plan
--------------------------------------------
Voting on the proposal to adopt the 1997 Stock Option Plan was as
follows:
For Against Abstain
--- ------- -------
3,294,993 295,698 49,810
3. Proposal to adopt the 1997 Management Recognition Plan
------------------------------------------------------
and Trust
---------
Voting on the proposal to adopt the 1997 Management Recognition
Plan and Trust was as follows:
For Against Abstain
--- ------- -------
3,304,104 318,766 65,508
4. Ratification of independent auditors
------------------------------------
Voting on the proposal to ratify the appointment of Grant Thornton
LLP as the Company's independent auditors for fiscal 1997 was as
follows:
For Against Abstain
--- ------- -------
4,912,114 74,688 21,040
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5. Proposal to adjourn the Annual Meeting, if necessary,
-----------------------------------------------------
to solicit additional proxies
------------------------------
Voting on the proposal to adjourn the Annual Meeting, if necessary,
to solicit additional proxies was as follows:
For Against Abstain
--- ------- -------
4,671,729 281,034 55,079
Item 5 Other Information
N/A
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. 27. Financial Data Schedule
(b) Reports on Form 8-K
N/A
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIDELITY FINANCIAL OF OHIO, INC.
August 11, 1997 By: /s/ John R. Reusing
- ------------------------ ---------------------------------------
Date John R. Reusing,
President and Chief Executive Officer
August 11, 1997 By: /s/ Paul D. Staubach
- ------------------------ ---------------------------------------
Date Paul D. Staubach,
Senior Vice President and
Chief Financial Officer
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Fidelity Financial of Ohio, Inc.
EXHIBIT INDEX
Page
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Exhibit 27. Financial Data Schedule 22
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