<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 June 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--2,531,350 shares as of
August 6, 1996.
<PAGE>
FED ONE BANCORP, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial 1
Condition at June 30, 1996
(unaudited) and December 31, 1995
Consolidated Statements of Income 2
for the Three and Six Months ended
June 30, 1996 and 1995 (unaudited)
Consolidated Statement of Changes in 3
Shareholders' Equity for the Six
Months ended June 30, 1996
(unaudited)
Consolidated Statements of Cash 4
Flows for the Six Months ended June
30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial 5
Statements
Financial Highlights 9
Item 2. Management's Discussion and 10
Analysis of 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>
JUNE 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 $ 1,598 $ 1,429
SHORT-TERM INVESTMENTS:
INTEREST-EARNING DEPOSITS IN OTHER INSTITUTIONS 5,405 10,269
CERTIFICATES OF DEPOSIT 1,000 3,994
INVESTMENT SECURITIES HELD TO MATURITY, AT COST
(market value of $38,524 and $28,172) 39,153 27,877
INVESTMENT SECURITIES AVAILABLE FOR SALE
(cost of $27,931 and $40,799) 27,767 40,850
MORTGAGE-BACKED SECURITIES HELD TO MATURITY, AT COST
(market value of $126,246 and $121,582) 126,122 119,501
LOANS RECEIVABLE, NET OF ALLOWANCE FOR LOAN
LOSSES OF $1,454 AND $1,457 130,576 119,493
REAL ESTATE OWNED 107 26
PREMISES AND EQUIPMENT, NET 5,501 5,355
ACCRUED INTEREST RECEIVABLE:
INVESTMENT SECURITIES 1,162 1,154
MORTGAGE-BACKED SECURITIES 864 846
LOANS RECEIVABLE 1,053 952
PREPAID EXPENSES AND OTHER ASSETS 2,720 2,551
-------- --------
TOTAL ASSETS $343,028 $334,297
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS $246,374 $241,567
BORROWED FUNDS 53,018 48,044
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 991 830
ACCRUED INTEREST PAYABLE 413 453
INCOME TAXES PAYABLE 81 279
ACCRUED EXPENSES AND OTHER LIABILITIES 963 1,024
-------- --------
TOTAL LIABILITIES 301,840 292,197
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 JUNE 30, 1996
AND DECEMBER 31, 1995 282 282
ADDITIONAL PAID-IN CAPITAL 19,354 19,330
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) SHARES (959) (1,016)
RETAINED EARNINGS - SUBSTANTIALLY RESTRICTED 27,256 26,358
TREASURY STOCK AT COST: 260,571 AND 139,938 SHARES
AT JUNE 30, 1996 AND DECEMBER 31, 1995, RESPECTIVELY (3,941) (2,088)
UNEARNED COMMON STOCK HELD BY THE RECOGNITION
AND RETENTION PLAN (RRP) (705) (797)
NET UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
AVAILABLE FOR SALE (99) 31
-------- --------
TOTAL SHAREHOLDERS' EQUITY 41,188 42,100
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $343,028 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1995
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
(In Thousands except per share data)
INTEREST INCOME:
LOANS RECEIVABLE $ 2,893 $ 2,676 $ 5,735 $ 5,332
MORTGAGE-BACKED SECURITIES 2,024 1,941 4,036 3,746
INVESTMENT SECURITIES 1,097 765 2,183 1,470
SHORT-TERM INVESTMENTS 111 317 270 613
-------- -------- -------- --------
TOTAL INTEREST INCOME 6,125 5,699 12,224 11,161
INTEREST EXPENSE:
DEPOSITS 2,503 2,227 4,978 4,301
BORROWED FUNDS 666 563 1,314 1,046
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 3,169 2,790 6,292 5,347
NET INTEREST INCOME 2,956 2,909 5,932 5,814
PROVISION FOR LOAN LOSSES 30 30 50 60
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,926 2,879 5,882 5,754
NON-INTEREST INCOME:
FEES AND SERVICE CHARGES 149 153 290 292
NET GAIN ON SALE OF INVESTMENT
SECURITIES - AFS 3 - 3 -
OTHER 5 5 16 17
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME 157 158 309 309
NON-INTEREST EXPENSE:
SALARIES AND EMPLOYEE BENEFITS 920 908 1,864 1,799
PREMISES AND EQUIPMENT EXPENSE 354 319 698 651
DATA PROCESSING 48 46 110 97
FEDERAL INSURANCE PREMIUMS 138 135 273 270
AMORTIZATION EXPENSE 71 71 141 141
REO EXPENSE 2 (1) 6 1
OTHER 272 323 561 618
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 1,805 1,801 3,653 3,577
INCOME BEFORE INCOME TAXES 1,278 1,236 2,538 2,486
PROVISION FOR INCOME TAXES 460 458 917 924
-------- -------- -------- --------
NET INCOME $ 818 $ 778 $ 1621 $ 1,562
-------- -------- -------- --------
-------- -------- -------- --------
PRIMARY/FULY DILUTED
EARNINGS PER SHARE $ 0.32 $ 0.28 $ 0.62 $ 0.56
DIVIDENDS DECLARED PER SHARE $ 0.135 $ 0.125 $ 0.27 $ 0.25
AVERAGE NUMBER OF SHARES
OUTSTANDING (000's omitted):
PRIMARY 2,554 2,778 2,597 2,771
FULLY DILUTED 2,555 2,781 2,597 2,775
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 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 RRP FOR SALE TOTAL
------- ---------- ---------- ---------- --------- ---------- --------------- ---------
(In Thousands)
<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 - - - 1,621 - - - 1,621
AMORTIZATION OF
RECOGNITION AND
RETENTION PLAN - - - - - 92 - 92
COMMON STOCK ISSUED
UPON EXERCISE OF STOCK
OPTIONS - 6,457 SHARES - - - (56) 95 - - 39
CASH DIVIDEND DECLARED - - - (667) - - - (667)
PRINCIPAL REPAYMENT OF
ESOP DEBT - 24 57 - - - - 81
PURCHASE OF TREASURY
STOCK - 127,100 SHARES - - - - (1,948) - - (1,948)
CHANGE IN NET UNREALIZED GAIN
(LOSS) ON INVESTMENT
SECURITIES AVAILABLE
FOR SALE - - - - - - (130) (130)
----- -------- ------ -------- -------- ------ ----- --------
BALANCE AT
June 30, 1996 $ 282 $ 19,354 $ (959) $ 27,256 $ (3,941) $ (705) $ (99) $ 41,188
----- -------- ------ -------- -------- ------ ----- --------
----- -------- ------ -------- -------- ------ ----- --------
</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 SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
------- -------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 1,621 $ 1,562
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES 50 60
DEPRECIATION AND AMORTIZATION 460 414
NON-CASH COMPENSATION EXPENSE RELATED TO ESOP BENEFIT 81 68
NET GAIN ON SALES OF:
INVESTMENT SECURITIES (3) -
REO (2) -
INCREASE IN ACCRUED INTEREST RECEIVABLE (127) (365)
INCREASE (DECREASE) IN ACCRUED EXPENSES (85) 6
INCREASE IN TAXES PAYABLE (178) (44)
OTHER, NET (220) 261
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,597 1,962
INVESTING ACTIVITIES:
PURCHASES OF:
CERTIFICATES OF DEPOSIT -- (2,994)
INVESTMENT SECURITIES HELD TO MATURITY (18,992) (3,766)
INVESTMENT SECURITIES AVAILABLE FOR SALE (6,493) (2,605)
MORTGAGE-BACKED SECURITIES HELD TO MATURITY (17,602) (11,540)
LOANS (12,857) (2,149)
PREMISES AND EQUIPMENT, NET (377) (258)
PROCEEDS FROM SALES OF:
INVESTMENT SECURITIES AVAILABLE FOR SALE 5,000 -
LOANS 94 446
REO 12 -
PRINCIPAL REPAYMENTS AND MATURITIES OF:
CERTIFICATES OF DEPOSIT 2,994 2,000
INVESTMENT SECURITIES HELD TO MATURITY 7,721 541
INVESTMENT SECURITIES AVAILABLE FOR SALE 14,363 2,319
MORTGAGE-BACKED SECURITIES HELD TO MATURITY 10,980 5,758
DECREASE IN LOANS RECEIVABLE, NET 1,526 445
------- -------
NET CASH USED BY INVESTING ACTIVITIES (13,631) (11,803)
FINANCING ACTIVITIES:
INCREASE (DECREASE) IN DEPOSITS, NET 4,807 (1,626)
INCREASE IN BORROWINGS, NET 4,974 5,600
INECREASE IN ADVANCES BY BORROWERS
FOR TAXES AND INSURANCE 161 345
PROCEEDS FROM ISSUANCE OF COMMON STOCK 39 14,783
STOCK ACQUIRED FOR ESOP - (1,129)
PURCHASE OF COMMON STOCK FOR RECOGNITON AND RETENTION PLAN - (919)
PURCHASE OF TREASURY STOCK (1,948) -
CASH DIVIDENDS PAID (694) (488)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,339 16,566
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,695) 6,725
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,698 9,743
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,003 $ 16,468
------- -------
------- -------
</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 six months
ended June 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 for the three and six months ended June 30, 1996 were $.32
per share and $.62 per share, respectively, compared to $.28 per
share and $.56 per share for the three and six months ended June 30,
1995, respectively. Earnings per share were computed by dividing
net income for the three and six months ended June 30, 1996 and 1995
by the weighted average number of common shares and common stock
equivalents outstanding. Shares outstanding for the three and six
months ended June 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 2,553,795 and
2,597,200 common shares and common stock equivalents for the three
and six months ended June 30, 1996 and 2,778,113, and 2,771,060
common shares and common stock equivalents for the three and six
months ended June 30, 1995, respectively. Reported fully diluted per
share amounts are based on 2,554,581 and 2,597,207 common shares and
common stock equivalents for three and six months ended June 30,
1996, and 2,780,918 and 2,775,118 common shares and common stock
equivalents for the three and six months ended June 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.
6. DIVIDENDS ON COMMON STOCK
On June 19, 1996, the Company declared a quarterly cash dividend of
$.135 per share payable on July 19, 1996 to shareholders of record
on July 1, 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 six months ended June 30, 1996
consists of (in thousands):
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ 774 $ 73 $ 847
State 49 21 70
------- -------- -----
$ 823 $ 94 $ 917
======= ======== ======
6
<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at June 30, 1996 are presented below (in thousands):
Deferred tax assets:
Allowance for loan losses $ 200
Unrealized losses of securities
available for sale 66
Deposit-based intangibles 32
Other 43
------
Total gross deferred tax assets $ 341
Deferred tax liabilities:
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (128)
Deferred loan fees (234)
Other (16)
------
Total gross deferred tax liabilities (378)
------
Net deferred tax asset (liability) $ (37)
------
------
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.
The undercapitalized status of the Federal Deposit Insurance
Corporation's ("FDIC") Savings Association Insurance Fund ("SAIF")
has resulted in the introduction of federal legislation to
recapitalize the SAIF which, if enacted, would require thrifts like
the Bank to pay a one-time charge of approximately $.80 to $.85 for
every $100 of assessable deposits. Based on total deposits of
$233.2 million at March 31, 1995, the Bank's share would amount to
approximately $1.9 million to $2.0 million on a pre-tax basis.
7
<PAGE>
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 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 $41,000 and
$83,000 for the three and six months ended June 30, 1996 compared to
$35,000 and $67,000 for the three and six months ended June 30,
1995, respectively. The fair value of unearned ESOP shares at June
30, 1996 totaled $1.4 million. At June 30, 1996, there were 5,640
ESOP shares committed to be released and 95,942 suspense shares.
ESOP shares totaling 11,286 were allocated as of June 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
AT OR FOR THE AT OR FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
---------------- -------------
FINANCIAL CONDITION DATA: (Dollars In Thousands)
AVERAGE INTEREST-EARNING ASSETS $326,172 $308,965
AVERAGE INTEREST-BEARING LIABILITIES 285,289 267,471
NET AVERAGE EARNING ASSETS 40,883 41,494
NON-PERFORMING ASSETS 1,045 1,144
NON-PERFORMING LOANS 938 1,118
ALLOWANCE FOR LOAN LOSSES 1,454 1,457
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING LIABILITIES 114.33% 115.51%
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 155.01% 130.32%
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.11% 1.21%
NON-PERFORMING LOANS TO TOTAL LOANS 0.71% 0.93%
NON-PERFORMING ASSETS TO TOTAL ASSETS 0.30% 0.34%
CUMULATIVE ONE-YEAR GAP 2.89% 11.62%
SHAREHOLDERS' EQUITY TO ASSETS 12.01% 12.59%
EFFICIENCY RATIO 56.27% 55.56%
COVERAGE RATIO 162.39% 164.12%
NUMBER OF BANKING FACILITIES 9 9
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED OPERATING ACTIVITIES (1):
RETURN ON AVERAGE ASSETS 0.96% 0.98% 0.96% 0.99%
RETURN ON AVERAGE EQUITY 7.99% 7.24% 7.85% 7.43%
NET INTEREST RATE SPREAD 3.05% 3.20% 3.09% 3.26%
NET INTEREST MARGIN 3.59% 3.78% 3.64% 3.82%
(1) AMOUNTS ARE ANNUALIZED
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------ ----------------
<S> <C> <C>
PER SHARE DATA:
EARNINGS PER SHARE (2) $ .32 $ .62
BOOK VALUE PER SHARE (3) 16.73 16.73
TANGIBLE BOOK VALUE PER SHARE (3) 15.91 15.91
MARKET PRICE PER SHARE:
HIGH FOR THE QUARTER/YEAR 15.625 16.25
LOW FOR THE QUARTER/YEAR 14.50 14.25
CLOSE 06/30/96 15.00 15.00
CASH DIVIDENDS DECLARED PER SHARE .135 .27
AVERAGE NUMBER OF SHARES OUTSTANDING (2):
PRIMARY 2,553,795 2,597,200
FULLY DILUTED 2,554,581 2,597,207
</TABLE>
(2) Amounts calculated exclude ESOP shares not committed to be released and
include common stock equivalents.
(3) 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
FINANCIAL CONDITION
Total assets increased $8.7 million or 2.6% to $343.0 million at
June 30, 1996 compared to $334.3 million at December 31, 1995.
Short-term investments decreased and investment securities increased
to $6.4 million and $39.2 million, respectively, at June 30, 1996
compared to $14.3 million and $27.9 million, respectively at
December 31, 1995. The $7.9 million decrease in short-term
investments was the result of maturities and the $11.3 million
increase in investment securities was the result of the reinvestment
of those maturing short-term investments and the use of available
cash. At June 30, 1996 the Company had $27.8 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 $99,000 at June 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 $6.6 million to $126.1
million at June 30, 1996 compared to $119.5 million at December 31,
1995. Loans receivable increased $11.1 million or 9.3% to $130.6
million at June 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 $9.6 million or 3.3% to $301.8
million at June 30, 1996 compared to $292.2 million at December 31,
1995. Deposits increased $4.8 million or 2.0% to $246.4 million at
June 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 and second
quarters of 1996. Borrowed funds increased $5.0 million to $53.0
million at June 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.
Total shareholders' equity decreased $912,000 to $41.2 million at
June 30, 1996 compared to $42.1 million at December 31, 1995. This
decrease was a result of the Company repurchasing $1.9 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, of which there were 127,100 shares
purchased in the open market at ranges between $14.56 and $15.81
during the first six months of this year. These shares are held as
treasury shares. This program was completed with 6,841 shares
repurchased in July 1996. The Company recently announced another 5%
program representing 127,567 shares to be repurchased over the next
six months. The Company also paid quarterly cash dividends of
approximately $336,000 and $331,000 for the quarters ended March 31,
1996 and June 30, 1996, respectively. In addition, during the six
months ended June 30, 1996 the market value of investment
securities available for the sale declined $130,000 from a net gain
position of $31,000 at December 31,
10
<PAGE>
1995 to a net loss position of $99,000 at June 30, 1996. These
decreases were partially offset by net income of $1.6 million and
the amortization of the expense of our Recognition and Retention Plan
of $61,000.
RESULTS OF OPERATIONS
NET INCOME
Net income was $818,000 or $.32 per share for the three months ended
June 30, 1996 compared to $778,000 or $.28 per share for the three
month period ended June 30, 1995. The $40,000 increase in net income
for the three months ended June 30, 1996 as compared to the same
period in 1995 was primarily the result of an increase in net
interest income of $47,000, which was partially offset by an
increase in provision for income taxes of $2,000 and an increase in
total non-interest expense of $4,000. Net income was $1.6 million
or $.62 per share for the six months ended June 30, 1996 compared to
$1.6 million or $.56 per share for the same period in 1995. The
$59,000 increase for the six months ended June 30, 1996 compared to
the year-earlier period was primarily the result of an increase in
net interest income of $118,000, a decrease in the provision for
loan losses of $10,000 and a decrease in the provision for income
taxes of $7,000, offset by an increase in total non-interest expense
of $76,000.
INTEREST INCOME
Interest income amounted to $6.1 million for the three month period
ended June 30, 1996, compared to $5.7 million during the same
period in 1995. The $426,000 increase was due to an increase in
average interest-earning assets of $21.3 million and an increase of
4 basis points in the weighted average yield on interest-earning
assets. The increase in average balances occurred in investment
securities and loans receivable and was partially offset by
reductions in short-term investments and mortgage backed securities.
Interest income amounted to $12.2 million for the six months ended
June 30, 1996 compared to $11.2 million during the same period in
1995. The $1.0 million increase was due to an increase in average
interest-earning assets of $21.8 million and an increase of 17 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 $21.9 million aggregate increase in average
investment securities and investment securities available for sale,
a $11.5 million increase in average loans receivable and a $118,000
increase in average mortgage-backed securities partially offset by a
$11.8 million decrease in short-term investments. The increase in
the weighted average yield occurred in investments and mortgage
backed securities and decreases occurred in loans and short-term
investments.
INTEREST EXPENSE
Interest expense increased to $3.2 million for the three month
period ended June 30, 1996, compared to $2.8 million during the
same period in 1995. This $379,000 increase in interest expense
was due to a $23.2 million increase in the balance of average
interest-bearing liabilities and an increase of 19 basis points in
the average cost of funds. Average balances
11
<PAGE>
increased in certificates of deposit and borrowed funds which increases
were partially offset by decreases in the balances of passbook accounts.
Interest expense increased to $6.3 million for the six months ended
June 30, 1996 compared to $5.3 million for the same period in 1995.
This $945,000 increase in interest expense was due to a $22.6
million increase in the balance of average interest-bearing
liabilities and an increase of 34 basis points in the average cost
of funds. Average deposits increased $11.0 million for the six
month period ended June 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 passbook accounts. Average borrowed funds
increased $11.6 million for the six month period ended June 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 $3.0 million and $5.9 million for
the three and six months ended June 30, 1996, respectively, compared
to $2.9 and $5.8 million during the same time periods in 1995. Net
interest income increased mainly because of higher average balances.
Average interest-earning assets increased $21.3 million and $21.8
million during the three and six months ended June 30, 1996 compared
to the year earlier period. Average interest-bearing liabilities
increased $23.2 million and $22.6 million during the same
comparative time period. The Company repurchased $1.9 million of
its common stock during the first six months of this year. A shift
from lower yielding assets into higher yielding assets for the six
months ended June 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 19 basis points to 3.59% for the
three months ended June 30, 1996 from 3.78% for the year-earlier
period and declined 18 basis points to 3.64% for the six months
ended June 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 $50,000 for the six
month period ended June 30, 1996 compared to $60,000 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 $1.5 million or 1.11% and
155.01% of total loans and total non-performing loans, respectively,
at June 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 $938,000 and $1.1 million at June 30, 1996
and December 31, 1995, respectively, which
12
<PAGE>
represented .71% 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 $107,000 and $26,000 at June 30, 1996 and
December 31, 1995, respectively. As a percentage of total assets,
the Company's total non-performing assets amounted to $1.0 million
or .30% at June 30, 1996 and $1.1 million or .34% at December 31,
1995.
NON-INTEREST INCOME
Non-interest income amounted to $157,000 and $309,000 for the three
and six month periods ended June 30, 1996, as compared to $158,000
and $309,000 for the same time periods in 1995.
NON-INTEREST EXPENSE
Non-interest expense increased $4,000 for the three month period
ended June 30, 1996, compared to the same time period in 1995,
primarily as a result of increases in salaries and employee benefits
of $12,000, premises and equipment expense of $35,000 and a decrease
in other expenses of $51,000. Non-interest expense increased
$76,000 for the six months ended June 30, 1996 compared to the same
period in 1995, primarily as a result of increases in salaries and
employee benefits of $65,000 premises and equipment expense of
$47,000, data processing expense of $13,000 and a decrease in other
expenses of $57,000. 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 caused by severe weather conditions in
the first quarter of 1996. Decreases in other expenses were
primarily due to decreases in postage, supply and other expenses.
PROVISION FOR INCOME TAXES
Provision for income taxes was $460,000 and $458,000 for the three
months ended June 30, 1996 and 1995, respectively, and $917,000 and
$924,000 for the six months ended June 30, 1996 and 1995,
respectively. The Company's effective tax rate amounted to 36.0%
and 37.1% during the three months ended June 30, 1996 and 1995,
respectively and 36.1% and 37.2% during the six months ended June
30, 1996 and 1995, respectively.
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
13
<PAGE>
of June 1996, the Bank's average liquidity position was $41.8 million
or 14.44% 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 lessgoodwill) 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 June 30, 1996, the Bank's
tangible, core and risk-based capital ratios amounted to 10.30%,
10.30% and 26.67%, 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 by the U.S. Congress in early August 1996
and anticipated to become law upon signature by the President of the
United States generally would (i) repeal 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. The Company is unable to predict at this time whether the
legislation will be adopted or the form of such final legislation if
adopted and its effect on the Company.
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: AUGUST 9, 1996 By: /S/ALAN E. GROOVER
------------------------- ------------------------------
Alan E. Groover
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: AUGUST 9, 1996 By: /S/LISA K. DICARLO
------------------------- ------------------------------
Lisa K. DiCarlo
Senior Vice President and Treasurer
(Principal Financial and Accounting
Officer)
16
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,598
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<INVESTMENTS-HELD-FOR-SALE> 27,767
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<LOANS> 130,576
<ALLOWANCE> 1,454
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<DEPOSITS> 246,374
<SHORT-TERM> 47,332
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0
0
<COMMON> 282
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<INCOME-PRETAX> 2,538
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<NET-INCOME> 1,621
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<LOANS-NON> 436
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