<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 March 31, 1997
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--2,367,195 shares as of May 7, 1997.
<PAGE>
FED ONE BANCORP, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1997 (unaudited) and December 31, 1996 1
Consolidated Statements of Income for the Three
Months ended March 31, 1997 and 1996 (unaudited) 2
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months ended March 31, 1997
(unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1997 and 1996 (unaudited) 4
Notes to Consolidated Financial Statements 5
Financial Highlights 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------------- ------------------
(Dollars in Thousands Except For Shares)
<S> <C> <C>
ASSETS
CASH ON HAND AND NONINTEREST-
EARNING DEPOSITS IN OTHER
INSTITUTIONS $ 1,017 $ 1,043
SHORT-TERM INVESTMENTS:
INTEREST-EARNING DEPOSITS IN
OTHER INSTITUTIONS 6,002 8,896
CERTIFICATES OF DEPOSIT 595 595
INVESTMENT SECURITIES HELD TO MATURITY
(market value of $38,559 and $39,045) 39,133 39,195
INVESTMENT SECURITIES AVAILABLE FOR SALE
(cost of $15,327 and $17,824) 15,349 17,888
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
(market value of $129,642 and $131,224) 129,527 130,173
LOANS RECEIVABLE, NET OF ALLOWANCE FOR LOAN
LOSSES OF $1,450 AND $1,434 143,623 133,401
REAL ESTATE OWNED 55 56
PREMISES AND EQUIPMENT, NET 5,886 5,543
ACCRUED INTEREST RECEIVABLE:
INVESTMENT SECURITIES 782 962
MORTGAGE-BACKED SECURITIES 906 882
LOANS RECEIVABLE 1,127 1,026
PREPAID EXPENSES AND OTHER ASSETS 2,212 2,237
------------- -------------
TOTAL ASSETS $346,214 $341,897
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
DEPOSITS $253,244 $249,685
BORROWED FUNDS 50,340 50,319
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE 728 633
ACCRUED INTEREST PAYABLE 369 314
INCOME TAXES PAYABLE 563 100
ACCRUED EXPENSES AND OTHER LIABILITIES 774 872
------------- -------------
TOTAL LIABILITIES 306,018 301,923
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 MARCH 31, 1997
AND DECEMBER 31, 1996 282 282
ADDITIONAL PAID-IN CAPITAL 19,405 19,384
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
SHARES (875) (903)
RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED 27,676 27,226
TREASURY STOCK AT COST: 376,167 AND 360,063
SHARES AT MARCH 31, 1997 AND DECEMBER 31, 1996,
RESPECTIVELY (5,738) (5,440)
UNEARNED COMMON STOCK HELD BY THE RECOGNITION
AND RETENTION PLAN (RRP) (567) (613)
NET UNREALIZED GAIN ON INVESTMENT SECURITIES
AVAILABLE FOR SALE 13 38
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 40,196 39,974
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $346,214 $341,897
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---- ----
(In Thousands except per share data)
INTEREST INCOME:
LOANS RECEIVABLE $ 3,053 $ 2,842
MORTGAGE-BACKED SECURITIES 2,124 2,012
INVESTMENT SECURITIES 883 1,086
SHORT-TERM INVESTMENTS 130 159
-------- --------
TOTAL INTEREST INCOME 6,190 6,099
INTEREST EXPENSE:
DEPOSITS 2,553 2,475
BORROWED FUNDS 687 648
-------- --------
TOTAL INTEREST EXPENSE 3,240 3,123
NET INTEREST INCOME 2,950 2,976
PROVISION FOR LOAN LOSSES 30 20
-------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,920 2,956
NON-INTEREST INCOME:
FEES AND SERVICE CHARGES 133 141
OTHER 17 11
-------- --------
TOTAL NON-INTEREST INCOME 150 152
NON-INTEREST EXPENSE:
SALARIES AND EMPLOYEE BENEFITS 985 944
PREMISES AND EQUIPMENT EXPENSE 329 344
DATA PROCESSING 45 62
FEDERAL INSURANCE PREMIUMS 39 135
AMORTIZATION EXPENSE 70 70
REO EXPENSE 6 4
OTHER 259 289
-------- --------
TOTAL NON-INTEREST EXPENSE 1,733 1,848
INCOME BEFORE INCOME TAXES 1,337 1,260
PROVISION FOR INCOME TAXES 516 457
-------- --------
NET INCOME $ 821 $ 803
-------- --------
PRIMARY/FULLY DILUTED
EARNINGS PER SHARE $ 0.33 $ 0.30
DIVIDENDS DECLARED PER SHARE $ 0.145 $ 0.135
AVERAGE NUMBER OF SHARES
OUTSTANDING (000's omitted):
PRIMARY 2,458 2,640
FULLY DILUTED 2,462 2,644
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months ended March 31, 1997
<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, 1996 $ 282 $ 19,384 $ (903) $ 27,226 $ (5,440) $ (613) $ 38 $ 39,974
NET INCOME - - - 821 - - - 821
AMORTIZATION OF
RECOGNITION AND
RETENTION PLAN - - - - - 46 - 46
COMMON STOCK ISSUED
UPON EXERCISE OF STOCK
OPTIONS - 2,996 SHARES - - - (30) 44 - - 14
CASH DIVIDEND DECLARED - 3 - (341) - - (338)
PRINCIPAL REPAYMENT OF
ESOP DEBT - 18 28 - - - - 46
PURCHASE OF TREASURY
STOCK - 19,100 SHARES - - - - (342) - - (342)
CHANGE IN NET UNREALIZED GAIN
(LOSS) ON INVESTMENT
SECURITIES AVAILABLE
FOR SALE - - - - - - (25) (25)
------- ------- ------- ------- ------- ------- -------- -------
BALANCE AT
March 31, 1997 $ 282 $19,405 $ (875) $ 27,676 $ (5,738) $ (567) $ 13 $ 40,196
------- ------- ------- ------- ------- ------- -------- -------
------- ------- ------- ------- ------- ------- -------- -------
</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 THREE
MONTHS ENDED
MARCH 31,
---------------
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME...................................................... $ 821 $ 803
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES................................... 30 20
DEPRECIATION AND AMORTIZATION............................... 226 230
NON-CASH COMPENSATION EXPENSE RELATED TO ESOP BENEFIT....... 46 25
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE.......... 55 (91)
DECREASE IN ACCRUED EXPENSES................................ (41) (39)
INCREASE IN TAXES PAYABLE................................... 457 237
OTHER, NET.................................................. (20) (146)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 1,574 1,039
INVESTING ACTIVITIES:
PURCHASES OF:
CERTIFICATES OF DEPOSIT....................................... - -
INVESTMENT SECURITIES HELD TO MATURITY........................ (494) (17,993)
INVESTMENT SECURITIES AVAILABLE FOR SALE...................... (50) (4,318)
MORTGAGE-BACKED SECURITIES HELD TO MATURITY................... (5,156) (6,000)
LOANS......................................................... (13,005) (3,645)
PREMISES AND EQUIPMENT, NET................................... (460) (85)
PROCEEDS FROM SALES OF:
LOANS......................................................... - 16
REAL ESTATE OWNED............................................. - -
PRINCIPAL REPAYMENTS AND MATURITIES OF:
CERTIFICATES OF DEPOSIT....................................... - 2,000
INVESTMENT SECURITIES HELD TO MATURITY........................ 557 7,563
INVESTMENT SECURITIES AVAILABLE FOR SALE...................... 2,548 6,362
MORTGAGE-BACKED SECURITIES HELD TO MATURITY................... 5,807 5,396
NET PRINCIPAL REPAYMENTS ON LOANS............................. 2,753 1,400
-------- ---------
NET CASH USED BY INVESTING ACTIVITIES............................. (7,500) (9,304)
FINANCING ACTIVITIES:
INCREASE IN DEPOSITS, NET....................................... 3,559 6,432
INCREASE (DECREASE) IN BORROWINGS, NET.......................... 21 (374)
INCREASE IN ADVANCES BY BORROWERS
FOR TAXES AND INSURANCE....................................... 95 -
PROCEEDS FROM EXERCISE OF STOCK OPTIONS......................... 14 7
PURCHASE OF TREASURY STOCK...................................... (342) (1,422)
CASH DIVIDENDS PAID............................................. (341) (345)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES......................... 3,006 4,298
-------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS............................. (2,920) (3,967)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. 9,939 11,698
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 7,019 $ 7,731
-------- ---------
-------- ---------
</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 months ended March 31, 1997 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. EARNINGS PER SHARE
Earnings for the three months ended March 31, 1997 and 1996 were $.33
per share and $.30 per share, respectively. Earnings per share were
computed by dividing net income for the three months ended March 31,
1997 and 1996 by the weighted average number of common shares and
common stock equivalents outstanding. Shares outstanding for the
three months ended March 31, 1997 and 1996 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 2,457,960 and
2,640,224 common shares and common stock equivalents for the three
months ended March 31, 1997 and 1996, respectively. Reported fully
diluted per share amounts are based on 2,462,474 and 2,643,843 common
shares and common stock equivalents for the three months ended March
31, 1997 and 1996, respectively. Shares granted but not yet issued
under the Company's stock option plan are considered common stock
equivalents for earnings per share calculations.
5. DIVIDENDS ON COMMON STOCK
On March 19, 1997, the Company declared a quarterly cash dividend of
$.145 per share payable on April 21, 1997 to shareholders of record on
March 31, 1997.
5
<PAGE>
6. 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 three months ended March 31, 1997
consists of (in thousands):
Current Deferred Total
------- -------- -----
Federal $ 531 $ (42) $ 489
State 39 (12) 27
-------- --------- --------
$ 570 $ (54) $ 516
-------- --------- --------
-------- --------- --------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31, 1997 are presented below (in thousands):
Deferred tax assets:
Allowance for loan losses $ 255
Deposit-based intangibles 44
Other 95
--------
Total gross deferred tax assets $ 394
Deferred tax liabilities:
Plant and equipment, principally
due to differences in depreciation
and capitalized interest (121)
Net unrealized gain on securities
available for sale (9)
Deferred loan fees (247)
Other (4)
--------
Total gross deferred tax liabilities (381)
--------
Net deferred tax asset $ 13
--------
--------
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.
6
<PAGE>
7. 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 legal counsel, the ultimate
disposition of these matters will not have a material adverse effect
on the accompanying consolidated financial statements.
8. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In connection with the 1995 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 1995
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 $46,000 and
$42,000 for the three months ended March 31, 1997 and 1996,
respectively. The fair value of unearned ESOP shares at March 31,
1997 totaled $1.6 million. At March 31, 1997, there were 2,820 ESOP
shares committed to be released and 87,476 suspense shares. ESOP
shares totaling 22,572 were allocated as of March 31, 1997.
9. RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") 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 FASB released Statement of Financial Accounting
Standard No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" ("SFAS 127") which deferred the
effective date of SFAS 125 until January 1, 1998 for certain
transactions including repurchase agreements, dollar roll, securities
lending and similar transactions. The Company has not yet determined
the effect, if any, that the adoption of SFAS 125 will have on its
financial position or results of operations.
7
<PAGE>
The FASB released Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" ("SFAS 128") in February 1997. SFAS 128 is
effective for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. SFAS 128 establishes
standards for computing and presenting earnings per share. SFAS 128
supersedes APB Opinion No. 15 and replaces primary and fully diluted
earnings per share with basic and diluted earnings per share for all
companies with complex capital structures and requires a reconciliation
of the numerator and denominator of the diluted earnings per share
computation. The Company currently estimates that the adoption of SFAS
128 will not be material to the Company's financial condition or results
of operations.
The FASB released Statement of Financial Accounting Standard No. 129,
"Disclosure of Information about Capital Structure"("SFAS 129") in
February 1997. SFAS 129 summarizes previously issued disclosure
guidance contained within APB Opinions No. 10 and 15, as well as SFAS
No. 47. SFAS 129 is effective for fiscal years ending after December
15, 1997. The Company's current disclosures will not be affected by the
adoption of SFAS 129.
8
<PAGE>
FED ONE BANCORP, INC. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
---------------- --------------
(Dollars in Thousands)
FINANCIAL CONDITION DATA:
AVERAGE INTEREST-EARNING ASSETS $331,444 $327,778
AVERAGE INTEREST-BEARING LIABILITIES 292,400 287,604
NET AVERAGE EARNING ASSETS 39,044 40,174
NON-PERFORMING ASSETS 1,545 1,068
NON-PERFORMING LOANS 1,490 1,011
ALLOWANCE FOR LOAN LOSSES 1,450 1,434
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING LIABILITIES 113.35% 113.97%
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 97.32% 141.84%
ALLOWANCE FOR LOAN LOSSES TO
TOTAL LOANS 1.00% 1.07%
NON-PERFORMING LOANS TO TOTAL LOANS 1.03% 0.75%
NON-PERFORMING ASSETS TO TOTAL ASSETS 0.45% 0.31%
CUMULATIVE ONE-YEAR GAP 5.52% 11.68%
SHAREHOLDERS' EQUITY TO ASSETS 11.61% 11.69%
EFFICIENCY RATIO 53.65% 67.76%
COVERAGE RATIO 170.23% 135.72%
NUMBER OF BANKING FACILITIES 9 9
FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1997(1) 1996(1)
------- -------
SELECTED OPERATING ACTIVITIES:
RETURN ON AVERAGE ASSETS 0.96% 0.96%
RETURN ON AVERAGE EQUITY 8.23% 7.69%
NET INTEREST MARGIN 3.56% 3.68%
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, 1997
------------------
PER SHARE DATA:
PRIMARY/FULLY DILUTED EARNINGS PER SHARE(2) $ 0.33
BOOK VALUE PER SHARE(3) 17.07
TANGIBLE BOOK VALUE PER SHARE(3) 16.25
MARKET PRICE PER SHARE:
HIGH FOR THE QUARTER 20.00
LOW FOR THE QUARTER 15.75
CLOSE 03/31/97 18.00
CASH DIVIDENDS DECLARED PER SHARE .145
AVERAGE NUMBER OF SHARES OUTSTANDING(2):
PRIMARY 2,457,960
FULLY DILUTED 2,462,474
(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 $4.3 million or 1.3% to $346.2 million at March
31, 1997 compared to $341.9 million at December 31, 1996. Short-term
investments and investment securities held to maturity decreased to
$6.6 million and $39.1 million, respectively, at March 31, 1997
compared to $9.5 million and $39.2 million, respectively at December
31, 1996. The $2.9 million decrease in short-term investments was the
result of the use of available cash to purchase loans and the $62,000
decrease in investment securities was the result of maturities. At
March 31, 1997, the Company had $15.3 million of investment securities
classified as available for sale compared to $17.9 million at December
31, 1996. The after-tax net unrealized gain on these securities
amounted to $13,000 at March 31, 1997, which is reflected as a
separate component of shareholders' equity. The reduction in
available for sale securities was the result of maturities for which
the proceeds were used to purchase loans. Mortgage-backed securities
decreased $646,000 to $129.5 million at March 31, 1997 compared to
$130.2 million at December 31, 1996. Loans receivable increased $10.2
million or 7.7% to $143.6 million at March 31, 1997 compared to $133.4
million at December 31, 1996, as originations and purchases exceeded
principal repayments. Management invested available funds in an
effort to increase loans outstanding. The Company purchased
approximately $13.0 million of loans during the first quarter of 1997
of which $11.1 million were adjustable rate residential mortgage loans
and the remainder were the guaranteed portion of SBA and FMHA loans.
Total liabilities increased by $4.1 million or 1.4% to $306.0 million
at March 31, 1997 compared to $301.9 million at December 31, 1996.
Deposits increased $3.6 million or 1.4% to $253.2 million at March 31,
1997 compared to $249.7 million at December 31, 1996. Deposits
increased primarily due to the Company being competitively priced in
certificates of deposit during the first quarter of 1997. Borrowed
funds increased $21,000 to $50.3 million at March 31, 1997 compared to
$50.3 million at December 31, 1996.
Total shareholders' equity increased $222,000 to $40.2 million at
March 31, 1997 compared to $40.0 million at December 31, 1996. This
increase was primarily the result of net income of $821,000 and the
amortization of the expense of our Recognition and Retention Plan of
$28,000 which was offset by the Company repurchasing $342,000 of its
common stock. In July 1996 the Company announced a 5% stock
repurchase program representing 127,567 shares to be repurchased, of
which there were 19,100 shares purchased at an average price of $17.87
during the first quarter of 1997. These repurchased shares are held
as treasury shares. An additional reduction in equity was caused by
the Company declaring quarterly cash dividends of approximately
$338,000 for the quarter ended March 31, 1997. In addition, during
the three months ended March 31, 1997 the market value of investment
securities available for sale declined $25,000 from a net gain
position of $38,000 at December 31, 1996 to $13,000 at March 31, 1997.
10
<PAGE>
Results of Operations
Net Income
Net income was $821,000 or $.33 per share for the three months ended
March 31, 1997 compared to $803,000 or $.30 per share for the three
months ended March 31, 1996. The $18,000 increase in net income for
the three months ended March 31, 1997 compared to the same period in
1996 was primarily the result of a decrease in noninterest expense of
$115,000 offset by a decrease in net interest income of $26,000 and
increases in provision for loan losses of $10,000 and the provision
for income taxes of $59,000.
Interest Income
Interest income amounted to $6.2 million for the three month period
ended March 31, 1997, compared to $6.1 million during the same
period in 1996. The $91,000 increase was due to an increase in
average interest-earning assets of $8.0 million offset by a decrease
of 7 basis points in the weighted average yield on interest-earning
assets. The increase in average balances occurred in loans receivable
and mortgage-backed securities and was partially offset by reductions
in short-term investments and investment securities held to maturity
and available for sale. The decrease in the weighted average yield
occurred in short-term investments, loans and mortgage-backed
securities which were partially offset by increases in the yield on
investment securities. The increase in the balances of average
interest-earning assets was the result of a $14.2 million increase in
the average balance of loans receivable and a $10.8 million increase
in the average balance of mortgage-backed securities. The majority of
the increase in the average balance of loans receivable was due to the
purchase of adjustable rate residential mortgage loans. These
increases were partially offset by a $1.8 million decrease in
short-term investments and a $15.1 million aggregate decrease in
average investment securities held to maturity and investment
securities available for sale.
Interest Expense
Interest expense amounted to $3.2 million for the three month period
ended March 31, 1997, compared to $3.1 million during the same
period in 1996. This $117,000 increase in interest expense was due
to a $10.2 million increase in the balance of average interest-bearing
liabilities. The average cost of funds remained stable. Average
deposits increased $6.4 million for the three month period ended March
31, 1997 compared to the same period in 1996 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 $3.8 million for
the three month period ended March 31, 1997 compared to the same
period in 1996 due to the Company increasing its FHLB advances.
Net Interest Income
Net interest income amounted to $2.9 million for the three months
ended March 31, 1997, compared to $3.0 million during the same time
period in 1996. Net interest income decreased mainly because of the
increases in average balances of interest-bearing liabilities
exceeding the increase in average balances of interest-earning assets.
Average interest-earning assets
11
<PAGE>
increased $8.0 million during the three months ended March 31, 1997
compared to the year-earlier period. Average interest-bearing liabilities
increased $10.2 million during the same comparative time period. Average
interest-earning assets did not increase at the same levels as average
interest-bearing liabilities because the Company repurchased $2.4 million
of its common stock since the three month period ended March 31, 1996, of
which $341,000 was repurchased during the first three months of this year.
A shift from lower yielding assets into higher yielding assets for the
three months ended March 31, 1997 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 12 basis points to 3.56% for the three months
ended March 31, 1997 from 3.68% for the year-earlier period. The decline
in the net interest margin was partially attributable to a decrease in
average rates earned on interest-earning assets.
Provision for Loan Losses
The provision for loan losses increased to $30,000 for the three month
period ended March 31, 1997 compared to $20,000 during the same time
period in 1996. This reflected management's evaluation of the
underlying credit risk of the loan portfolio and the level of
allowance for loan losses to total loans receivable, which were
increasing in balances outstanding.
The allowance for loan losses amounted to $1.5 million or 1.00% and
97.32% of total loans and total non-performing loans, respectively, at
March 31, 1997, as compared to $1.4 million or 1.07% and 141.84% ,
respectively, at December 31, 1996.
Non-performing loans (non-accrual loans and accruing loans 90 days or
more overdue) were $1.5 million and $1.0 million at March 31, 1997
and December 31, 1996, respectively, which represented 1.03% and .75%
of the Company's total loans, respectively. This increase was due to
one loan secured by commercial real estate which has a history of
delinquency during the borrower's off-season business cycle. The
Company's real estate owned, which consists of real estate acquired
through foreclosure or by deed-in-lieu thereof, amounted to $55,000
and $56,000 at March 31, 1997 and December 31, 1996, respectively. As
a percentage of total assets, the Company's total non-performing
assets amounted to $1.5 million or .45% at March 31, 1997 and $1.1
million or .31% at December 31, 1996.
Non-Interest Income
Non-interest income amounted to $150,000 for the three month period
ended March 31, 1996, as compared to $152,000 for the same time period
in 1996.
Non-interest Expense
Non-interest expense decreased $115,000 for the three month period
ended March 31, 1997 compared to the same time period in 1996,
primarily as a result of decreases in federal insurance premiums of
$96,000, data processing expense of $17,000, premises and equipment
expense of $15,000 and other expenses of $30,000. These decreases
were partially offset by increases in salaries and employee benefits
of $41,000. Decreases in federal insurance premiums were due to a
lower assessment rate of approximately 6.5 cents per $100 of deposits
in 1997 compared to 23 cents per $100 of deposits in 1996 as a result
of the SAIF being recapitalized in the third quarter of 1996.
Decreases in premises and equipment were primarily the result of
expenses related to the renovation of a branch office and expenses
12
<PAGE>
caused by severe weather conditions in the first quarter of 1996. Decreases
in other expenses were due to decreases in supplies and miscellaneous
expenses. Increases in salaries and employee benefits were the result of
normal salary adjustments.
Provision for Income Taxes
Provision for income taxes was $516,000 and $457,000 for the three
months ended March 31, 1997 and 1996, respectively. The Company's
effective tax rate amounted to 38.6% and 36.3% during the three months
ended March 31, 1997 and 1996, respectively. There was an increase in
income tax in the first quarter of 1997 due to an IRS audit which
resulted in a $15,000 expense caused by a timing difference which will
be recovered in future years. Income tax expense also increased
$7,000 due primarily to accounting for the ESOP. The remainder of the
increase in income taxes is due to an increase in pre-tax income.
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 March 1997, the Bank's average liquidity
position was $38.1 million or 13.6% compared to $45.4 million or
15.8% for the month of December 1996.
Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators, that, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain amounts and ratios of tangible
and core capital to adjusted total assets and of total risk-based
capital to risk-weighted assets of 1.5%, 3.0%,and 8.0%, respectively.
As of March 31, 1997, the Bank meets all capital adequacy requirements
to which it is subject.
As of March 31, 1997, the most recent notification from the OTS
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum tangible, core and total
risk-based capital ratios of 5.0%, 6.0%, and 10.0%, respectively. At
March 31, 1997 the Bank's tangible, core and risk-based capital ratios
amounted to 10.11%, 10.11% and 25.26%, respectively. There are no
conditions or events since that notification that management believes
have changed the Bank's category.
13
<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 4. Submission of Matters to a Vote of Security Holders
a) An annual meeting of shareholders of the Company was held on April 23,
1997 ("Annual Meeting").
b) Not applicable.
c) There were 2,443,095 shares of Common Stock of the Company eligible to
be voted at the Annual Meeting and 2,413,705 shares were represented
at the meeting by the holders thereof, which constituted a quorum.
The items voted upon at the Annual Meeting and the vote for each
proposal were as follows:
1. Election of directors for a three-year term.
FOR WITHHELD
--- --------
Dudley E. Beck 2,404,370 9,335
Alan E. Groover 2,406,024 7,681
Gilbert R. Haller 2,406,514 7,191
2. Proposal to ratify the appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for the year ending December
31, 1997.
FOR AGAINST ABSTAIN
--- ------- -------
2,404,462 1,121 7,892
There were no broker non-votes at the annual meeting.
Each of the proposals were adopted by the shareholders of the Company.
d) Not applicable.
14
<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: May 9, 1997 By: /s/ Alan E. Groover
------------------------------
Alan E. Groover
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1997 By: /s/Lisa K. DiCarlo
------------------------------
Lisa K. DiCarlo
Senior Vice President
and Treasurer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,017
<INT-BEARING-DEPOSITS> 6,002
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,349
<INVESTMENTS-CARRYING> 168,660
<INVESTMENTS-MARKET> 168,201
<LOANS> 143,623
<ALLOWANCE> 1,450
<TOTAL-ASSETS> 346,214
<DEPOSITS> 253,244
<SHORT-TERM> 27,764
<LIABILITIES-OTHER> 2,434
<LONG-TERM> 22,576
0
0
<COMMON> 282
<OTHER-SE> 39,914
<TOTAL-LIABILITIES-AND-EQUITY> 346,214
<INTEREST-LOAN> 3,053
<INTEREST-INVEST> 3,137
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,190
<INTEREST-DEPOSIT> 2,553
<INTEREST-EXPENSE> 3,240
<INTEREST-INCOME-NET> 2,950
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,733
<INCOME-PRETAX> 1,337
<INCOME-PRE-EXTRAORDINARY> 1,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 821
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 3.56
<LOANS-NON> 406
<LOANS-PAST> 1,084
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,434
<CHARGE-OFFS> 29
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 1,450
<ALLOWANCE-DOMESTIC> 771
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 679
</TABLE>
