===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission file number 1-12753
Fidelity Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3915246
(State of Incorporation) (I.R.S. Employer Identification No.)
5455 W. Belmont, Chicago, Illinois, 60641
(Address of principal executive offices)
(773) 736-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports 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 report), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
The number of shares outstanding of each of the issuer's classes of common
stock, was 2,148,766 shares of common stock, par value $.01, outstanding as of
January 18, 2000.
===============================================================================
FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
Part I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of December 31, 1999 and September 30, 1999 1
Consolidated Statements of Earnings for the three
months ended December 31, 1999 and 1998 2
Consolidated Statements of Changes in Stockholders'
Equity for the three months ended December 31, 1999
and 1998 3
Consolidated Statements of Cash Flows for the three
months Ended December 31, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
Item 3. Quantitative mad Qualitative Disclosures about Market Risks 12-13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
1
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
December 31, September 30,
1999 1999
- --------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 4,525 2,714
Interest-bearing deposits 821 576
Federal funds sold 100 100
FHLB of Chicago stock 9,615 9,615
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,396
at December 31, 1999 and $3,637 at September 30, 1999) 3,376 3,585
Investment securities available for sale, at fair value 64,294 66,070
Loans receivable, net of allowance for loan losses of $818
at December 31, 1999 and $780 at September 30, 1999 507,108 507,557
Accrued interest receivable 2,818 3,665
Real estate in foreclosure 145 -
Premises and equipment 4,168 4,202
Deposit base intangible 28 34
Other assets 1,358 1,163
------- -------
$ 598,356 599,281
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 357,964 357,016
Borrowed funds 188,540 186,250
Advance payments by borrowers for taxes and insurance 5,244 7,986
Other liabilities 5,294 6,008
------- -------
Total liabilities 557,042 557,260
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized 8,000,000 shares;
issued 3,782,350 shares; 2,148,766 and 2,207,846 shares
outstanding at December 31, 1999 and September 30, 1999 38 38
Additional paid-in capital 38,764 38,690
Retained earnings, substantially restricted 34,661 33,771
Treasury stock, at cost (1,633,584 and 1,574,504 shares at
December 31, 1999 and September 30, 1999, respectively) (29,199) (28,168)
Common stock acquired by Employee Stock Ownership Plan (189) (632)
Common stock acquired by Bank Recognition and Retention Plans (196) (198)
Accumulated other comprehensive income (2,565) (1,480)
------- -------
TOTAL STOCKHOLDERS' EQUITY 41,314 42,021
Commitments and contingencies
$ 598,356 599,281
======= =======
See accompanying notes to unaudited consolidated financial statements.
2
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
Three months ended December 31, 1999 1998
- --------------------------------------------------------------------------------------
Interest Income:
Loans receivable $ 9,290 7,937
Investment securities 1,322 1,130
Mortgage-backed securities 65 184
Interest earning deposits 11 18
Federal funds sold 1 1
------ ------
10,689 9,270
Interest Expense:
Deposits 4,066 3,865
Borrowed funds 2,612 1,775
------ ------
6,678 5,640
------ ------
Net interest income before provision for loan losses 4,011 3,630
Provision for loan losses 40 25
------ ------
Net interest income after provision for loan losses 3,971 3,605
Non-Interest Income:
Fees and commissions 103 96
Insurance and annuity commissions 224 153
Other 12 13
------ ------
339 262
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,425 1,421
Office occupancy and equipment 358 365
Data processing 127 134
Advertising and promotions 182 100
Federal deposit insurance premiums 51 52
Other 329 337
Amortization of intangible 6 9
------ ------
2,478 2,418
Income before income taxes 1,832 1,449
Income tax expense 699 540
------ ------
Net income $ 1,133 909
====== ======
Basic earnings per share $ 0.53 0.38
Diluted earnings per share $ 0.51 0.36
====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Three months ended December 31, 1999 and 1998
Accumulated
Common Common Other
Additional Stock Stock Comprehen-
Common Paid-In Retained Treasury Acquired Acquired sive
Stock Capital Earnings Stock by ESOP by BRRP's Income Total
--- ------ ------- ------- ------ ------ ---- -------
Balance at
September 30, 1998 38 38,117 30,646 (19,210) (1,092) (242) 340 48,597
Net income - - 909 - - - - 909
Purchase of treasury stock
(271,500 shares) - - - (6,161) - - - (6,161)
Cash dividends ($.10 per
share) - - (258) - - - - (258)
Amortization of award of
BRRP's stock - - - - - 36 - 36
Cost of ESOP shares released - - - - 460 - - 460
Exercise of stock options
and reissuance of treasury
shares (3,400 shares) - (17) - 56 - - - 39
Tax benefit related to
stock options exercised - 6 - - - - - 6
Market adjustment for
committed ESOP shares - 119 - - - - - 119
Change in accumulated other
comprehensive income - - - - - - (365) (365)
--- ------ ------- ------- ------ ----- ----- -------
Balance at
December 31, 1998 $ 38 38,225 31,297 (25,315) (632) (206) (25) $ 43,382
=== ====== ======= ======= ====== ===== ===== =======
Balance at
September 30, 1999 38 38,690 33,771 (28,168) (632) (198) (1,480) 42,021
Net income - - 1,133 - - - - 1,133
Purchase of treasury stock
(59,500 shares) - - - (1,038) - - - (1,038)
Cash dividends ($.11 per
share) - - (243) - - - - (243)
Amortization of award of
BRRP's stock - - - - - 2 - 2
Cost of ESOP shares released - - - - 443 - - 443
Exercise of stock options
and reissuance of treasury
shares (420 shares) - (3) - 7 - - - 4
Tax benefit related to
stock options exercised - 1 - - - - - 1
Market adjustment for
committed ESOP shares - 76 - - - - - 76
Change in accumulated other
comprehensive income - - - - - - (1,085) (1,085)
--- ------ ------- ------- ------ ----- ------ -------
Balance at
December 31, 1999 $ 38 38,764 34,661 (29,199) (189) (196) (2,565) $ 41,314
=== ====== ======= ======= ====== ===== ====== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Three months ended December 31, 1999 1998
- --------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,133 909
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 109 122
Deferred income taxes 1 -
Provision for loan losses 40 25
Net amortization and accretion of premiums and discounts (11) (15)
Amortization of cost of stock benefit plans 2 36
Principal payment on ESOP loan 443 460
Market adjustment for committed ESOP shares 76 119
Deferred loan costs, net of amortization (45) (83)
Amortization of deposit base intangible 6 9
Decrease in accrued interest receivable 847 953
Decrease (increase) in other assets (197) 63
Increase (decrease) in current taxes and other liabilities (21) 185
-------- ------
Net cash provided by operating activities 2,383 2,783
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - 10,000
Purchase of investment securities - (19,968)
Purchase of Federal Home Loan Bank of Chicago Stock - (900)
Loans originated for investment (20,760) (54,047)
Purchase of premises and equipment (75) (18)
Principal repayments collected on loans receivable 21,080 38,046
Principal repayments collected on mortgage-backed securities 209 1,266
-------- ------
Net cash provided by (used in) investing activities 454 (25,621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 948 7,777
Proceeds from FHLB advances 2,290 26,800
Net decrease in advance payments by borrowers
for taxes and insurance (2,742) (2,209)
Purchase of treasury stock (1,038) (6,161)
Payment of common stock dividends (243) (258)
Proceeds from exercise of stock options 4 39
-------- ------
Net cash provided by (used in) financing activities (781) 25,988
-------- ------
Net change in cash and cash equivalents 2,056 3,150
Cash and cash equivalents at beginning of period 3,390 1,975
-------- ------
Cash and cash equivalents at end of period $ 5,446 5,125
======== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 6,587 5,599
Income taxes - 200
NON-CASH INVESTING ACTIVITIES-
Loans transferred to real estate in foreclosure $ 145 249
======== ======
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included.
The results of operations and other data for the three months ended December
31, 1999 are not necessarily indicative of results that may be expected for the
entire fiscal year ended September 30, 2000.
The unaudited consolidated financial statements include the accounts of
Fidelity Bancorp, Inc. (the "Company") and its wholly-owned subsidiary,
Fidelity Federal Savings Bank and subsidiaries (the "Bank"). All intercompany
accounts and transactions have been eliminated in consolidation.
(2) Earnings Per Share
Diluted earnings per share for the three months ended December 31, 1999 and
1998 are computed by dividing net income by the weighted average number of
shares of common stock and potential common stock outstanding for the periods
which were 2,230,969 and 2,387,262, respectively. Stock options are the only
potential common stock and are therefore considered in the diluted earnings per
share calculations. Potential common stock are computed using the treasury
stock method.
(3) Comprehensive Income
The Company's comprehensive income includes net income and other comprehensive
income comprised entirely of unrealized gains or losses on securities available
for sale, net of tax.
Three months ended December 31, 1999 1998
- ------------------------------------------------------------------------------
Net income 1,133 909
Other comprehensive income, net of tax -
Unrealized loss on securities available for
sale arising during the period (1,085) (365)
---- ----
Comprehensive Income 48 544
==== ====
6
(4) Commitments and Contingencies
At December 31, 1999, the Bank had outstanding commitments to originate loans
of $8.7 million, of which $150,000 was a fixed 8.75% rate, and $5.4 million
were adjustable rate commitments. At December 31, 1999 the Bank had a
construction and development loan commitment for $3.1 million with a floating
rate based on prime plus a margin. This loan is expected to begin draws in
February 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
GENERAL
The Company's results of operations are dependent on net interest income which
is the difference between interest earned on its loan and investment
portfolios, and its cost of funds, consisting of interest paid on deposits and
borrowed money. The Company also generates non-interest income such as
transactional fees, loan servicing fees, and fees and commissions from the
sales of insurance products and securities through its subsidiary. Operating
expenses primarily consist of employee compensation, occupancy expenses,
federal deposit insurance premiums and other general and administrative
expenses. The results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
The Company reported earnings for the first fiscal quarter ended December 31,
1999 of $1.1 million, compared with $909,000 for the same quarter a year ago,
an increase of 24.6%. Earnings per diluted share for the quarter ended
December 31, 1999 were $0.51 per share, an increase from $0.36 for the quarter
ended December 31, 1998.
The Company also announced that its board of directors declared a quarterly
dividend of $0.12 per share, payable February 12, 2000 to stockholders of
record as of January 31, 2000.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Reform Act of 1995, and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of the
U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment portfolios,
7
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.
LIQUIDITY & CAPITAL RESOURCES
Liquidity management for the Bank is both a daily and long-term function of
management's strategy. The Company's primary sources of funds are deposits and
borrowings, amortization and prepayment of loan principal and mortgage-backed
securities, maturities of investment securities and operations. While maturing
investments and scheduled loan repayments are relatively predictable, deposit
flows and loan prepayments are greatly influenced by interest rates, floors and
caps on loan rates, general economic conditions and competition. The Bank
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships, but has from time to time decided not to pay
deposit rates that are as high as those of its competitors and, when necessary,
to supplement deposits with FHLB advances.
Federal regulations require the Bank to maintain minimum levels of liquid
assets of 4% of the liquidity base. Savings associations have the option of
calculating their liquidity requirements either on the basis of (i) their
liquidity base at the end of the preceding quarter or (ii) the average daily
balance of their liquidity base during the preceding quarter. If necessary,
savings associations may be required to maintain liquidity in excess of the
minimum requirement to insure safe and sound operations. At December 31, 1999,
the Bank was in compliance with OTS liquidity requirements, with a liquidity
ratio of 15.18%.
The Company's cash flows are comprised of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Cash flows provided by operating activities,
consisting primarily of interest and dividends received less interest paid on
deposits, were $2.4 million for the three months ended December 31, 1999. The
Company used $454,000 in investing activities for the three month period ended
December 31, 1999. Loan originations amounted to $20.8 million, which were
offset primarily by $21.3 million in principal repayments received from loans
and mortgage-backed securities. Net cash used in financing activities amounted
to $781,000 for the three months ended December 31, 1999. The Company
increased its borrowings from the FHLB by $2.3 million during the first
quarter. Financing activities used $2.7 million to pay the second installment
of real estate taxes from advance payments for borrowers for taxes and
insurance.
At December 31, 1999, the Bank had outstanding loan commitments of $8.7
million. Management anticipates that it will have sufficient funds available
to meet its current loan commitments. Certificates of deposit scheduled to
mature in one year or less from December 31, 1999 totaled $156.3 million.
Consistent with historical experience, management believes that a significant
portion of such deposits will remain with the Bank, and that their maturity and
repricing will not have a material adverse impact on the operating results of
the Company.
8
The Bank is subject to 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 material impact on the Company'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 entity's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting purposes. 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 minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets and of
tangible capital to average assets. As of December 31, 1999, the Company and
the Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at December 31, 1999 was 7.01%. The Tier 1 Capital
ratio was 7.01%, the Tier 1 Risk-based ratio was 14.67%, and the Total Risk-
Based Capital ratio was 14.96%.
The most recent notification, July 1999, from the federal banking agencies
categorized the Company and the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-
based, and Tier 1 leverage ratios. There are no conditions or events since
that notification that have changed the Company's or the Bank's category.
CHANGES IN FINANCIAL CONDITION
Total assets at December 31, 1999 were $598.4 million, compared to $599.3
million at September 30, 1999. Loans receivable, net of allowance for loan
losses, remained stable at $507.1 million. The Company continues to offer
various loan products, and prices them competitively. The Company's loan
originations for the quarter ended December 31, 1999 were $20.8 million, with a
weighted average yield of 8.23%.
Deposits grew slightly to $358.0 million at December 31, 1999, up from $357.0
million at September 30, 1999. FHLB advances increased from $186.3 million at
September 30, 1999 to $188.5 million at December 31, 1999.
Book value per share on December 31, 1999 was $19.23, compared with $19.03 at
September 30, 1999. The increase was the result of the current quarter
earnings combined with the Company s ongoing stock repurchase plan and offset
by the change in accumulated other comprehensive income.
ASSET QUALITY
As of December 31, 1999, the Company had non-performing assets of $356,000.
The Bank's non-performing assets at December 31, 1999 included one single-
family residence and three automobiles. Classified loans of $211,000 were
categorized as substandard, consisting of three residential mortgage loans and
one multi-unit mortgage loan. There were no assets classified as doubtful.
9
The consistently low 0.06% non-performing assets to total assets is a result of
management's ongoing monitoring and follow-up procedures of delinquent
customers. Following a review of the foreclosed residential properties,
management concluded that no specific allowances were necessary, as management
does not expect any material losses from the non-performing loans.
STOCK REPURCHASE
The company announced its 10th stock repurchase plan on October 19, 1999. Under
the plan, up to 110,000 shares, or 5 percent, may be purchased. Through
December 31, 1999, 59,500 shares had been repurchased at an average price of
$17.45 per share. There are 50,500 remaining shares available to be purchased.
The company views stock repurchase programs as part of an ongoing strategy to
build value for stockholders.
10
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or labilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees, which are considered
adjustments to yields.
Three months ended December 31,
1999 1998
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(dollars in thousands)
Interest-earning assets:
Loans, net $ 504,489 9,290 7.37% $ 425,975 7,937 7.45%
Mortgage-backed securities 3,481 65 7.47% 10,434 184 7.05%
Interest-bearing deposits 892 11 4.93% 1,405 18 5.12%
Investment securities,
and federal funds sold 75,738 1,323 6.99% 67,149 1,131 6.74%
-------- ----- ----- ------- ----- -----
Total interest-earning assets 584,600 10,689 7.31% 504,963 9,270 7.34%
Non-interest earning assets 11,044 16,110
-------- -------
Total assets $ 595,644 521,073
======== =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 140,853 1,265 3.59% 145,901 1,429 3.92%
Money market accounts 15,490 149 3.85% 17,280 176 4.07%
Certificate accounts 196,599 2,652 5.40% 163,716 2,260 5.52%
-------- ----- ----- ------- ----- -----
Total deposits 352,942 4,066 4.61% 326,897 3,865 4.73%
Borrowed funds 182,791 2,612 5.72% 127,351 1,775 5.58%
-------- ----- ----- ------- ----- -----
Total interest-bearing
liabilities 535,733 6,678 4.99% 454,248 5,640 4.97%
Non-interest bearing deposits 5,906 8,743
Other liabilities 11,355 10,929
-------- -------
Total liabilities 552,994 473,920
Stockholders' equity 42,650 47,153
-------- -------
Total liabilities and
stockholders' equity $ 595,644 $ 521,073
======== =======
Net interest income/interest
rate spread (1) 4,011 2.32% 3,630 2.37%
===== ===== ===== =====
Net earning assets/net
interest margin (2) $ 48,867 2.74% $ 50,715 2.88%
======== ===== ======= =====
Ratio of interest-earning
assets to interest-bearing
liabilities 1.09x 1.11x
==== ====
(1) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
(3) Average yields and costs for the three month periods are annualized for
presentation purposes.
11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
AND DECEMBER 31, 1998
GENERAL. Net income for the quarter ended December 31, 1999 was $1.1 million,
an increase of $224,000 from the net income of $909,000 for the quarter ended
December 31, 1998. The 24.6% increase in earnings for the
quarter was the result of greater interest income from loans receivable and an
increase in non-interest income.
INTEREST INCOME. Income from loans receivable, the chief contributor to
interest income, was $9.3 million for the quarter ended December 31, 1999, up
17.0% from the prior year. The average balance of loans increased 18.4% to
$504.5 million compared to the average for the first quarter a year ago of
$426.0 million. The yield on loans decreased 8 basis points. The decrease in
the average loan rate was a result of high loan repayments during fiscal 1999.
Interest income from the investment portfolio increased $192,000, which was the
result of a 12.8% increase in average balance of investment securities for the
quarter ended December 31, 1999 compared to that same quarter in 1998. Gross
interest income totaled $10.7 million for the quarter ended December 31, 1999,
up 15.3%, or $1.4 million from $9.3 million for the three months ended December
31, 1998.
INTEREST EXPENSE. Interest expense from deposits for the quarter increased
$201,000, from $3.9 million the previous year to $4.1 million. The increase
was a direct result of the increase in deposit volume from quarter to quarter.
The average deposit balance increased 8.0% from $326.9 million for the first
fiscal quarter of 1999 to $352.9 million for the quarter ended December 31,
1999. The average deposit cost to the Company decreased 12 basis points. The
Company continued to utilize the FHLB of Chicago advances as a source of funds
for lending operations. The average borrowings for the quarter ended December
31, 1999 increased $55.4 million to $182.8 million from the three month period
ended December 31, 1998 of $127.4 million. The weighted average cost increased
14 basis points, causing the interest expense on borrowed funds to increase
$837,000 to $2.6 million, from $1.8 million for the quarter ended December 31,
1998.
PROVISION FOR LOAN LOSSES. The Company continues to monitor the loan growth as
well as the delinquencies. The Company recorded a provision for loan losses of
$40,000 and $25,000, respectively, for the quarters ended December 31, 1999 and
1998. The provision for loan losses reflects management's on-going evaluation
of losses on loans and the adequacy of the allowance for loan losses based on
all pertinent considerations, including current market conditions. As of
December 31, 1999, the cumulative allowance for loan losses was $818,000. The
ratio of the allowance for loan losses to net loans receivable remained at
0.16% at December 31, 1999.
NON-INTEREST INCOME. Non-interest income increased 29.4% to $339,000 for the
first fiscal quarter. Insurance and annuity commissions produced $224,000, a
$71,000 increase compared to the same period in 1998 while fees and commissions
produced a modest gain from the previous quarter.
12
NON-INTEREST EXPENSE. Non-interest expense for the three months ended both
December 31, 1999 and 1998 totaled $2.5 million. The largest increase was
advertising expenses relating to the Bank s deposit and lending promotions.
Management s efforts to control operating expenses also contributed to the
increase in net income. The Company s efficiency improved in the quarter, with
the ratio of operating expenses to average assets falling to 1.66% for the
quarter ended December 31, 1999, from 1.86% for the quarter ended December 31,
1998.
INCOME TAXES. Income taxes increased $159,000 for the three months ended
December 31, 1999 to $699,000 compared to $540,000 for the prior year due to
increased taxable income.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The OTS requires all regulated thrift institutions to calculate the estimated
change in the Bank's net portfolio value (NPV) assuming instantaneous, parallel
shifts in the Treasury yield curve of 100 to 300 basis points either up or down
in 100 basis point increments. The NPV is defined as the present value of
expected cash flows from existing assets less the present value of expected
cash flows from existing liabilities plus the present value of net expected
cash inflows from existing off-balance sheet contracts.
The OTS provides all institutions that file a Consolidated Maturity/Rate
schedule (CMR) as a part of their quarterly Thrift Financial Report with an
interest rate sensitivity report of NPV. The OTS simulation model uses a
discounted cash flow analysis and an option-based pricing approach to measuring
the interest rate sensitivity of NPV. The OTS model estimates the economics
value of each type of asset, liability, and off-balance sheet contact under the
assumption that the Treasury yield curve shifts instantaneously and parallel up
and down 100 to 300 basis points in 100 basis point increments. The OTS
provides thrifts the results of their interest rate sensitivity model, which is
based on information provided by the Bank, to estimate the sensitivity of NPV.
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the borrowers. The OTS model uses
various price indications and prepayment assumptions to estimate sensitivity of
mortgage loans.
In the OTS model, the value of deposit accounts appears on the asset and
liability side of the NPV analysis. In estimating the value of certificate of
deposit accounts, the liability portion of the CD is represented by the implied
value when comparing the difference between the CD face rate and available
wholesale CD rates. On the asset side of the NPV calculation, the value of the
"customer relationship" due to the rollover of retail CD deposits represents an
intangible asset in the NPV calculation.
Other deposit accounts such as transaction accounts, money market deposit
accounts, passbook accounts, and non-interest bearing accounts also are
included on the asset and liability side of the NPV calculation in the OTS
model. The accounts are valued at 100% of the respective account balances on
the liability side. On the assets side of the analysis, the value of the
"customer relationship" of the various types of deposit accounts is reflected
as a deposit intangible.
13
The NPV sensitivity of borrowed funds is estimated by the OTS model based on a
discounted cash flow approach. The cash flows are assumed to consist of
monthly interest payments with principal paid at maturity.
The OTS model is based only on the Bank's balance sheet. The assets and
liabilities at the parent company level are short-term in nature, primarily
cash and equivalents, and were not considered in the analysis because they
would not have a material effect on the analysis of NPV sensitivity. The
following table sets forth the Company's most recent interest rate sensitivity
of NPV, as of September 30, 1999.
Net Portfolio Value as a %
Net Portfolio Value of Present Value of Assets
------------------------------ --------------------------
Changes in
Rates $ Amount $ Change % Change NPV Ratio Change
- ---------- --------- -------- -------- --------- ---------
+ 300 bp 20,114 (37,422) (65)% 3.54% - 582 bp
+ 200 bp 34,032 (23,503) (41)% 5.82% - 354 bp
+ 100 bp 46,911 (10,625) (18)% 7.82% - 154 bp
0 bp 57,536 9.36%
- 100 bp 65,362 7,826 14 % 10.49% + 113 bp
- 200 bp 74,587 17,051 30 % 11.75% + 238 bp
- 300 bp 85,337 27,801 48 % 13.16% + 380 bp
- -------------------------------------------------------------------------------
14
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company and the Bank are not engaged in any legal proceedings of a
material nature at the present time.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fidelity Bancorp, Inc.
Dated: January 20, 2000 /s/ RAYMOND S. STOLARCZYK
---------------- --------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: January 20, 2000 /s/ JAMES R. KINNEY
---------------- --------------------------
James R. Kinney
Sr. V. P. and Chief Financial Officer