-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fm4LMnP3bpkv9UsruAJZJDYxydc6DVBtpImZkYamLKK5jX5vzyZT5ENt8GGnKQq9 xDFF3niUqVZIN6VqNnhdtA== 0000950168-96-002131.txt : 19961115 0000950168-96-002131.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950168-96-002131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY FINANCIAL OF OHIO INC CENTRAL INDEX KEY: 0001003468 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 311455721 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27868 FILM NUMBER: 96661439 BUSINESS ADDRESS: STREET 1: 4555 MONTGOMERY RD CITY: CINCINNATI STATE: OH ZIP: 45212 BUSINESS PHONE: 5133516666 MAIL ADDRESS: STREET 1: 4555 MONTGOMERY ROAD CITY: CINCINNATI STATE: OH ZIP: 45212 10-Q 1 FIDELITY FINANCIAL OF OHIO, INC. 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________ Commission File Number 0-27868 FIDELITY FINANCIAL OF OHIO, INC. (Exact name of registrant as specified in its charter) Ohio 31-1455721 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4555 Montgomery Road Cincinnati, Ohio 45212 - ------------------------------------ -------- (Address of principal (Zip Code) executive office) Registrant's telephone number, including area code: (513) 351-6666 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 As of November 8, 1996, the latest practicable date, 4,076,964 shares of the registrant's common stock, $.10 par value, were issued and outstanding. Page 1 of 20 pages Fidelity Financial of Ohio, Inc. INDEX Page PART I - FINANCIAL INFORMATION Consolidated Statements of Financial Condition 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II - OTHER INFORMATION 19 SIGNATURES 20 2 FIDELITY FINANCIAL OF OHIO, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data)
SEPTEMBER 30, DECEMBER 31, ASSETS 1996 1995 Cash and due from banks $ 2,694 $ 1,702 Interest-bearing deposits in other financial institutions 10,862 2,784 -------- --------- Cash and cash equivalents 13,556 4,486 Investment securities available for sale - at market 14,403 6,044 Mortgage-backed securities available for sale - at market 26,738 29,378 Loans receivable - net 193,429 184,486 Loans held for sale - at lower of cost or market 367 646 Office premises and equipment - at depreciated cost 2,617 2,528 Federal Home Loan Bank stock - at cost 1,982 1,854 Accrued interest receivable on loans 1,122 1,023 Accrued interest receivable on mortgage-backed securities 195 222 Accrued interest receivable on investments 241 63 Prepaid expenses and other assets 762 382 Prepaid federal income taxes 435 25 Deferred federal income taxes 23 - ----------- --------- TOTAL ASSETS $255,870 $231,137 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $188,280 $180,697 Advances from the Federal Home Loan Bank 13,477 17,653 Loan to Employee Stock Ownership Plan 158 336 Advances by borrowers for taxes and insurance 666 1,063 Accrued interest and other liabilities 2,503 1,232 Deferred federal income taxes - 43 --------- ----------- TOTAL LIABILITIES 205,084 201,024 Stockholders' equity Preferred stock - authorized, 500,000 shares at $.10 par value; none issued - - Common stock - authorized, 7,000,000 shares at $.10 par value; 4,076,964 and 1,810,380 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 408 181 Additional paid-in capital 26,808 4,848 Retained earnings - substantially restricted 26,008 25,497 Less shares acquired by Employee Stock Ownership Plan (2,097) (336) Less shares acquired by Management Recognition Plan (7) (20) Less unrealized losses on securities designated as available for sale, net of related tax effects (334) (57) ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 50,786 30,113 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $255,870 $231,137 ======= =======
3 FIDELITY FINANCIAL OF OHIO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 Interest income Loans $11,435 $10,957 $3,859 $3,762 Mortgage-backed securities 1,340 1,255 431 430 Investment securities 555 222 245 77 Interest-bearing deposits and other 522 217 157 77 -------- -------- ------ ------- Total interest income 13,852 12,651 4,692 4,346 Interest expense Deposits 7,190 6,875 2,404 2,394 Borrowings 680 657 214 248 -------- -------- ------ ------ Total interest expense 7,870 7,532 2,618 2,642 ------- ------- ----- ----- Net interest income 5,982 5,119 2,074 1,704 Provision for losses on loans 48 36 16 12 --------- --------- ------- ------- Net interest income after provision for losses on loans 5,934 5,083 2,058 1,692 Other income Gain (loss) on sale of investment and mortgage-backed securities 2 (21) (10) (21) Gain on sale of loans 3 3 - 3 Loss on sale of real estate acquired through foreclosure - (5) - - Rental 124 101 47 36 Other operating 191 172 67 61 -------- -------- ------- ------- Total other income 320 250 104 79 General, administrative and other expense Employee compensation and benefits 1,658 1,577 594 522 Occupancy and equipment 546 449 190 148 Federal deposit insurance premiums 1,446 296 1,239 101 Franchise taxes 339 321 113 104 Other operating 693 587 243 204 -------- -------- ------ ------ Total general, administrative and other expense 4,682 3,230 2,379 1,079 ------- ------- ----- ----- Earnings (loss) before income taxes (credits) 1,572 2,103 (217) 692 Federal income taxes (credits) Current 455 590 (59) 199 Deferred 79 113 (12) 35 --------- -------- ------- ------- Total federal income taxes (credits) 534 703 (71) 234 -------- -------- ------- ------ NET EARNINGS (LOSS) $ 1,038 $ 1,400 $ (146) $ 458 ======= ======= ====== ====== EARNINGS (LOSS) PER SHARE $.26 $.34 $(.04) $.11 === === ==== ===
4 FIDELITY FINANCIAL OF OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, (In thousands)
1996 1995 Cash flows from operating activities: Net earnings for the period $ 1,038 $ 1,400 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 227 196 Amortization of premiums on investments and mortgage-backed securities 38 15 Amortization of deferred loan origination fees (144) (176) Amortization expense of employee benefit plans 117 64 (Gain) loss on sale of investment and mortgage-backed securities (2) 21 Gain on sale of mortgage loans (3) (3) Loans disbursed for sale in the secondary market (71) (1,382) Proceeds from sale of mortgage loans 353 306 Federal Home Loan Bank stock dividends (100) (88) Provision for losses on loans 48 36 Loss on sale of real estate acquired through foreclosure - 5 Increase (decrease) in cash due to changes in: Accrued interest receivable on loans (99) (22) Accrued interest receivable on mortgage-backed securities 27 (25) Accrued interest receivable on investments (178) (54) Prepaid expenses and other assets (380) (301) Accrued interest and other liabilities 1,271 100 Federal income taxes Current (410) 39 Deferred 79 113 --------- -------- Net cash provided by operating activities 1,811 244 Cash flows provided by (used in) investing activities: Proceeds from sale of investment securities designated as available for sale 2,994 979 Proceeds from sale of mortgage-backed securities designated as available for sale 1,006 - Purchase of investment securities designated as available for sale (11,521) (1,510) Purchase of Federal Home Loan Bank stock (28) (38) Purchase of mortgage-backed securities designated as available for sale (3,173) (2,048) Purchase of mortgage-backed securities designated as held to maturity - (157) Principal repayments on investment securities designated as available for sale 66 - Principal repayments on mortgage-backed securities designated as available for sale 4,449 1,117 Principal repayments on mortgage-backed securities designated as held to maturity - 1,725 Loan disbursements (36,972) (26,503) Purchase of loan participations - (2,909) Principal repayments on loans 28,125 21,580 Purchases and additions to office premises and equipment (316) (140) Proceeds from sale of real estate acquired through foreclosure - 91 Additions to real estate acquired through foreclosure - (11) ------- --------- Net cash used in investing activities (15,370) (7,824) ------ ------- Net cash used in operating and investing activities (subtotal carried forward) (13,559) (7,580) ------ -------
5 FIDELITY FINANCIAL OF OHIO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the nine months ended September 30, (In thousands)
1996 1995 Net cash used in operating and investing activities (subtotal brought forward) $(13,559) $(7,580) Cash provided by (used in) financing activities: Net increase in deposit accounts 7,583 5,627 Proceeds from Federal Home Loan Bank advances - 7,000 Repayment of Federal Home Loan Bank advances (4,176) (3,156) Repayment of loan to ESOP (178) (48) Proceeds from loan to ESOP - 147 Purchase of shares for ESOP - (147) Proceeds from sale of common stock 20,434 - Proceeds from the exercise of stock options 24 14 Dividends on common stock (661) (401) Advances by borrowers for taxes and insurance (397) (337) --------- ------- Net cash provided by financing activities 22,629 8,699 ------- ------ Net increase in cash and cash equivalents 9,070 1,119 Cash and cash equivalents at beginning of period 4,486 3,597 -------- ------ Cash and cash equivalents at end of period $ 13,556 $ 4,716 ======= ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Federal income taxes $ 835 $ 551 ========= ======= Interest on deposits and borrowings $ 7,851 $ 7,480 ======== ====== Supplemental disclosure of noncash investing activities: Unrealized losses on securities designated as available for sale, net of related tax effects $ (277) $ (64) ========= ======== Exchange of office premises and equipment for similar assets $ 61 $ - ========== ========
6 FIDELITY FINANCIAL OF OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation On May 11, 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 Savings Bank 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 shares were converted into the exchange shares of the Corporation pursuant to an exchange ratio, 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 by them 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 $22.4 million. On May 1, 1996, the Corporation filed a Form 8-K with the Securities and Exchange Commission reporting under Item 5 execution of an Agreement of Merger with Circle Financial, dated as of April 29, 1996, pursuant to which Circle Financial will merge with and into the Corporation. On June 24, 1996, the Corporation amended its Form 8-K to report the execution of an amended and restated Agreement of Merger with Circle Financial, dated as of June 13, 1996. On October 11, 1996, Circle Financial merged with and into the Corporation. 7 FIDELITY FINANCIAL OF OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. Basis of Presentation (continued) 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 financial statements have been included. The results of operations for the nine and three months ended September 30, 1996 and 1995 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. 2. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Fidelity Financial of Ohio, Inc. (the "Corporation") and Fidelity Federal Savings Bank (the "Savings Bank"). All significant intercompany items have been eliminated. 3. Effect of Recent Accounting Pronouncements In May 1995, the Financial Accounting Standards Board (the "FASB") adopted Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights". SFAS No. 122 requires that the Corporation recognize as separate assets rights to service mortgage loans for others, regardless of how those servicing rights were 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 also requires that an enterprise allocate the cost of purchasing or originating the mortgage loans between the mortgage servicing rights and the loans when mortgage loans are securitized, if it is practicable to estimate the fair value of mortgage servicing rights. Additionally, SFAS No. 122 requires that capitalized mortgage servicing rights and capitalized excess servicing receivable be assessed for impairment. Impairment would be 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 Corporation), 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. Retroactive application would be prohibited. Management adopted SFAS No. 122 as of January 1, 1996, as required, without a material effect on the Corporation's 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 8 FIDELITY FINANCIAL OF OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Effect of Recent Accounting Pronouncements (continued) 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, 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, 1996, 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. 9 FIDELITY FINANCIAL OF OHIO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Earnings Per Share Earnings per share for the nine and three months ended September 30, 1996 is based on approximately 3,904,000 and 3,905,000 weighted averaged shares outstanding, respectively. Earnings per share for the nine and three months ended September 30, 1995 is based on approximately 4,076,000 and 4,072,000 weighted average shares outstanding, respectively. 5. Recent Legislative Changes The deposit accounts of the Savings Bank and of other savings associations are insured by the FDIC in the Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF are below the level required by law, because a significant portion of the assessments paid into the fund are used to pay the cost of prior thrift failures. The deposit accounts of commercial banks are insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the extent such banks have acquired SAIF deposits. Both SAIF and BIF are required by law to attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The reserves of the BIF met the level required by law in May 1995 in contrast to the SAIF. 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 have been required for healthy commercial banks except for a $2,000 minimum fee. A continuation of this premium disparity could have a negative competitive impact on the Savings Bank and other institutions with SAIF deposits. Congress recently enacted legislation to recapitalize the SAIF and eliminate the significant premium disparity. This legislation provides for a special assessment of approximately $.657 per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF reserves to the level required by law. A component of the recapitalization plan provides for the merger of the SAIF and BIF on January 1, 1999. However, the SAIF recapitalization legislation currently provides for an elimination of the thrift charter or of the separate federal regulation of thrifts prior to the merger of the deposit insurance funds. 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. The Savings Bank had an assessment base of $172.0 million at March 31, 1995. Consequently, as a result of the special assessment of $.657 per $100 in deposits, the Savings Bank will be required to pay an aggregate assessment of $1.1 million ($749,000 after tax), effective November 27, 1996. Beginning January 1, 1997, the Savings Bank's deposit insurance premium will decrease from $.23 per $100 in deposits to approximately $.06 per $100 in deposits. Based upon the Savings Bank's total deposits at September 30, 1996, the annual deposit insurance expense will decrease by approximately $300,000. 10 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of Financial Condition Changes from December 31, 1995 to September 30, 1996 At September 30, 1996, the Corporation's assets totaled $255.9 million, as compared to $231.1 million at December 31, 1995, an increase of $24.7 million, or approximately 10.7%. The current period's increase was primarily funded by a $20.7 million increase in stockholders' equity, due to the net proceeds raised in the Conversion and Reorganization, and a $7.6 million increase in deposits, which were partially offset by a $4.2 million decrease in Federal Home Loan Bank (FHLB) advances. At September 30, 1996, the Corporation's liquid assets (cash, interest-bearing deposits in other financial institutions, investment securities and qualifying mortgage-backed securities) totaled $29.8 million, as compared to $13.0 million at December 31, 1995. The increase in liquid assets resulted primarily from the net proceeds raised in the Corporation's common stock offering which was completed on March 4, 1996. The Savings Bank's regulatory liquidity at September 30, 1996, totaled 11.2%, or $11.9 million in excess of the minimum regulatory requirement. Investment securities totaled $14.4 million at September 30, 1996, an increase of $8.4 million, or 138.3%, over the $6.0 million of investments at December 31, 1995. The increase was primarily due to the purchase of $11.5 million of investment securities, which consisted of $5.5 million of two year term U.S. Treasury notes and $6.0 million of U.S. Government agency obligations with maturities ranging from two to five years. The increase was partially offset by the sale of $3.0 million of investment securities. At September 30, 1996, all of the Corporation's investment securities were classified as available for sale and the Corporation had $45,000 of unrealized losses (net of related tax effects) with respect to its investment securities portfolio which was deducted from the Corporation's stockholders' equity as of such date. Mortgage-backed securities totaled $26.7 million at September 30, 1996, which represents a $2.6 million decrease from the balance at December 31, 1995. The decrease was primarily due to $4.4 million in principal repayments, $1.0 million in sales of mortgage-backed securities and a $323,000 increase in unrealized losses on mortgage-backed securities classified as available for sale, which were partially offset by purchases of $3.2 million. At September 30, 1996, the Corporation's investment in adjustable-rate and medium-term (five years or less) fixed-rate mortgage-backed securities amounted to approximately 95.5% of the total portfolio. Management's decision to acquire such a portfolio was based on efforts to improve yields on liquid assets while reducing the vulnerability of the Corporation's operations to changes in market interest rates. At September 30, 1996, all of the Corporation's mortgage-backed securities portfolio was classified as available for sale and the Corporation had $289,000 of unrealized losses (net of related tax effects) with respect to such securities which was deducted from the Corporation's stockholders' equity as of such date. 11 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Discussion of Financial Condition Changes from December 31, 1995 to September 30, 1996 (continued) Loans receivable (including loans held for sale) amounted to $193.8 million at September 30, 1996, as compared to $185.1 million at December 31, 1995. Loans receivable increased by $8.7 million, or 4.7%, during the nine months ended September 30, 1996, primarily due to $37.0 million of loan originations, which were partially offset by $28.1 million of loan repayments and $350,000 of loan sales. Although historically the Corporation has acted as a portfolio lender by only originating loans that management believes the Corporation can profitably retain in its portfolio, at September 30, 1996, the Corporation had $367,000 of loans classified as held for sale. At September 30, 1996, the Corporation's allowance for loan losses totaled $843,000, an increase of $25,000 over the level maintained at December 31, 1995. At September 30, 1996, the Corporation's allowance represented approximately .42% of the total loan portfolio (including loans classified as held for sale) and 77.6% of total non-performing loans. At that date, the ratio of total non-performing loans to total loans (including loans classified as held for sale) amounted to .55%, as compared to .54% at December 31, 1995. Although management of the Corporation believes that its allowance for loan losses at September 30, 1996, 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 $188.3 million at September 30, 1996, an increase of $7.6 million, or 4.2%, over the $180.7 million of deposits at December 31, 1995. The overall deposit growth was limited due to $3.3 million of existing accounts being utilized to purchase the Corporation's common stock in the Conversion and Reorganization. Deposit accounts subject to daily repricing (passbook, money market deposit and NOW accounts) decreased by $2.2 million, while certificates of deposit increased by $9.8 million. At September 30, 1996, FHLB advances totaled $13.5 million, which represented a $4.2 million, or 23.7%, decrease from the $17.7 million balance at December 31, 1995. The decrease resulted primarily from management's decision to repay certain short-term advances, utilizing funds received in the common stock offering. Stockholders' equity totaled $50.8 million at September 30, 1996, an increase of $20.7 million, or 68.7%, over the December 31, 1995 total. The increase resulted primarily from the $20.4 million in net proceeds from the common stock offering (after consideration of shares acquired by the ESOP) and undistributed net earnings of $377,000. 12 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 General Net earnings for the nine months ended September 30, 1996, totaled $1.0 million, or $.26 per share, as compared to $1.4 million, or $.34 per share, for the nine months ended September 30, 1995, a decline of $362,000, or 25.9%. The decline in earnings resulted primarily from a $1.5 million increase in general, administrative and other expense ($1.1 million of which was due to the one-time special assessment discussed in greater detail below) and a $12,000 increase in the provision for losses on loans, which were partially offset by an $863,000 increase in net interest income, a $70,000 increase in other income and a $169,000 decrease in the provision for federal income taxes. Absent the non-recurring special assessment, net earnings for the nine months ended September 30, 1996 would have been $1.8 million, or $.45 per share, an increase of $387,000, or 27.7%, over the comparable period in 1995. The Corporation recorded a net loss of $146,000 for the quarter ended September 30, 1996, as compared to net earnings totaling $458,000 for the same period in 1995, a decline of $604,000, or 131.9%. This decline resulted primarily from an increase in general, administrative and other expense of $1.3 million ($1.1 million of which was due to the one-time special assessment discussed in greater detail below) and a $4,000 increase in the provision for losses on loans, which were partially offset by a $370,000 increase in net interest income, a $25,000 increase in other income and a $305,000 decrease in the provision for federal income taxes. Absent the non-recurring special assessment, net earnings for the three months ended September 30, 1996 would have been $603,000, or $.15 per share, an increase of $145,000, or 31.7%, over the comparable period in 1995. Net Interest Income Interest income on loans for the nine months ended September 30, 1996 increased by $478,000, or 4.4%, due primarily to a $10.7 million increase in the average balance of loans outstanding, which was partially offset by a decrease in the weighted-average yield earned on the loan portfolio, from 8.17% during the 1995 period, to 8.04% during the 1996 period. Interest income on mortgage-backed securities increased by $85,000, or 6.8%, due to an increase in the weighted-average yield from 6.22% during the nine months ended September 30, 1995, to 6.28% during the nine months ended September 30, 1996, coupled with a $1.5 million increase in the average balance outstanding. Interest income on investment securities and other interest-earning assets increased by $638,000, or 145.3%, due primarily to a $14.2 million increase in the average balance outstanding during the nine months ended September 30, 1996, and to a lesser extent an increase in the weighted-average yield, from 5.91% during the 1995 period, to 5.95% during the 1996 period. Interest expense on deposits increased by $315,000, or 4.6%, during the nine months ended September 30, 1996, due to a $9.5 million increase in the average balance of deposits outstanding. Interest expense on borrowings increased by $23,000, or 3.5%, during the nine months ended September 30, 1996, due to an $846,000 increase in the average balance of borrowings outstanding, which was partially offset by a decrease in the weighted-average rate paid, from 6.39% for the nine months ended September 30, 1995, to 6.23% for the nine months ended September 30, 1996. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $863,000, or 16.9%, during the nine months ended September 30, 1996, as compared to the nine months ended September 30, 1995. The net interest margin increased from 3.16% to 3.29% during the nine months ended September 30, 1996, as compared to the nine months ended September 30, 1995. 13 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 (continued) Net Interest Income (continued) Interest income on loans for the three months ended September 30, 1996 increased by $97,000, or 2.6%, due primarily to an $11.3 million increase in the average balance of loans outstanding, which was partially offset by a decrease in the weighted-average yield earned on the loan portfolio, from 8.27% during the 1995 quarter, to 7.98% during the 1996 quarter. Interest income on mortgage-backed securities increased $1,000, due to a $1.2 million increase in the average balance outstanding, which was partially offset by a decrease in the weighted-average yield earned on the mortgage-backed, from 6.47% during the 1995 quarter to 6.21% during the 1996 quarter. Interest income on investment securities and other interest-earning assets increased by $248,000, or 161.0%, due primarily to a $16.7 million increase in the average balance outstanding during the quarter ended September 30, 1996. Interest expense on deposits increased by $10,000, or .4%, during the three months ended September 30, 1996, due to an $8.4 million increase in the average balance of deposits outstanding, which was partially offset by a decrease in the weighted-average rate paid on deposits, from 5.40% for the quarter September 30, 1995, to 5.18% for the quarter September 30, 1996. Interest expense on borrowings decreased by $34,000, or 13.7%, during the quarter ended September 30, 1996, due to a $1.7 million decrease in the average balance of borrowings outstanding coupled with a decrease in the weighted-average rate paid, from 6.44% for the quarter September 30, 1995, to 6.26% for the quarter September 30, 1996. As a result of the foregoing changes in interest income and interest expense, net interest income increased by $370,000, or 21.7%, during the quarter ended September 30, 1996 as compared to the quarter ended September 30, 1995. The net interest margin increased from 3.11% to 3.34% during the quarter ended September 30, 1996, as compared to the quarter ended September 30, 1995. Provision for Losses on Loans 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 Corporation, the status of past due principal and interest payments, general economic conditions, particularly as they relate to the Corporation's market area, and other factors related to the collectibility of the Corporation's loan portfolio. The provision for loan losses totaled $48,000 and $36,000 for the nine months ended September 30, 1996 and 1995, respectively. During the nine months ended September 30, 1996 and 1995, $23,000 and $36,000, respectively, of single-family residential loans were charged-off against the Corporation's allowance. The provision for loan losses for each of the nine month periods ended September 30, 1996 and 1995 represented additions to the Corporation's general allowance. The provision for loan losses totaled $16,000 and $12,000 for the three months ended September 30, 1996 and 1995, respectively. The provision for loan losses for the each of three month periods ended September 30, 1996 and 1995 represented additions to the Corporation's general allowance. 14 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 (continued) Other Income Total other income increased by $70,000, or 28.0%, for the nine months ended September 30, 1996, as compared to the nine months ended September 30, 1995. The increase was primarily attributable to a $23,000 decrease in loss on sale of investment and mortgage-backed securities, a $23,000 increase in rental income and a $19,000, or 11.0% increase in other operating income. The increase in other operating income was due primarily to additional fee income on checking accounts. Total other income increased by $25,000, or 31.6%, for the three months ended September 30, 1996 as compared to the three months ended September 30, 1995. The increase was primarily attributable to an $11,000 decrease in loss on sale of investment and mortgage-backed securities, a $9,000 increase in rental income and a $6,000, or 9.8%, increase in other operating income, primarily attributable to additional fee income on checking accounts. General, Administrative and Other Expense General, administrative and other expense totaled $4.7 million for the nine months ended September 30, 1996, an increase of $1.5 million, or 45.0%, over the comparable period in 1995. The increase resulted primarily from an $81,000, or 5.1%, increase in employee compensation and benefits, a $97,000, or 21.6%, increase in occupancy and equipment expense, a $1.2 million increase in federal deposit insurance premiums and a $106,000, or 18.1%, increase in other operating expenses. The increase in federal deposit insurance premiums reflects the special SAIF recapitalization assessment of .657% for every $100 of deposits held as of March 31, 1995, which resulted in a charge of $1.1 million, or $749,000 after tax. Beginning January 1, 1997, the Savings Bank's deposit insurance premium will decrease from $.23 per $100 in deposits to approximately $.06 per $100 in deposits. Based upon the Savings Bank's deposits at September 30, 1996, the annual deposit insurance expense will decrease by approximately $300,000. The increase in employee compensation and benefits resulted primarily from normal merit increases and the increase in occupancy and equipment generally reflects increases in depreciation and repair costs in connection with improvements to several branch office locations. The increase in other operating expense resulted primarily from increased costs of public reporting, as well as increases in advertising and charitable contributions expense. General, administrative and other expense totaled $2.4 million for the three months ended September 30, 1996, an increase of $1.3 million, or 120.5%, over the 1995 quarter. The increase resulted primarily from a $72,000, or 13.8%, increase in employee compensation and benefits, a $42,000, or 28.4%, increase in occupancy and equipment, a $1.1 million increase in federal deposit insurance premiums and a $39,000, or 19.1%, increase in other operating expenses, as discussed above. Federal Income Taxes The provision for federal income taxes totaled $534,000 for the nine months ended September 30, 1996, a $169,000, or 24.0%, decrease from the comparable period in 1995. The decrease resulted primarily from a $531,000, or 25.2%, decrease in earnings before taxes year-to-year. The Corporation's effective tax rates amounted to 34.0% and 33.4% for the nine month periods ended September 30, 1996 and 1995, respectively. 15 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 (continued) Federal Income Taxes (continued) The Corporation recognized a credit for federal income taxes of $71,000 during the three months ended September 30, 1996, as compared to a $234,000 provision for federal income taxes during the 1995 quarter. The decrease resulted primarily from a $909,000 decrease in earnings before taxes. The Corporation's effective tax rates amounted to 32.7% and 33.8% for the three month periods ended September 30, 1996 and 1995, 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, totaled 11.2% at September 30, 1996, as compared to 7.2% at December 31, 1995. At September 30, 1996, the Savings Bank's "liquid" assets totaled approximately $21.5 million, which exceeded the current OTS minimum requirement by approximately $11.9 million. The increase in the Savings Bank's liquidity was primarily due to proceeds from the aforementioned stock offering. 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 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 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 September 30, 1996, the Savings Bank had $13.5 million of outstanding advances from the FHLB of Cincinnati. Furthermore, the Savings Bank has access to the Federal Reserve Bank discount window. 16 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 (continued) Liquidity and Capital Resources (continued) 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 September 30, 1996, the total approved loan commitments outstanding amounted to $1.8 million. At the same date, commitments under unused lines of credit amounted to $3.0 million and the unadvanced portion of construction loans approximated $2.4 million. Certificates of deposit scheduled to mature in one year or less at September 30, 1996 totaled $105.1 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. Regulatory Capital Requirements 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 1.50% and 3.00% of adjusted total assets, and 8.00% of risk-weighted assets, respectively. At September 30, 1996, the Savings Bank exceeded each of its capital requirements, with tangible, core and risk-based capital ratios of 16.3%, 16.3% and 31.7%, respectively. The following table sets forth the Savings Bank's compliance with applicable regulatory capital requirements at September 30, 1996:
TANGIBLE CORE RISK-BASED CAPITAL CAPITAL CAPITAL (Dollars in thousands) Actual regulatory capital $40,364 $40,364 $41,199 Amount currently required 3,709 7,418 10,400 ------- ------- ------ Regulatory capital in excess of requirement $36,655 $32,946 $30,799 ====== ====== ====== Actual regulatory capital as a percentage 16.3% 16.3% 31.7% Percentage currently required 1.5 3.0 8.0 ----- ----- ----- Regulatory capital in excess of requirement 14.8% 13.3% 23.7% ==== ==== ====
17 FIDELITY FINANCIAL OF OHIO, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Comparison of Operating Results for the Nine and Three Month Periods Ended September 30, 1996 and 1995 (continued) Regulatory Capital Requirements (continued) The OTS adopted an amendment to the regulatory risk-based capital requirement to include an interest rate risk component. The amount of the interest rate risk component included in the risk-based capital requirement is based on an individual institution's interest rate risk position. By virtue of the fact that the Savings Bank has less than $300 million in assets, the Savings Bank will not be required to add an interest rate risk component to its risk-based capital requirement. Reporting under the revised risk-based capital requirement will become effective upon attaining $300 million in asset size. Additionally, 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. 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. 18 Fidelity Financial of Ohio, Inc. PART II ITEM 1. Legal Proceedings Not applicable ITEM 2. Changes in Securities None ITEM 3. Defaults Upon Senior Securities Not applicable ITEM 4. Submission of Matters to a Vote of Security Holders A Special Meeting of Shareholders of Fidelity Financial of Ohio, Inc. was held on September 10, 1996 (as adjourned to September 17, 1996). At the Special Meeting, shareholders approved an Amended and Restated Agreement of Merger with Circle Financial Corporation, dated June 13, 1996, pursuant to which Circle Financial merged with and into the Corporation. In addition, the shareholders approved a proposal to amend the Corporation's Articles of Incorporation in order to increase the authorized number of shares of common stock to 15,000,000 and preferred stock to 5,000,000.
SPECIAL MEETING RESULTS FOR AGAINST ABSTAIN (a) Agreement of Merger 1,980,672 791,135 59,918 (b) Amendment of Articles of Incorporation 2,098,756 780,290 63,155
ITEM 5. Other Materially Important Events None ITEM 6. Exhibits and Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: ___________________ By:____________________________________ John R. Reusing President and Chief Executive Officer Date: ___________________ By:_____________________________________ Paul D. Staubach Senior Vice President and Chief Financial Officer 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: ___________________ By: /s/John R. Reusing John R. Reusing President and Chief Executive Officer Date: ___________________ By: /s/Paul D. Staubach Paul D. Staubach Senior Vice President and Chief Financial Officer 20 EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 2,694 10,862 0 0 41,141 0 0 193,796 843 255,870 188,280 0 3,169 13,635 0 0 408 50,378 255,870 11,435 1,895 522 13,852 7,190 7,870 5,982 48 2 4,682 1,572 1,038 0 0 1,038 .26 .26 7.56 1,087 0 0 0 818 23 0 843 0 0 843
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