<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{MARK ONE}
[X] QUARTERLY REPORT PURSUANT TO 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: 0-25348
FED ONE BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 55-0736264
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
21 TWELFTH STREET, WHEELING, WV 26003-3295
(Address of principal executive offices)
Registrant's telephone number, including area code: (304) 234-1100
Former name, former address, and former fiscal year, if changed since
last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: Common Stock, $.10 par value--2,467,799 shares as of November 6, 1996.
<PAGE>
FED ONE BANCORP, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at 1
September 30, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Income for the Three and 2
Nine Months ended September 30, 1996 and 1995 (unaudited)
Consolidated Statement of Changes in Shareholders' Equity 3
for the Nine Months ended September 30, 1996 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months 4
ended September 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 5
Financial Highlights 9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 15
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31
1996 1995
---- ----
(Dollars In Thousands Except
For Shares)
<S> <C> <C>
ASSETS
CASH ON HAND AND NONINTEREST-EARNING
DEPOSITS IN OTHER INSTITUTIONS $ 1,111 $ 1,429
SHORT-TERM INVESTMENTS:
INTEREST-EARNING DEPOSITS IN OTHER
INSTITUTIONS 5,125 10,269
CERTIFICATES OF DEPOSIT 595 3,994
INVESTMENT SECURITIES HELD TO MATURITY, AT COST
(market value of $39,309 and $28,172) 39,797 27,877
INVESTMENT SECURITIES AVAILABLE FOR SALE
(cost of $24,607 and $40,799) 24,556 40,850
MORTGAGE-BACKED SECURITIES HELD TO MATURITY,
AT COST (market value of $129,340 and $121,582) 129,146 119,501
LOANS RECEIVABLE, NET OF ALLOWANCE FOR LOAN
LOSSES OF $1,398 AND $1,457 129,833 119,493
REAL ESTATE OWNED 57 26
PREMISES AND EQUIPMENT, NET 5,532 5,355
ACCRUED INTEREST RECEIVABLE:
INVESTMENT SECURITIES 935 1,154
MORTGAGE-BACKED SECURITIES 887 846
LOANS RECEIVABLE 1,023 952
PREPAID EXPENSES AND OTHER ASSETS 2,931 2,551
-------- --------
TOTAL ASSETS $341,528 $334,297
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS $244,489 $241,567
BORROWED FUNDS 53,720 48,044
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 415 830
ACCRUED INTEREST PAYABLE 421 453
ACCRUED EXPENSES AND OTHER LIABILITIES 2,608 1,303
-------- --------
TOTAL LIABILITIES 301,653 292,197
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
PREFERRED STOCK: 5,000,000 SHARES AUTHORIZED --
NONE ISSUED -- --
COMMON STOCK, $.10 PAR VALUE: 15,000,000 SHARES
AUTHORIZED -- 2,818,762 ISSUED AT SEPTEMBER 30,
1996 AND DECEMBER 31, 1995 282 282
ADDITIONAL PAID-IN CAPITAL 19,367 19,330
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
SHARES (931) (1,016)
RETAINED EARNINGS -- SUBSTANTIALLY RESTRICTED 26,754 26,358
TREASURY STOCK AT COST: 325,963 AND 139,938
SHARES AT SEPTEMBER 30, 1996 AND DECEMBER 31,
1995, RESPECTIVELY (4,907) (2,088)
UNEARNED COMMON STOCK HELD BY THE RECOGNITION
AND RETENTION PLAN (RRP) (659) (797)
NET UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES AVAILABLE FOR SALE (31) 31
-------- --------
TOTAL SHAREHOLDERS' EQUITY 39,875 42,100
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $341,528 $334,297
-------- --------
-------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
LOANS RECEIVABLE $2,964 $2,771 $ 8,699 $ 8,103
MORTGAGE-BACKED SECURITIES 2,103 2,014 6,139 5,760
INVESTMENT SECURITIES 1,028 801 3,211 2,271
SHORT-TERM INVESTMENTS 75 262 345 875
------- ------ ------- -------
TOTAL INTEREST INCOME 6,170 5,848 18,394 17,009
INTEREST EXPENSE:
DEPOSITS 2,518 2,341 7,496 6,642
BORROWED FUNDS 723 558 2,037 1,604
------- ------ ------- -------
TOTAL INTEREST EXPENSE 3,241 2,899 9,533 8,246
NET INTEREST INCOME 2,929 2,949 8,861 8,763
PROVISION FOR LOAN LOSSES 20 30 70 90
------- ------ ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,909 2,919 8,791 8,673
NON-INTEREST INCOME:
FEES AND SERVICE CHARGES 145 151 435 443
NET GAIN ON SALE OF INVESTMENT
SECURITIES -- AFS -- 2 3 2
OTHER 4 10 20 27
------- ------ ------- -------
TOTAL NON-INTEREST INCOME 149 163 458 472
NON-INTEREST EXPENSE:
SALARIES AND EMPLOYEE BENEFITS 894 918 2,758 2,710
PREMISES AND EQUIPMENT EXPENSE 323 330 1,021 981
DATA PROCESSING 48 49 158 146
FEDERAL INSURANCE PREMIUMS 141 134 414 404
FDIC-SAIF ASSESSMENT 1,519 -- 1,519 --
AMORTIZATION EXPENSE 70 70 211 211
REO EXPENSE 3 2 9 3
OTHER 305 319 866 944
------- ------- ------ ------
TOTAL NON-INTEREST EXPENSE 3,303 1,822 6,956 5,399
INCOME (LOSS) BEFORE INCOME TAXES (245) 1,260 2,293 3,746
PROVISION (BENEFIT) FOR INCOME TAXES (106) 455 811 1,379
------- ------- ------ ------
NET INCOME (LOSS) $(139) $805 1,482 $2,367
------- ------- ------ ------
------- ------- ------ ------
PRIMARY/FULY DILUTED
EARNINGS (LOSS) PER SHARE $(0.06) $0.29 $0.58 $0.85
DIVIDENDS DECLARED PER SHARE $0.145 $0.135 $0.415 $0.385
AVERAGE NUMBER OF SHARES
OUTSTANDING (000's omitted):
PRIMARY 2,514 2,760 2,569 2,767
FULLY DILUTED 2,523 2,771 2,574 2,778
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION> UNREALIZED
UNEARNED GAIN (LOSS) ON
COMMON INVESTMENT
ADDITIONAL UNEARNED STOCK SECURITIES
COMMON PAID-IN ESOP RETAINED TREASURY HELD AVAILABLE
STOCK CAPITAL SHARES EARNINGS STOCK BY THE REP FOR SALE TOTAL
----- ------- ------ -------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
December 31, 1995 $282 $19,330 $(1,016) $26,358 $(2,088) $(797) $31 $42,100
NET INCOME -- -- -- 1,482 -- -- -- 1,482
AMORTIZATION OF
RECOGNITION AND
RETENTION PLAN -- -- -- -- -- 138 -- 138
COMMON STOCK ISSUED
UPON EXERCISE OF STOCK
OPTIONS - 8,082 SHARES -- -- -- (73) 119 -- -- 46
CASH DIVIDEND DECLARED -- 5 -- (1,013) -- -- -- (1,008)
PRINCIPAL REPAYMENT OF
ESOP DEBT -- 32 85 -- -- -- -- 117
PURCHASE OF TREASURY
STOCK - 194,117 SHARES -- -- -- -- (2,938) -- -- (2,938)
CHANGE IN NET UNREALIZED GAIN
(LOSS) ON INVESTMENT
SECURITIES AVAILABLE
FOR SALE -- -- -- -- -- -- (62) (62)
---- ------ ----- ------- ------- ----- ----- --------
BALANCE AT
September 30, 1996 $282 $19,367 $(931) $26,754 $(4,907) $(659) $(31) $39,875
---- ------ ----- ------- ------- ----- ----- --------
---- ------ ----- ------- ------- ----- ----- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $1,482 $2,367
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES 70 90
DEPRECIATION AND AMORTIZATION 685 646
NON-CASH COMPENSATION EXPENSE RELATED
TO ESOP BENEFIT 117 114
NET GAIN ON SALES OF:
INVESTMENT SECURITIES (3) (2)
REO (2) (1)
(INCREASE) DECREASE IN ACCRUED INTEREST
RECEIVABLE 107 (572)
INCREASE IN ACCRUED EXPENSES 1,552 55
DECREASE IN TAXES PAYABLE (694) (42)
OTHER, NET (73) 613
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,241 3,268
INVESTING ACTIVITIES:
PURCHASES OF:
CERTIFICATES OF DEPOSIT (595) (2,994)
INVESTMENT SECURITIES HELD TO MATURITY (19,971) (10,770)
INVESTMENT SECURITIES AVAILABLE FOR SALE (7,127) (7,580)
MORTGAGE-BACKED SECURITIES HELD TO
MATURITY (26,017) (16,549)
LOANS (13,484) (5,906)
PREMISES AND EQUIPMENT, NET (526) (523)
PROCEEDS FROM SALES OF:
INVESTMENT SECURITIES AVAILABLE FOR SALE 5,000 3,000
LOANS 152 687
REO 12 31
PRINCIPAL REPAYMENTS AND MATURITIES OF:
CERTIFICATES OF DEPOSIT 3,994 4,000
INVESTMENT SECURITIES HELD TO MATURITY 8,057 4,556
INVESTMENT SECURITIES AVAILABLE FOR SALE 18,323 4,174
MORTGAGE-BACKED SECURITIES HELD TO
MATURITY 16,378 10,063
(INCREASE) DECREASE IN LOANS
RECEIVABLE, NET 2,818 (1,157)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (12,986) (18,968)
FINANCING ACTIVITIES:
INCREASE (DECREASE) IN DEPOSITS, NET 2,922 (1,153)
INCREASE IN BORROWINGS, NET 5,676 7,999
DECREASE IN ADVANCES BY BORROWERS
FOR TAXES AND INSURANCE (415) (242)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 46 14,815
STOCK ACQUIRED FOR ESOP -- (1,129)
PURCHASE OF COMMON STOCK FOR RECOGNITON
AND RETENTION PLAN -- (919)
PURCHASE OF TREASURY STOCK (2,938) (1,684)
CASH DIVIDENDS PAID (1,008) (827)
------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,283 16,860
------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,462) 1,160
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 11,698 9,743
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,236 $10,903
------- -------
------- -------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions for Form 10-Q
and, therefore, do not include all the 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 have been included. The results of
operations for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results which may be expected for
the entire fiscal year.
2. PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of Fed One
Bancorp, Inc. (the "Company"), and its wholly owned subsidiary, Fed
One Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated in consolidation.
3. RECLASSIFICATION OF PRIOR YEAR'S STATEMENTS
-------------------------------------------
Certain items previously reported have been reclassified to conform
with the current year's reporting format.
4. CONVERSION AND REORGANIZATION
-----------------------------
The Company is a Delaware corporation which is the holding company for
the Bank. The Company was organized by the Bank for the purpose of
acquiring all of the capital stock of the Bank in connection with the
conversion of Fed One Bancorp, M.H.C. ("MHC"), the former parent
mutual holding company of the Bank, and the reorganization of the Bank
to the stock holding company form, which was completed on January 19,
1995 (the "Conversion and Reorganization").
In the offering, 1,612,402 shares of common stock were sold at a
subscription price of $10.00 per share resulting in net proceeds of
approximately $13.5 million after taking into consideration the $1.1
million for the establishment of an ESOP and the $1.5 million in
expenses. In addition to the shares sold in the offering, 1,194,064
shares of the Company's stock were issued in exchange for shares of
the Bank's stock previously held by public shareholders at an exchange
ratio of 2.239447, resulting in 2,806,466 total shares of the
Company's common stock outstanding as of January 19, 1995.
5
<PAGE>
5. EARNINGS PER SHARE
------------------
Earnings(loss) for the three and nine months ended September 30, 1996
were a $.06 loss per share and income of $.58 per share, respectively,
compared to income of $.29 per share and $.85 per share for the three
and nine months ended September 30, 1995, respectively. Earnings per
share were computed by dividing net income(loss) for the three and
nine months ended September 30, 1996 and 1995 by the weighted average
number of common shares and common stock equivalents outstanding.
Shares outstanding for the three and nine months ended September 30,
1996 and 1995 do not include ESOP shares that have not been committed
to be released in accordance with SOP 93-6 "Employers' Accounting for
Employee Stock Ownership Plans." Reported primary per share amounts
are based on 2,514,388 and 2,568,682 common shares and common stock
equivalents for the three and nine months ended September 30, 1996,
and 2,759,710 and 2,766,901 common shares and common stock equivalents
for the three and nine months ended September 30, 1995, respectively.
Reported fully diluted per share amounts are based on 2,522,724 and
2,574,365 common shares and common stock equivalents for three and
nine months ended September 30, 1996, and 2,770,525 and 2,778,153
common shares and common stock equivalents for the three and nine
months ended September 30, 1995, respectively. Shares granted but not
yet issued under the Company's stock option plan are considered common
stock equivalents for earnings per share calculations. Without the
one-time special FDIC assessment, earnings per share for the three and
nine months ended September 30, 1996 would have been income of $.32
and $.95 per share, respectively. See Management's discussion and
analysis.
6. DIVIDENDS ON COMMON STOCK
-------------------------
On September 18, 1996, the Company declared a quarterly cash dividend
of $.145 per share payable on October 19, 1996 to shareholders of
record on September 30, 1996.
7. INCOME TAXES
------------
Income taxes are accounted for under the asset and liability method
pursuant to Statement of Financial Accounting Standards No. 109 ("SFAS
No. 109"), "Accounting for Income Taxes."
Total income tax expense through the nine months ended September 30,
1996 consists of (in thousands):
Current Deferred Total
------- -------- -----
Federal $712 $27 $739
State 64 8 72
---- --- ----
$776 $35 $811
---- --- ----
---- --- ----
6
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996 are presented below (in thousands):
Deferred tax assets:
Allowance for loan losses $235
Unrealized losses of securities
available for sale 20
Deposit-based intangibles 36
Other 70
----
Total gross deferred tax assets $361
Deferred tax liabilities:
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (127)
Deferred loan fees (247)
Other (12)
-----
Total gross deferred tax liabilities (386)
-----
Net deferred tax asset (liability) $(25)
-----
-----
The effective tax rate computed pursuant to SFAS No. 109 and the items
which cause differences between the effective tax rate and the
statutory U.S. Federal income tax rate of 34% are not significantly
different from such amounts disclosed in prior years' audited
financial statements.
The Company has determined that it is not required to establish a
valuation allowance for deferred tax assets since it is management's
belief that it is more likely than not that the deferred tax assets
will be realized.
8. CONTINGENCIES:
--------------
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The outcome of these claims and
actions are not presently determinable; however, in the opinion of the
Company's management after consulting with their legal counsel, the
ultimate disposition of these matters will not have a material adverse
effect on the accompanying consolidated financial statements.
9. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
-----------------------------------
In connection with the Conversion and Reorganization, the Company
formed an ESOP. The ESOP covers employees which have completed at
least one year of service and have attained the age of 21. The ESOP
Trust borrowed $1.1 million from the Company and purchased 112,868
shares, equal to 7% of the total number of shares issued in the
offering. The Bank makes scheduled discretionary contributions to the
ESOP sufficient to service the debt. The cost of shares not committed
to be released and unallocated (suspense shares) is reported as a
7
<PAGE>
reduction in shareholders' equity. Dividends on allocated and
unallocated shares are used for debt service. Shares are released to
participants based on a compensation formula.
In connection with the formation of the ESOP, the Company adopted SOP
93-6. SOP 93-6 requires that (1) compensation expense be recognized
based on the average fair value of the ESOP shares committed to be
released; (2) dividends on unallocated shares used to pay debt service
be reported as a reduction of debt or of accrued interest payable and
that dividends on allocated shares be charged to retained earnings;
and (3) ESOP shares which have not been committed to be released not
be considered outstanding for purposes of computing earnings per share
and book value per share.
Compensation expense related to the ESOP amounted to $39,000 and
$122,000 for the three and nine months ended September 30, 1996
compared to $46,000 and $113,000 for the three and nine months ended
September 30, 1995, respectively. The fair value of unearned ESOP
shares at September 30, 1996 totaled $1.4 million. At September 30,
1996, there were 8,463 ESOP shares committed to be released and 93,119
suspense shares. ESOP shares totaling 11,286 were allocated as of
September 30, 1996.
10. RECENT ACCOUNTING DEVELOPMENTS
------------------------------
The Financial Accounting Standards Board released Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") in October 1995. Effective for fiscal
years beginning after December 15, 1995, SFAS 123 outlines preferable
accounting treatment and reporting guidelines for employee stock
option plans. The Company plans to continue to measure compensation
cost using the method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25.
The Financial Accounting Standards Board released Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 125") in June 1996. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively.
SFAS 125 establishes standards for resolving issues related to the
circumstances under which the transfer of financial assets should be
considered as sales of all or part of the assets or as secured
borrowings and about when a liability should be considered
extinguished. The Company has not yet determined the effect that the
adoption of this Standard will have on its financial position or
results of operations.
8
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- -------------
(Dollars In Thousands)
<S> <C> <C>
FINANCIAL CONDITION DATA:
AVERAGE INTEREST-EARNING ASSETS $327,421 $308,965
AVERAGE INTEREST-BEARING LIABILITIES 286,838 267,471
NET AVERAGE EARNING ASSETS 40,583 41,494
NON-PERFORMING ASSETS 924 1,144
NON-PERFORMING LOANS 867 1,118
ALLOWANCE FOR LOAN LOSSES 1,398 1,457
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING LIABILITIES 114.15% 115.51%
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 161.25% 130.32%
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.07% 1.21%
NON-PERFORMING LOANS TO TOTAL LOANS 0.66% 0.93%
NON-PERFORMING ASSETS TO TOTAL ASSETS 0.27% 0.34%
CUMULATIVE ONE-YEAR GAP 8.39% 11.62%
SHAREHOLDERS' EQUITY TO ASSETS 11.68% 12.59%
EFFICIENCY RATIO 72.38% 55.56%
COVERAGE RATIO 127.39% 164.12%
NUMBER OF BANKING FACILITIES 9 9
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED OPERATING ACTIVITIES (1):
RETURN ON AVERAGE ASSETS (2) -0.16% 1.01% 0.58% 1.00%
RETURN ON AVERAGE EQUITY (2) -1.36% 7.60% 4.79% 7.49%
NET INTEREST RATE SPREAD 3.02% 3.23% 3.06% 3.25%
NET INTEREST MARGIN 3.55% 3.82% 3.61% 3.82%
</TABLE>
(1) AMOUNTS ARE ANNUALIZED
(2) REFLECTS THE FDIC-SAIF ASSESSMENT
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
PER SHARE DATA:
PRIMARY/FULLY DILUTED
EARNINGS(LOSS) PER SHARE (3) $ (.06) $ .58
BOOK VALUE PER SHARE (4) 16.62 16.62
TANGIBLE BOOK VALUE PER SHARE (4) 15.78 15.78
MARKET PRICE PER SHARE:
HIGH FOR THE QUARTER/YEAR 16.00 16.25
LOW FOR THE QUARTER/YEAR 13.00 13.00
CLOSE 09/30/96 15.50 15.50
CASH DIVIDENDS DECLARED PER SHARE .145 .415
AVERAGE NUMBER OF SHARES
OUTSTANDING (3):
PRIMARY 2,514,388 2,568,682
FULLY DILUTED 2,522,724 2,574,365
</TABLE>
(3) Amounts calculated exclude ESOP shares not committed to be released
and include common stock equivalents.
(4) Amounts calculated exclude ESOP shares not committed to be released.
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996 which included legislation to resolve the
deposit insurance premium disparity which included a one-time special
assessment to recapitalize the Savings Association Insurance Fund
("SAIF"), the deposit insurance fund of our subsidiary Fed One Bank.
This industry wide assessment, which requires a one-time payment of
65.7 basis points on SAIF insured deposits that the Bank held on March
31, 1995, results in a non-recurring pre-tax expense of $1.5 million
payable November 27, 1996. On an after-tax basis, the charge is
$956,000 or the equivalent of 38 cents per share. Beginning January
1, 1997, the annual deposit insurance premium of the Bank will be
reduced from 23 basis points to about 6 basis points which will result
in an annual savings of about $400,000.
Financial Condition
-------------------
Total assets increased $7.2 million or 2.2% to $341.5 million at
September 30, 1996 compared to $334.3 million at December 31, 1995.
Short-term investments decreased and investment securities increased
to $5.7 million and $39.8 million, respectively, at September 30, 1996
compared to $14.3 million and $27.9 million, respectively at December
31, 1995. The $8.5 million decrease in short-term investments was the
result of maturities and the $11.9 million increase in investment
securities was the result of the reinvestment of those maturing
short-term investments and the use of available cash. At September
30, 1996 the Company had $24.6 million of investment securities
classified as available for sale compared to $40.9 million at December
31, 1995. The after-tax net unrealized loss on these securities
amounted to $31,000 at September 30, 1996, which is reflected as a
separate component of shareholders' equity. The reduction in
available for sale securities was the result of both maturities and
sales for which the proceeds were used to purchase loans.
Mortgage-backed securities increased $9.6 million to $129.1 million at
September 30, 1996 compared to $119.5 million at December 31, 1995.
Loans receivable increased $10.3 million or 8.7% to $129.8 million at
September 30, 1996 compared to $119.5 million at December 31, 1995, as
originations exceeded principal repayments and management invested
available funds in an effort to increase loans outstanding. The
Company purchased approximately $8.3 million of adjustable rate
residential mortgage loans during the second quarter of 1996.
Total liabilities increased by $9.5 million or 3.2% to $301.7 million
at September 30, 1996 compared to $292.2 million at December 31, 1995.
Deposits increased $2.9 million or 1.2% to $244.5 million at September
30, 1996 compared to $241.6 million at December 31, 1995. Deposits
increased primarily due to the Company being competitively priced in
certificates of deposit during the first, second and third quarters of
1996. Borrowed funds increased $5.7 million to $53.7 million at
September 30, 1996 compared to $48.0 million at December 31, 1995,
which funds were used to invest in assets yielding higher rates than
those rates paid on the borrowings.
10
<PAGE>
Total shareholders' equity decreased $2.2 million to $39.9 million at
September 30, 1996 compared to $42.1 million at December 31, 1995.
This decrease was primarily the result of the Company repurchasing
$2.9 million of its common stock. In January 1996, the Company
announced a repurchase of up to 5% or 133,941 shares of the Company's
outstanding common stock. This program was completed in July 1996.
Shares were purchased at ranges between $14.56 and $15.81 per share.
In July 1996 the Company announced another 5% program representing
127,567 shares to be repurchased over the next six months, of which
there were 60,176 shares purchased in the open market at ranges
between $13.81 and $15.50 during the quarter. These repurchased
shares are held as treasury shares. An additional reduction in equity
was caused by the Company also paying quarterly cash dividends of
approximately $336,000, $331,000 and $346,000 for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996, respectively.
In addition, during the nine months ended September 30, 1996 the
market value of investment securities available for sale declined
$62,000 from a net gain position of $31,000 at December 31, 1995 to a
net loss position of $31,000 at September 30, 1996. These decreases
were partially offset by net income of $1.5 million and the
amortization of the expense of our Recognition and Retention Plan of
$83,000.
RESULTS OF OPERATIONS
Net Income
----------
The Company had a net loss of $139,000 or $.06 per share loss for the
three months ended September 30, 1996 compared to earnings of $805,000
or $.29 per share for the three months ended September 30, 1995. The
net loss for the three months ended September 30, 1996 was the result
of a $1.5 million pre-tax charge for the amount of the Federal Deposit
Insurance Corporation ("FDIC") special assessment to recapitalize the
Savings Association Insurance Fund ("SAIF"). On an after-tax basis
this one-time special assessment of $956,000 resulted in a decrease in
earnings per share of $.38 for the quarter ended September 30, 1996.
Without the assessment, net income for the quarter would have been
$818,000 or $.32 per share, an increase of $13,000 compared to the
three months ended September 30, 1995. Net income was $1.5 million or
$.58 per share for the nine months ended September 30, 1996 compared
to $2.4 million or $.85 per share for the same period in 1995. The
decrease in earnings for the nine months ended September 30, 1996
compared to the year-earlier period was also the result of the FDIC
special assessment. Without the special assessment, net income for
the nine months ended September 30, 1996 would have been $2.4 million
or $.95 per share.
Interest Income
---------------
Interest income amounted to $6.2 million for the three month period
ended September 30, 1996, compared to $5.8 million during the same
period in 1995. The $322,000 increase was due to an increase in
average interest-earning assets of $20.9 million offset by a decrease
of 8 basis points in the weighted average yield on interest-earning
assets. The increase in average balances occurred in investment
securities, loans receivable and mortgage-backed securities and was
partially offset by reductions in short-term investments. The
decrease in the weighted average yield occurred in short-term
investments and loans with offsetting increases
11
<PAGE>
in the yield on investments and mortgage-backed securities.
Interest income amounted to $18.4 million for the nine months ended
September 30, 1996 compared to $17.0 million during the same period in
1995. The $1.4 million increase was due to an increase in average
interest-earning assets of $21.6 million and an increase of 8 basis
points in the weighted average yield on interest-earning assets. The
increase in the balances of average interest-earning assets was the
result of a $19.1 million aggregate increase in average investment
securities and investment securities available for sale, a $12.6 million
increase in average loans receivable and a $1.5 million increase in
average mortgage-backed securities partially offset by a $11.7 million
decrease in short-term investments. The increase in the weighted
average yield occurred in investments and mortgage backed securities and
decreases in yield occurred in loans and short-term investments.
Interest Expense
----------------
Interest expense increased to $3.2 million for the three month period
ended September 30, 1996, compared to $2.9 million during the same
period in 1995. This $342,000 increase in interest expense was due
to a $22.7 million increase in the balance of average interest-bearing
liabilities and an increase of 13 basis points in the average cost of
funds. Average balances of certificates of deposit and borrowed funds
increased, which were partially offset by decreases in the balances of
passbook accounts. The cost of funds increase was a result of an
increase in the cost of funds in time deposits partially offset by
decreases in the cost of funds in NOW, money market and borrowed
funds. Interest expense increased to $9.5 million for the nine months
ended September 30, 1996 compared to $8.2 million for the same period
in 1995. This $1.3 million increase in interest expense was due to a
$22.6 million increase in the balance of average interest-bearing
liabilities and an increase of 27 basis points in the average cost of
funds. Average deposits increased $10.2 million for the nine month
period ended September 30, 1996 compared to the same period in 1995 as
a result of the Company being competitively priced in certificates of
deposit which increases were partially offset by decreases in the
average balance of passbook accounts. Average borrowed funds
increased $12.4 million for the nine month period ended September 30,
1996 compared to the same period in 1995 due to the Company increasing
its short-term FHLB advances. The increase in the average cost of
funds occurred in time deposits and decreases occurred in the average
cost of borrowed funds. NOW, money market, and passbook accounts cost
of funds remained relatively stable.
Net Interest Income
-------------------
Net interest income amounted to $2.9 million and $8.9 million for the
three and nine months ended September 30, 1996, respectively, compared
to $2.9 million and $8.8 million during the same time periods in 1995.
Net interest income increased mainly because of higher average
balances. Average interest-earning assets increased $20.9 million and
$21.6 million during the three and nine months ended September 30,
1996 compared to the year-earlier period. Average interest-bearing
liabilities increased $22.7 million and $22.6 million during the same
comparative time period. The Company repurchased $2.9 million of its
common stock during the first nine months of this year. A shift from
lower yielding assets into higher yielding assets for the nine months
ended September 30, 1996 compared to the year-earlier period, was
offset by a corresponding shift from lower yielding deposits into
higher yielding deposits during the same comparative time period. The
net interest margin declined 27 basis
12
<PAGE>
points to 3.55% for the three months ended September 30, 1996 from 3.82%
for the year-earlier period and declined 21 basis points to 3.61% for the
nine months ended September 30, 1996 from 3.82% for the same period last
year. The decline in the net interest margin was partially attributable
to an increase in average rates earned on interest-earning assets being
more than offset by an increase in rates paid on average interest-bearing
liabilities.
Provision for Loan Losses
-------------------------
The provision for loan losses decreased to $70,000 for the nine month
period ended September 30, 1996 compared to $90,000 during the same
time period in 1995. This reflected management's evaluation of the
underlying credit risk of the loan portfolio and the level of
allowance for loan losses.
The allowance for loan losses amounted to $1.4 million or 1.07% and
161.25% of total loans and total non-performing loans, respectively,
at September 30, 1996, as compared to $1.5 million or 1.21% and
130.32% , respectively, at December 31, 1995
Non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) were $867,000 and $1.1 million at September 30, 1996
and December 31, 1995, respectively, which represented .66% and .93%
of the Company's total loans, respectively. The Company's real estate
owned, which consists of real estate acquired through foreclosure or
by deed-in-lieu thereof, amounted to $57,000 and $26,000 at September
30, 1996 and December 31, 1995, respectively. As a percentage of
total assets, the Company's total non-performing assets amounted to
$924,000 or .27% at September 30, 1996 and $1.1 million or .34% at
December 31, 1995.
Non-Interest Income
-------------------
Non-interest income amounted to $149,000 and $458,000 for the three
and nine month periods ended September 30, 1996, as compared to
$163,000 and $472,000 for the same time periods in 1995. The
decrease of $14,000 or 3.0% for the nine month period ended September
30, 1996, was due primarily to a decrease in loan fees and charges.
Non-interest Expense
--------------------
Non-interest expense increased $1.5 million for the three month period
ended September 30, 1996 compared to the same time period in 1995,
primarily as a result of the $1.5 million one-time FDIC special
assessment which was offset by decreases in salaries and employee
benefits of $24,000, premises and equipment expense of $7,000 and
other expenses of $14,000. Non-interest expense increased $1.6
million for the nine months ended September 30, 1996 compared to the
same period in 1995, primarily as a result of the $1.5 million
one-time FDIC special assessment and increases in salaries and
employee benefits of $48,000, premises and equipment of $40,000, data
processing expense of $12,000 offset by a decrease in other expenses
of $78,000. Increases in salaries and employee benefits were the
result of normal salary adjustments, and expenses related to the
establishment of a Recognition and Retention Plan in the second
quarter of 1995. Increases in premises and equipment expense were
primarily the result of expenses related to renovation of a branch
office and expenses
13
<PAGE>
caused by severe weather conditions in the first quarter of 1996.
Decreases in other expenses were primarily due to decreases in
advertising, supply and other expenses.
Provision for Income Taxes
--------------------------
Provision(benefit) for income taxes was ($106,000) and $455,000 for
the three months ended September 30, 1996 and 1995, respectively, and
$811,000 and $1.4 million for the nine months ended September 30, 1996
and 1995, respectively. The Company's effective tax rate amounted to
35.4% and 36.8% during the nine months ended September 30, 1996 and
1995, respectively. The benefit received for the three months ended
September 30, 1996 resulted from the one-time FDIC special assessment
incurred during the quarter. Without this one-time special
assessment, income taxes would have been $456,000 or an effective tax
rate of 35.8% for the three months ended September 30, 1996 compared
to an effective tax rate of 36.1% for the three months ended September
30, 1995.
Liquidity
---------
Office of Thrift Supervision ("OTS") regulations require the Bank to
maintain an average daily balance of liquid assets (cash, certain time
deposits, banker's acceptances and specified United States Government,
state or federal agency obligations) equal to a monthly average of not
less than 5% of its net withdrawable deposits plus short-term
borrowings. For the month of September 1996, the Bank's average
liquidity position was $40.7 million or 14.21% compared to $59.0
million or 21.03% for the month of December 1995.
Regulatory Capital Requirements
-------------------------------
The Bank is required to maintain specified amounts of capital pursuant
to the Financial Institutions Reform, Recovery and Enforcement Act of
1989 and regulations thereunder. Savings associations are required to
maintain tangible capital (shareholders' equity less goodwill)
amounting to not less than 1.5% of adjusted total assets and core
capital (tangible capital plus 90% of purchased mortgage servicing
rights) amounting to not less than 3% of adjusted total assets. In
addition, savings associations are required to maintain risk-based
capital in an amount equal to 8.0% of total assets and off-balance
sheet instruments, as adjusted to reflect their relative credit risks.
At September 30, 1996, the Bank's tangible, core and risk-based
capital ratios amounted to 10.15%, 10.15% and 26.05%, respectively,
which substantially exceeded applicable requirements.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business. In the
opinion of management, no material loss is expected from any of such
pending claims or lawsuits.
Item 5. Other Information
--------------------------
Under Section 593 of the Internal Revenue Code of 1986 (the "Code"),
thrift institutions such as the Bank, which meet certain definitional
tests primarily relating to their assets and the nature of their
business, are permitted to establish a tax reserve for bad debts and
to make annual additions, thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable
income. The Bank's deduction with respect to "qualifying loans,"
which are generally loans secured by certain interests in real
property, may currently be computed using an amount based on the
Bank's actual loss experience (the "experience method"), or a
percentage equal to 8.0% of the Bank's taxable income (the "percentage
of taxable income method"), computed without regard to this deduction
and with additional modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve. The Bank has
generally used the percentage of taxable income method in the past.
Recent legislation adopted in early August 1996 generally (i) repeals
the provisions of Section 593 of the Code which authorizes use of the
percentage of taxable income method by qualifying savings institutions
to determine deductions for bad debts, effective for taxable years
beginning after 1995, and (ii) require that a savings institution
recapture for tax purposes (i.e. take into income) over a six-year
period the excess of the balance of its bad debt reserves over the
balance of such reserves as of December 31, 1987, which recapture
would be suspended for any tax year that begins after December 31,
1995 and before January 1, 1998 (thus a maximum of two years) in which
a savings institution originates an amount of residential loans which
is not less than the average of the principal amount of such loans
made by a savings institution during its six taxable years preceding
1996. As the Company has previously provided deferred taxes on this
amount, no additional financial statement tax expense will result from
this legislation.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the
undersigned thereunto duly authorized.
FED ONE BANCORP, INC.
Date: November 8, 1996 By: /s/Alan E. Groover
--------------------- ------------------------------
Alan E. Groover
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 8, 1996 By: /s/Lisa K. DiCarlo
---------------------- -------------------------------
Lisa K. DiCarlo
Senior Vice President
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
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0
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<COMMON> 282
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