<PAGE> 1
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 March 31, 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
May 5, 1997, 5,593,969.
- ------------ ---------
Page 1 of 20. Exhibit index on page 19.
<PAGE> 2
FIDELITY FINANCIAL OF OHIO, INC.
INDEX
Part I Financial Information Page
- ------ --------------------- Number
------
Financial Statements:
Consolidated Statements of Financial Condition
March 31,1997 (Unaudited) and December 31, 1996 3
Consolidated Statements of Earnings (Unaudited)
For the Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II OTHER INFORMATION
- -------
Items 1 through 6 17
2
<PAGE> 3
FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,212 $ 2,121
Interest-bearing deposits in other financial institutions 7,538 20,489
----------- ---------
Cash and cash equivalents 9,750 22,610
Investment securities available for sale - at market 20,474 16,120
Mortgage-backed securities available for sale - at market 31,489 30,760
Mortgage-backed securities - at cost 15,447 10,744
Loans receivable - net 412,981 396,541
Office premises and equipment - at depreciated cost 7,319 7,371
Federal Home Loan Bank stock - at cost 3,846 3,781
Accrued interest receivable on loans 2,076 1,950
Accrued interest receivable on mortgage-backed securities 322 310
Accrued interest receivable on investments 268 284
Prepaid expenses and other assets 623 371
Goodwill and other intangible assets, net of accumulated amortization 8,147 8,322
Prepaid federal income taxes 337 754
----------- ---------
TOTAL ASSETS $ 513,079 $ 499,918
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 419,994 $ 408,159
Advances from Federal Home Loan Bank 21,904 20,186
Advances by borrowers for taxes and insurance 1,409 2,005
Accrued interest and other liabilities 2,250 2,706
Deferred federal income taxes 248 150
----------- ---------
TOTAL LIABILITIES 445,805 433,206
----------- ---------
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 and outstanding at March 31, 1997 and December 31, 1996 559 559
Additional paid-in capital 41,619 41,608
Retained earnings - restricted 27,149 26,311
Less shares acquired by Employee Stock Ownership Plan (ESOP) (1,899) (1,938)
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects (154) 172
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 67,274 66,712
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 513,079 $ 499,918
</TABLE>
3
<PAGE> 4
FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Interest income
Loans $7,964 $3,782
Mortgage-backed securities 775 460
Investment securities 282 93
Interest-bearing deposits and other 265 173
------ ------
Total interest income 9,286 4,508
Interest expense
Deposits 5,040 2,406
Borrowings 325 243
------ ------
Total interest expense 5,365 2,649
Net interest income 3,921 1,859
Provision for losses on loans 25 17
------ ------
Net interest income after provision for losses on loans 3,896 1,842
Other income
Gain on sale of investment and mortgage-backed securities 125 12
Gain on sale of loans -- 3
Gain on sale of real estate 6 --
Rental 60 39
Other operating 176 60
------ ------
Total other income 367 114
General, administrative and other expense
Employee compensation and benefits 1,052 501
Occupancy and equipment 386 180
Federal deposit insurance premium 65 103
Franchise tax 185 113
Amortization of goodwill and other intangible assets 175 --
Other operating 521 222
------ ------
Total general, administrative and other expense 2,384 1,119
------ ------
Earnings before income taxes 1,879 837
Federal income taxes 671 282
------ ------
NET EARNINGS $1,208 $ 555
====== ======
EARNINGS PER SHARE $ 0.22 $ 0.14
====== ======
</TABLE>
4
<PAGE> 5
FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 1,208 $ 555
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 201 72
Amortization of premiums on investments and mortgage-backed securities 22 3
Amortization of deferred loan origination fees (81) (65)
Amortization expense of stock benefit plans 72 24
Amortization of goodwill and other intangible assets 175 --
Amortization of purchase accounting adjustment (277) --
Gain on sale of investments and mortgage-backed securities (125) (12)
Gain on sale of mortgage loans -- (3)
Gain on sale of office premises and equipment (6) --
Proceeds from sale of mortgage loans -- 208
Federal Home Loan Bank stock dividends (65) (32)
Provision for losses on loans 25 17
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (126) (73)
Accrued interest receivable on mortgage-backed securities (12) 10
Accrued interest receivable on investments 16 (62)
Prepaid expenses and other assets (252) (26)
Accrued interest and other liabilities (456) (86)
Federal income taxes 683 273
-------- --------
Net cash provided by operating activities 1,002 803
Cash flows provided by (used in) investing activities:
Purchase of investments securities designated as available for sale (7,487) (4,468)
Proceeds from sale of investment securities designated as available for sale 2,997 1,004
Principle repayments on investment securities designated as available for sale 12 12
Purchase of mortgage-backed securities designated as available for sale (6,426) (2,058)
Proceeds from sale of mortgage-backed securities designated as available for sale 4,152 1,008
Principal repayment on mortgage-backed securities designated as available for sale 1,263 1,852
Purchase of mortgage-backed securities designated as held to maturity (5,078) --
Principal repayment on mortgage-backed securities designated as held to maturity 375 --
Loans disbursements (23,067) (13,453)
Purchase of loan participations (5,038) --
Principal repayments on loans 11,878 11,319
Proceeds from sale of office premises and equipment 135 --
Purchases and additions to office premises and equipment (280) (60)
-------- --------
Net cash used in investing activities (26,564) (4,844)
-------- --------
Net cash used in operating and investing activities
(subtotal carried forward) (25,562) (4,041)
-------- --------
</TABLE>
5
<PAGE> 6
FIDELITY FINANCIAL OF OHIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net cash used in operating and investing activities
(subtotal carried forward) $(25,562) $ (4,041)
Cash provided by (used in) financing activities:
Net increase in deposit accounts 11,976 1,520
Proceeds from Federal Home Loan Bank advances 2,000 --
Repayment of Federal Home Loan Bank advances (286) (3,612)
Proceeds from sale of common stock -- 20,432
Dividends on common stock (392) (272)
Advances by borrowers for taxes and insurance (596) (442)
-------- --------
Net cash provided by financing activities 12,702 17,626
-------- --------
Net increase (decrease) in cash and cash equivalents (12,860) 13,585
Cash and cash equivalents at beginning of period 22,610 4,486
-------- --------
Cash and cash equivalents at end of period 9,750 $ 18,071
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ -- $ --
======== ========
Interest on deposits and borrowings $ 4,975 $ 2,646
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (326) $ (91)
======== ========
</TABLE>
6
<PAGE> 7
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. (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.
7
<PAGE> 8
On April 29, 1996, the Corporation entered into an Agreement of Merger,
which was subsequently amended on June 13, 1996, with Circle Financial
Corporation ("Circle"), a savings and loan holding company, pursuant to
which Circle and its wholly-owned subsidiary, People's Savings
Association ("People's"), would merge with and into the Corporation
(the "Merger"). The transaction was consummated on October 11, 1996,
pursuant to the amended and restated Agreement of Merger, and was
accounted for using the purchase method of accounting. The Corporation
effected the acquisition through cash payments totaling $12.2 million
and 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. The results of operations for
the three months ended March 31, 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 Principals
Board Opinion No. 25, and therefore, the disclosure provisions of SFAS
No. 123 have no effect on its consolidated financial condition or
results of operations.
8
<PAGE> 9
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 three months ended March 31, 1997,
would have each been $0.22 and the basic and diluted earnings per share
for the three months ended March 31, 1996 would have each been $0.14.
3. Earnings Per Share
------------------
Earnings per share for the three months ended March 31, 1997 and 1996
is based on approximately 5,446,596 and 3,900,014 weighted average
common and common equivalent shares outstanding, respectively.
9
<PAGE> 10
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 March 31,1997, and the results of operations for the three month
period ended March 31, 1997, as compared to the same period in 1996. In addition
to this historical information, the following discussion contains
forward-looking statements that involve risks and uncertainties. Economic
circumstances, Fidelity's operations and Fidelity's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and in Fidelity's general market area.
Without limiting the foregoing, some of the forward-looking statements included
herein include the following:
- Management's belief that adoption of SFAS No. 125 will not have a
material adverse effect on the Corporation.
- Legislative changes that may change the regulatory requirements of
Fidelity and Fidelity Savings.
- Management's establishment of an allowance for loan losses, and its
statements regarding the adequacy of such allowance for loan losses.
- Management's belief that Fidelity's and Fidelity Savings' activities
will not be materially affected by proposed changes in the regulation
of all savings associations and their holding companies.
Discussion of Financial Condition Changes from December 31, 1996 to
- -------------------------------------------------------------------
March 31, 1997
- --------------
Fidelity Financial of Ohio, Inc.'s assets totaled $513.1 million at March 31,
1997, an increase of $13.2 million, or 2.6% from the December 31, 1996 total of
$499.9 million. This increase was primarily funded by an $11.8 million increase
in deposit accounts and an increase of $1.7 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 $12.9 million to
$9.8 million on March 31, 1997 from $22.6 million on December 31, 1996, as a
result of management's determination
10
<PAGE> 11
that such funds could be better utilized in the mortgage lending and investing
areas. Investment securities totaled $20.5 million at March 31, 1997, an
increase of $4.4 million or 27.0%, over the $16.1 million of investments at
December 31, 1996. The increase was primarily due to purchases of $3.5 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 $3.0
million of two-year U.S. Treasury notes. At March 31, 1997, all of the
Corporation's investment securities were classified as available for sale and
Fidelity had approximately $56,000 of unrealized losses (net of related tax
effects) with respect to its investment securities portfolio. Total
mortgage-backed securities increased $5.4 million to $46.9 million at March
31,1997 from $41.5 million on December 31, 1996 due to the purchases of $11.5
million of adjustable-rate mortgage-backed securities, which were partially
offset by the sale of $3.8 million of fixed-rate mortgage-backed securities and
repayments of approximately $1.6 million. At March 31, 1997, $31.5 million of
the Corporation's mortgage-backed securities portfolio were classified as
available for sale and Fidelity had approximately $98,000 of unrealized losses
(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 77.5% of the total
portfolio at March 31, 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 totaled $413.0 million at March 31, 1997 as compared to $396.6
million at December 31,1996. Loans receivable increased by $16.4 million, or
4.2% during the three month period ended March 31,1997, primarily due to $23.1
million of loan originations and $5.0 million of loan participations purchased,
which were partially offset by $11.9 of principal repayments. At March 31, 1997,
the Savings Bank's allowance for loan losses totaled $1,575,000, an increase of
$25,000 from the level maintained at December 31, 1996. At March 31, 1997 the
Savings Bank's allowance represented approximately 0.38% of the total loan
portfolio and 193.7% of non-performing loans. At that date, the ratio of total
non-performing loans to total loans amounted to 0.20%, as compared to 0.28% at
December 31,1996. Although management of the Savings Bank believes that its
allowance for loan losses at March 31, 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 $420.0 million at March 31, 1997, an increase of $11.8 million,
or 2.9% over the $408.2 million of deposits at December 31, 1996. Deposit
accounts subject to daily repricing (passbook, money market deposit, NOW and DDA
accounts) decreased $1.7 million, or 1.9%, while certificates of deposit
accounts increased by $ $13.5 million, or 4.2%. 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 March 31, 1997, FHLB advances totaled $21.9 million, which represented a $1.7
million,
11
<PAGE> 12
or 8.5%, 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 $67.3 million at March 31, 1997, an increase of
approximately $562,000, or 0.84%, over the December 31, 1996 total. The increase
resulted from undistributed net earnings of approximately $816,000, less an
increase in unrealized losses on available for sale securities of approximately
$326,000 and amortization of stock benefit plans of approximately $72,000.
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 6.78% at March 31,
1997, as compared to 7.20% at December 31, 1996. At March 31, 1997 the Savings
Bank's "liquid" assets totaled approximately $30.5 million, which was $9.9
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 fund 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 March 31, 1997, the Savings Bank had
$21.9 million of outstanding advances from the FHLB of Cincinnati. Furthermore,
the Savings Bank has access
12
<PAGE> 13
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 March 31, 1997, the total approved loan
commitments outstanding amounted to approximately $9.2 million. At the same
date, commitments under unused lines of credit secured by one- to four-family
residential property amounted to $5.1 million, commitments under unused lines of
credit secured by multi-family and non-residential real estate totaled $4.7
million and the unadvanced portion of construction loans approximated $2.6
million. Certificates of deposit scheduled to mature in one year or less at
March 31, 1997, totaled $225.7 million. The Savings Bank believes that it has
adequate resources to fund all of its commitments and that it can adjust the
rate of certificates of deposit in order to retain deposits in changing interest
rate environments.
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
March 31, 1997, the Savings Bank exceeded each of its capital requirements, with
tangible, core and risk-based ratios of 9.8%, 9.8% and 19.4%, 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
March 31, 1997:
<TABLE>
<CAPTION>
Actual Required Excess
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $48.8 9.8% $7.4 1.5% $41.4 8.3%
Core Capital $48.8 9.8% $14.9 3.0% $33.9 6.8%
Risk-based Capital $50.4 19.4% $20.8 8.0% $29.6 11.4%
</TABLE>
Comparison of Operating Results for The Three Month Periods Ended March 31, 1997
- --------------------------------------------------------------------------------
and 1996
- --------
General
- -------
Net earnings for the three months ended March 31, 1997, totaled $1.2 million, an
increase of
13
<PAGE> 14
$653,000, or 117.7%, over the $555,000 recorded for the three months ended March
31, 1996. The increase in earnings resulted from a $2.1 million increase in net
interest income and a $253,000 increase in total other income, which were
partially offset by a $1.3 million increase in general, administrative and other
expense along with an increase of $389,000 in Federal income taxes.
Net Interest Income
- -------------------
Net interest income increased $2.1 million, or 110.9% for the three month period
ended March 31, 1997, as compared to the three months ended March 31, 1996. The
increase in net interest income was primarily due to the increase in average
interest earning assets of $253.7 million, from $233.6 million for the three
months ended March 31, 1996 to $487.3 million for the three months ended March
31, 1997, which was partially offset by an increase in average interest-bearing
liabilities of $235.0 million, from $200.5 million for the three months ended
March 31, 1996 to $435.5 million for the three months ended March 31, 1997.
These increases in average balances primarily reflect the effects of the October
11, 1996 acquisition of Circle Financial Corporation. An increase in the
interest rate spread, which averaged 2.69% for the three month period ended
March 31, 1997, as compared to 2.43% for the three month period ended March 31,
1996, also contributed to the increase in net interest income.
Interest Income
- ---------------
Interest income on loans for the three months ended March 31, 1997 increased by
$4.2 million, or 110.6%, due to a $218.1 million increase in the average balance
of loans outstanding, partially offset by a decrease in the weighted-average
yield from 8.13% during the 1996 period to 7.88% during the 1997 period.
Interest income on mortgage-backed securities increased by $315,000, or 68.5%,
due to a $17.6 million increase in the average balances of mortgage-backed
securities outstanding, and to a lesser extent, an increase in the
weighted-average yield from 6.41% during the 1996 period to 6.70% during the
1997 period. Interest income on investment securities and other interest-earning
assets increased by $281,000, or 105.6%, due primarily to a $18.1 million
increase in the average balance outstanding during the three months ended March
31, 1997, and to a lesser extent, an increase in the weighted-average yield from
5.63% during the 1996 period to 5.92% during the 1997 period.
Interest Expense
- ----------------
Interest expense on deposits increased by $2.6 million, or 109.5%, during the
three months ended March 31, 1997. This additional expense was the result of a
$229.7 million increase in the average balance of deposits outstanding during
the three months ended March 31, 1997, which was partially offset by a decrease
in the weighted-average rate paid from 5.21% during the 1996 period to 4.86%
during the 1997 period. Interest expense on borrowings increased $82,000, or
33.7%, due primarily to a $5.3 million increase in the average balance of
14
<PAGE> 15
borrowings outstanding during the period.
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 $25,000 and $17,000 for the three months
ended March 31, 1997 and 1996, respectively. The provision for loan losses for
the three months ended March 31, 1997 and 1996 represented additions to the
Savings Bank's allowance primarily as a result of growth in the loan portfolio.
Other Income
- ------------
Total other income increased by $253,000, or 221.9%, for the three months ended
March 31, 1997, as compared to the three months ended March 31, 1996. The
increase was primarily attributable to a $125,000 gain on sales of investment
and mortgage-backed securities in the 1997 period, as compared to a $12,000 gain
in the 1996 period and an increase of approximately $116,000 in other operating
income, which consists primarily of service charges and fees on deposit
accounts. The substantial increase in service charges and fee income is the
result of the increase in number of transaction type accounts, and includes
income of approximately $40,000 for the three month period ended March 31, 1997
in service charges on demand deposit account which were not offered in the 1996
period. Rental income also increased $21,000 during the 1997 period as compared
to the 1996 period.
General, Administrative and Other Expenses
- ------------------------------------------
General, administrative and other expenses for the quarter ended March 31, 1997
increased by $1.3 million as compared to the same period in 1996. During the
1997 period, employee compensation and benefits increased approximately $551,000
and occupancy and equipment expense increased approximately $206,000 over the
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 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. Franchise taxes increased during
the 1997 period $72,000 over the 1996 period, due to the increased net worth of
the Corporation. Other operating expenses increased during the 1997 period
$299,000 over the 1996 period primarily due to increases in office supplies of
approximately $46,000, legal, accounting and other professional fees of
approximately $40,000, service and data processing charges of approximately
$99,000 and advertising of approximately $84,000.The quarter ended March
15
<PAGE> 16
31, 1997 reflected a decrease of approximately $38,000 for Federal deposit
insurance premiums, despite the $229.7 million increase in the average balances
of deposit accounts, due to the recapitalization of SAIF and the resulting
reduction in premium rates.
Federal Income Taxes
- --------------------
The provision for federal income taxes for the quarter ended March 31, 1997
increased by $389,000, or 137.9%, as compared to the same period in 1996, due
primarily to an increase in earnings before income taxes of approximately $1.0
million, or 124.5%. The Corporation's effective tax rates amounted to 35.7% and
33.7% during the three months ended March 31, 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.
16
<PAGE> 17
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
N/A
Item 5 Other Information
N/A
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
N/A
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIDELITY FINANCIAL OF OHIO, INC.
May 14, 1997 By: /s/ John R. Reusing
- -------------------------- ---------------------------------
Date John R. Reusing,
President and Chief Executive Officer
May 14, 1997 By: /s/ Paul D. Staubach
- -------------------------- ---------------------------------
Date Paul D. Staubach,
Senior Vice President and
Chief Financial Officer
18
<PAGE> 19
Fidelity Financial of Ohio, Inc.
EXHIBIT INDEX
Page
----
Exhibit 27. Financial Data Schedule 20
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,212
<INT-BEARING-DEPOSITS> 2,630
<FED-FUNDS-SOLD> 4,908
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,963
<INVESTMENTS-CARRYING> 15,447
<INVESTMENTS-MARKET> 15,489
<LOANS> 412,981
<ALLOWANCE> 1,575
<TOTAL-ASSETS> 513,079
<DEPOSITS> 419,994
<SHORT-TERM> 2,243
<LIABILITIES-OTHER> 3,907
<LONG-TERM> 19,661
<COMMON> 559
0
0
<OTHER-SE> 66,715
<TOTAL-LIABILITIES-AND-EQUITY> 513,079
<INTEREST-LOAN> 7,964
<INTEREST-INVEST> 1,057
<INTEREST-OTHER> 265
<INTEREST-TOTAL> 9,286
<INTEREST-DEPOSIT> 5,040
<INTEREST-EXPENSE> 5,365
<INTEREST-INCOME-NET> 3,921
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 125
<EXPENSE-OTHER> 2,384
<INCOME-PRETAX> 1,879
<INCOME-PRE-EXTRAORDINARY> 1,208
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,208
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 3.22
<LOANS-NON> 900
<LOANS-PAST> 0
<LOANS-TROUBLED> 116
<LOANS-PROBLEM> 725
<ALLOWANCE-OPEN> 1,550
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,575
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,575
</TABLE>
