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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 March 31, 2000
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 2,068,285 shares of common stock, par value $.01, outstanding as of
April 20, 2000.
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FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 2000 (unaudited) and September 30, 1999 1
Consolidated Statements of Earnings for the three and six
months ended March 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended March 31, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended March 31, 2000 and 1999 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-12
Item 3. Quantitative and Qualitative Disclosure about Market Risks 13-14
Item 4. Recent Regulatory Developments 14-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE PAGE 18
1
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS March 31, September 30,
2000 1999
(unaudited)
Cash and due from banks $ 4,018 2,714
Interest-bearing deposits 671 576
Federal funds sold 100 100
------- -------
Cash and cash equivalents 4,789 3,390
FHLB of Chicago stock 9,782 9,615
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,271
at March 31, 2000 and $3,637 at September 30, 1999) 3,270 3,585
Investment securities available for sale, at fair value 64,262 66,070
Loans receivable, net of allowance for loan losses of $830
at March 31, 2000 and $780 at September 30, 1999 514,353 507,557
Accrued interest receivable 3,693 3,665
Real estate in foreclosure 131 -
Premises and equipment 4,101 4,202
Deposit base intangible 22 34
Other assets 1,192 1,163
------- -------
$ 605,595 599,281
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 376,809 357,016
Borrowed funds 180,325 186,250
Advance payments by borrowers for taxes and insurance 3,175 7,986
Other liabilities 4,656 6,008
------- -------
Total liabilities 564,965 557,260
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; 2,061,169 and 2,207,846 shares
outstanding at March 31, 2000 and September 30, 1999 38 38
Additional paid-in capital 38,789 38,690
Retained earnings, substantially restricted 35,532 33,771
Treasury stock, at cost (1,721,181 and 1,574,504 shares
at March 31, 2000 and September 30, 1999, respectively) (30,760) (28,168)
Common stock acquired by Employee Stock Ownership Plan (189) (632)
Common stock acquired by Bank Recognition and Retention Plans (194) (198)
Accumulated other comprehensive income (2,586) (1,480)
------- -------
TOTAL STOCKHOLDERS' EQUITY 40,630 42,021
------- -------
Commitments and contingencies
$ 605,595 599,281
======= =======
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 Six Months ended
March 31, March 31,
2000 1999 2000 1999
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 9,449 8,112 18,739 16,049
Investment securities 1,296 1,239 2,618 2,369
Mortgage-backed securities 62 164 127 348
Interest earning deposits 7 9 18 27
Federal funds sold 1 1 2 2
------ ------ ------ ------
10,815 9,525 21,504 18,795
Interest Expense:
Deposits 4,231 3,622 8,297 7,487
Borrowed funds 2,690 2,058 5,302 3,833
------ ------ ------ ------
6,921 5,680 13,599 11,320
Net interest income before provision
for loan losses 3,894 3,845 7,905 7,475
Provision for loan losses 15 15 55 40
------ ------ ------ ------
Net interest income after provision
for loan losses 3,879 3,830 7,850 7,435
Non-Interest Income:
Fees and commissions 107 94 209 190
Insurance and annuity commissions 278 111 502 264
Other 14 12 26 25
------ ------ ------ ------
399 217 737 479
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,409 1,440 2,834 2,861
Office occupancy and equipment 399 394 757 759
Data processing 139 109 266 243
Advertising and promotions 110 105 292 205
Federal deposit insurance premiums 53 52 104 104
Other 351 343 679 680
Amortization of intangible 6 8 12 17
------ ------ ------ ------
2,467 2,451 4,944 4,869
------ ------ ------ ------
Income before income taxes 1,811 1,596 3,643 3,045
Income tax expense 683 602 1,382 1,142
------ ------ ------ ------
Net income $ 1,128 994 2,261 1,903
====== ====== ====== ======
Earnings per share - basic $ 0.54 0.45 1.00 0.83
Earnings per share - diluted $ 0.52 0.42 0.96 0.78
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Six months ended March 31, 2000 and 1999
Unrealized
Gain (Loss)
Common Common on Investment
Additional Stock Stock Securities
Common Paid-In Retained Treasury Acquired Acquired Available
Stock Capital Earnings Stock by ESOP by BRRP's For Sale Total
--- ------ ------- ------- ------ ------ ---- -------
Balance at
September 30, 1998 $38 38,117 30,646 (19,210) (1,092) (242) 340 $48,597
Net income - - 1,903 - - - - 1,903
Purchase of treasury stock
(337,026 shares) - - - (7,803) - - - (7,803)
Cash dividends ($.21 per
share) - - (514) - - - - (514)
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 (15,998 shares) - (109) - 274 - - - 165
Tax benefit related to
stock options exercised - 41 - - - - - 41
Market adjustment for
committed ESOP shares - 264 - - - - - 264
Change in accumulated other
comprehensive income - - - - - - (696) (696)
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 1999 $38 38,313 32,035 (26,739) (632) (206) (356) $42,453
=== ====== ======= ====== ====== ===== ==== =======
Balance at
September 30, 1999 $38 38,690 33,771 (28,168) (632) (198) (1,480) $42,021
Net income - - 2,261 - - - - 2,261
Purchase of treasury stock
(148,000 shares) - - - (2,616) - - - (2,616)
Cash dividends ($.23 per
share) - - (500) - - - - (500)
Amortization of award of
BRRP's stock - - - - - 4 - 4
Cost of ESOP shares released - - - - 443 - - 443
Exercise of stock options
and reissuance of treasury
shares (2,420 shares) - (20) - 24 - - - 4
Tax benefit related to
stock options exercised - 7 - - - - - 7
Market adjustment for
committed ESOP shares - 112 - - - - - 112
Change in accumulated other
comprehensive income - - - - - - (1,106) (1,106)
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 2000 $38 38,789 35,532 (30,760) (189) (194) (2,586) $40,630
=== ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six months ended March 31, 2000 1999
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,261 1,903
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 217 244
Provision for loan losses 55 40
Net amortization and accretion of premiums and discounts (23) (18)
Amortization of cost of stock benefit plans 4 36
ESOP expense 555 724
Deferred loan fees, net of amortization (137) (207)
Stock dividend from FHLB of Chicago (167) -
Amortization of deposit base intangible 12 17
Decrease (increase)in accrued interest receivable (28) 61
Decrease (increase)in other assets (31) 75
Increase (decrease in other liabilities (639) 251
------ ------
Net cash provided by operating activities 2,079 3,126
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities (49) -
Proceeds from maturities of investment securities - 20,000
Purchase of investment securities available for sale - (29,957)
Purchase of Federal Home Loan Bank of Chicago stock - (1,950)
Proceeds from sale of real estate owned 11 147
Loans originated for investment (42,792) (102,674)
Purchase of premises and equipment (116) (122)
Principal repayments collected on loans receivable 35,957 69,519
Principal repayments collected on mortgage-backed securities 364 2,392
------ ------
Net cash used in investing activities (6,625) (42,645)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 19,793 4,236
Proceeds from (repayments of) borrowed funds (5,925) 47,800
Net decrease in advance payments
by borrowers for taxes and insurance (4,811) (4,026)
Purchase of treasury stock (2,616) (7,803)
Payment of common stock dividends (500) (514)
Proceeds from exercise of stock options 4 165
------ ------
Net cash provided by financing activities 5,945 39,858
------ ------
Net change in cash and cash equivalents 1,399 339
Cash and cash equivalents at beginning of period 3,390 1,975
------ ------
Cash and cash equivalents at end of period $ 4,789 2,314
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 13,749 11,064
Income taxes 1,172 1,150
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 145 262
====== ======
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 six months ended March 31,
2000 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 material
intercompany accounts and transactions have been eliminated in consolidation.
(2) EARNINGS PER SHARE
Diluted earnings per share for the three months ended March 31, 2000 and 1999
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
2,180,476 and 2,349,196, respectively. Diluted earnings per share of common
stock for the six months ended March 31, 2000 and 1999 has been determined by
dividing net income by 2,357,636 and 2,427,812, the weighted average number of
shares of common stock and potential common stock outstanding. 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 Six Months ended
March 31, March 31,
2000 1999 2000 1999
-------------------- -----------------
Net Income $ 1,128 994 2,261 1,903
Comprehensive income - net of taxes
Unrealized loss on securities available
for sale arising during the period (21) (331) (1,106) (696)
----- ----- ------ ------
$ 1,107 663 1,155 1,207
===== ===== ====== ======
6
(4) COMMITMENTS AND CONTINGENCIES
At March 31, 2000, the Bank had outstanding commitments to originate loans of
$9.8 million, of which $403,000 were fixed rate, with rates ranging from 8.25%
to 8.875%, and $9.4 million were adjustable rate commitments. At March 31, 2000
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 next quarter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 second fiscal quarter ended March 31,
2000 of $1.1 million, compared with $994,000 for the same quarter a year ago,
an increase of 13.5%. Earnings per diluted share for the quarter and six
months ended were $0.52 and $0.96 per share in 2000, an increase from $0.42 and
$0.78 in 1999, respectively. The increase in earnings per share was the result
of increased interest and non-interest income as well as fewer shares
outstanding.
The Company also announced that its board of directors declared a quarterly
dividend of $0.12 per share, payable May 15, 2000 to shareholders of record as
of April 28, 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
7
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,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market area, our implementation of new technologies,
our ability to develop and maintain secure and reliable electronic systems 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 March 31, 2000,
the Bank was in compliance with OTS liquidity requirements, with a liquidity
ratio of 14.52%.
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 $2.1 million for the six months ended March 31, 2000. The
Company used $6.6 million in investing activities for the six-month period
ended March 31, 2000. Loan originations, net of loan repayments received
totaling $6.8 million accounts for the period s cash usage. Net cash provided
by financing activities amounted to $5.9 million for the six months ended March
31, 2000. The Company increased its deposits $19.8 million during the six-
month period. Growth in deposits during the period enabled the Bank to reduce
borrowed funds by $5.9 million. Financing activities also used $4.8 million to
pay the first installment of Cook County real estate taxes from advance
payments for borrowers for taxes and insurance.
At March 31, 2000, the Bank had outstanding commitments to originate loans of
$9.8 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 March 31, 2000 totaled $180.1
million. Consistent with historical experience, management believes that a
8
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.
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 March 31, 2000, the Company and the
Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at March 31, 2000 was 7.10%. The Tier 1 Capital
ratio was 7.10%, the Tier 1 Risk-Based ratio was 14.83%, and the Total Risk-
Based Capital ratio was 15.12%.
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 March 31, 2000 were $605.6 million, compared to $599.3 million
at September 30, 1999. Loans receivable, net of allowance for loan losses,
grew $6.8 million. The Company continues to offer various loan products, and
prices them competitively. The Company's total loan originations for the six
months ended March 31, 2000 were $42.8 million, of which 86.2% were higher
yielding specialized products.
Deposits grew 5.5% to $376.8 million at March 31, 2000, from $357.0 million at
September 30, 1999. The increased deposits allowed the Bank to pay down FHLB
advances by $7.4 million.
Book value per share on March 31, 2000 was $19.71, compared with $19.03 at
September 30, 1999. The increase was the result of the Company s earnings and
reduced number of outstanding shares, a result of the ongoing stock repurchase
plan.
INVESTMENT ACTIVITIES
The Company is the holder of certain subordinated notes (the "Notes") issued by
Cole Taylor Financial Group, Inc. The Notes have a par value and cost basis of
$3.0 million. The Notes were acquired by the Company in 1994, when Cole Taylor
9
Financial Group, Inc. was the parent company for both a consumer finance
company and a Chicago area bank. In fiscal 1997, Cole Taylor's bank subsidiary
was "spun-off" to certain Cole Taylor shareholders in exchange for stock and
certain assets. The Notes remained as obligations of the surviving company,
which is now known as Reliance Acceptance Group, Inc. ("RAG") and is the parent
company for the consumer finance company.
A detailed summary discussing the Company's write-down of the Notes and various
continuing lawsuits with respect to the Notes is included in the Company's 1999
Form 10-K filed with the Securities and Exchange Commission on December 17,
1999. Additionally, on February 14, 2000, the Company filed a class action in
the Circuit Court of Cook County, Illinois against LaSalle National Bank and
affiliates. The action is brought on behalf of the Company individually and as
class representative of all RAG subordinated noteholders. The complaint
alleges a cause of action arising out of LaSalle s involvement as the trustee
of the RAG subordinated notes. Discovery has not yet commenced and no trial
date has been set.
ASSET QUALITY
As of March 31, 2000, the Company had non-performing assets of $677,000. The
Bank's non-performing assets at March 31, 2000 included one single-family and
one multi-unit residence, along with one automobile. Also included in non-
performing assets were classified loans of $546,000 categorized as substandard,
consisting of six residential mortgage loans. There were no assets classified
as doubtful.
The Company s ratio of non-performing loans to net loans receivable remains
below industry standards at 0.11%. The consistently below average ratios are a
result of management's ongoing monitoring and follow-up procedures of
delinquent customers. A review of the foreclosed residential properties has
established that no specific allowances were necessary, and management does not
expect any material losses from the non-performing loans.
STOCK REPURCHASE
The Company announced its 10th stock repurchase program on October 19, 1999 for
110,000 shares and expanded it to 220,000 on January 26, 2000. Through March
31, 2000, 148,000 shares had been repurchased at an average price of $17.67 per
share. As of April 20, 2000, there were 72,000 shares remaining to be
repurchased in this program. The Company views stock repurchases 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 liabilities,
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 March 31, Six Months Ended
2000 1999 March 31,2000
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $509,095 9,449 7.42% 444,497 8,112 7.30% 506,775 18,739 7.40%
Mortgage-backed securities 3,317 62 7.48% 9,297 164 7.06% 3,400 127 7.47%
Interest-earning deposits 475 7 5.89% 734 9 4.90% 670 18 5.37%
Investment securities and
federal funds sold 74,011 1,297 7.01% 76,182 1,240 6.51% 74,893 2,620 7.00%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 586,898 10,815 7.37% 530,710 9,525 7.18% 585,738 21,504 7.34%
Non-interest earning
assets 11,285 13,339 11,167
------- ------ -------
Total assets $598,183 544,049 596,905
======= ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 138,448 1,241 3.59% 151,522 1,366 3.61% 139,656 2,506 3.59%
Money market account 14,967 142 3.80% 17,509 168 3.84% 15,230 291 3.82%
Certificate accounts 201,525 2,848 5.65% 159,274 2,088 5.24% 199,049 5,500 5.53%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total deposits 354,940 4,231 4.77% 328,305 3,622 4.41% 353,935 8,297 4.69%
Borrowed funds 186,063 2,690 5.78% 154,612 2,058 5.32% 184,418 5,302 5.75%
------- ----- ----- ------- ---- ----- ------- ----- -----
Total interest-bearing
liabilities 541,003 6,921 5.12% 482,917 5,680 4.70% 538,353 13,599 5.05%
Non-interest bearing
deposits 6,139 7,453 6,022
Other liabilities 9,398 10,116 10,382
------- ------ -------
Total liabilities 556,540 500,486 554,757
Stockholders' equity 41,643 43,563 42,148
------- ------ -------
Total liabilities and
stockholders' equity $598,183 544,049 596,905
======= ======= =======
Net interest
income/interest rate
spread (1) 3,894 2.25% 3,845 2.48% 7,905 2.29%
Net earning assets/net
interest margin (2) $ 45,895 2.65% 47,793 2.90% 47,385 2.70%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.08x 1.10x 1.09x
(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 and six month periods are annual-
ized for presentation purposes.
11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
MARCH 31, 1999
GENERAL. Net income for the three months ended March 31, 2000 was $1.1
million, an increase of $134,000 from the net income of $994,000 for the three
months ended March 31, 1999. The 13.5% increase in earnings for the quarter
was primarily a result of increased interest and non-interest income.
INTEREST INCOME. Income from loans receivable, the largest contributor to
interest income, was $9.4 million for the quarter ended March 31, 2000, up
16.5% from the prior year. The average loans outstanding increased 14.5%, or
$64.6 million to $509.1 million for the quarter ended March 31, 2000. In
addition to increased volume, the Company was able to raise the average yield
on loans 12 basis points. The increase in loan interest income was a result of
higher loan volumes combined with the increased yield. Interest income from
the investment portfolio increased $57,000, which was the result of fiscal 1999
investment maturities that changed the composition of the portfolio. Gross
interest income totaled $10.8 million for the three months ended March 31,
2000, up 13.5%, or $1.3 million from $9.5 million for the quarter ended March
31, 1999.
INTEREST EXPENSE. Interest expense for the quarter increased $1.2 million,
from $5.7 million the previous year to $6.9 million. Deposit growth
experienced throughout the past year is evidenced by the 8.1%, or $26.6 million
increase in average interest-bearing deposits. The growth comes mostly in the
certificates of deposit category. The increased volume along with the increase
of 36 basis points in the weighted average cost accounted for the increased
deposit interest expense of $609,000, bringing interest expense on deposits to
$4.2 million for the quarter ended March 31, 2000. The Company s quarter-to-
quarter comparison of average borrowings showed an increase of $31.5 million,
to $186.1 million from $154.6 million for the three month period ended March
31, 1999. The weighted average cost of the borrowings increased 46 basis
points, causing the related interest expense to increase $632,000 to $2.7
million.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses in
both the fiscal 2000 and 1999 second quarters of $15,000. 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 March 31, 2000, the
cumulative allowance for loan losses was $830,000. The ratio of the allowance
for loan losses to net loans receivable was .16% at March 31, 2000.
NON-INTEREST INCOME. Non-interest income increased 83.9% to $399,000 for the
second quarter of fiscal 2000. Insurance and annuity commissions produced
$278,000, a $167,000 increase compared to the same period in 1999. The increase
was primarily a result of the expansion of the product line being offered to
customers.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended both
March 31, 2000 and 1999 totaled $2.5 million. Increases in the Company's data
processing expenses were offset by the decrease in salaries and related
employee benefits.
INCOME TAXES. Income taxes increased $81,000 for the three months ended March
31, 2000 to $683,000 compared to $602,000 for the prior year due to increased
taxable income.
12
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND
MARCH 31, 1999
GENERAL. Net income for the six months ended March 31, 2000 increased 18.8% to
$2.3 million compared to the six months ended March 31, 1999. This change was
primarily attributed to the 5.6% increase in net interest income after loan
loss provision combined with the $258,000 increase in non-interest income.
INTEREST INCOME. Interest income increased 14.4% to $21.5 million for the six
months ended March 31, 2000, compared to $18.8 million for the six months ended
March 31, 1999. Interest income from loans receivable increased $2.7 million,
or 16.8% from $16.0 million to $18.7 million for the six months ended March 31,
2000. The average loans outstanding increased 16.5% or $71.6 million to $506.8
million from $435.1 million for the six months ended March 31, 1999. As the
Company grew the loan base, it also was successful in increasing the average
yield. The average balance of the investment portfolio increased slightly to
$74.9 million. Due to maturities and new purchases during fiscal 1999, the
weighted average yield increased 38 basis points to 7.00%.
INTEREST EXPENSE. Interest expense on deposits amounted to $8.3 million, an
$810,000 increase from the March31, 1999 expense of $7.5 million. Average
interest-bearing deposits increased $26.3 million, or 8.0%, to $353.9 million
for the six-month period in 2000 compared to $327.6 million in 1999. The
weighted average cost of deposits increased 12 basis points due to the shift in
the composition of the deposit base, and a decrease in transaction accounts
offset by an increase in certificates of deposits. Average borrowed funds
increased $43.6 million to $184.4 million for the six-month period ended March
31, 2000. The weighted average cost also increased. For the six-month period
ended March 31, 2000 the cost was 5.75%, up 25 basis points for the same period
one year ago.
PROVISION FOR LOAN LOSSES. The Company recorded a $55,000 provision for loan
losses in the first six months of fiscal 2000, compared to a $40,000 provision
in 1999. The adequacy of the loan loss provision is analyzed on a monthly
basis. Management considers the changes in the type and volume of the loan
portfolio, the specific delinquent loans, the historical loss experience, and
the current economic trends, as well as loan growth and other factors deemed
appropriate when evaluating the allowance for loan losses.
NON-INTEREST INCOME. Non-interest income increased $258,000 to a record
$737,000 for the six months ended March 31, 2000 from $479,000 for the same
period in 1999. Included in non-interest income are commissions from sales of
annuity and mutual fund investments that are not FDIC insured, made through
INVEST Financial Corporation. The growth noted in fee income is largely due to
the expansion of our product line to meet the needs of our customer base, and
greater productivity from our licensed sales team.
NON-INTEREST EXPENSE. Non-interest expense for each of the six-month periods
ended March 31, 2000 and 1999 amounted to $4.9 million. Tightly controlled
operating expenses contributed to the net increase of only $75,000. The
Company s efficiency improved for the first six months, with the ratio of
operating expenses to average assets falling to 1.66 percent from 1.83 percent
in the prior year.
INCOME TAXES. Income taxes increased $240,000 for the six-months ended March
31, 2000 to $1.4 million compared to $1.1 million for the prior year due to
increased taxable income.
13
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 contract 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.
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.
14
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 December 31, 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 16,725 (37,508) (69)% 2.98% - 594 bp
+ 200 bp 30,069 (24,164) (45)% 5.20% - 371 bp
+ 100 bp 43,125 (11,108) (20)% 7.26% - 166 bp
0 bp 54,233 8.91%
- 100 bp 62,422 8,189 15 % 10.07% + 116 bp
- 200 bp 71,613 17,380 32 % 11.33% + 241 bp
- 300 bp 80,438 26,205 48 % 12.49% + 357 bp
- -------------------------------------------------------------------------------
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, President Clinton signed legislation that will allow bank
holding companies to engage in a wider range of nonbanking activities,
including greater authority to engage in securities and insurance activities.
Under the Gramm-Leach-Bliley Act (the Act ), a bank holding company that
elects to become a financial holding company may engage in any activity that
the Board of Governors of the Federal Reserve System (the Federal Reserve ),
in consultation with the Secretary of the Treasury, determines by regulation or
order is financial in nature, incidental to any such financial activity, or
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. The Act specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring, investing for
others, or safeguarding money or securities; underwriting and selling
insurance; providing financial, investment, or economic advisory services;
underwriting, dealing in or making a market in, securities; and any activity
currently permitted for bank holding companies by the Federal Reserve under
section 4(c)(8) of the Bank Holding Company Act. A bank holding company may
elect to be treated as a financial holding company only if all depository
institution subsidiaries of the holding company are well-capitalized, well-
managed and have at least a satisfactory rating under the Community
Reinvestment Act.
National banks are also authorized by the Act to engage, through financial
subsidiaries, in any activity that is permissible for financial holding
companies (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve, determines is financial in
nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities
(unless otherwise
15
expressly permitted by law), (iii) insurance company portfolio investments and
(iv) merchant banking. The authority of a national bank to invest in a
financial subsidiary is subject to a number of conditions, including, among
other things, requirements that the bank must be well-managed and well-
capitalized (after deducting from capital the bank s outstanding investments in
financial subsidiaries). The Act provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) subject to the same conditions that apply to
national banks.
The Act limits the nonbanking activities of unitary savings and loan holding
companies by generally prohibiting any savings and loan holding company from
engaging in any activity other than activities that are currently permitted for
multiple savings and loan holding companies or are permissible for financial
holding companies (as described above) (collectively "permissible activities").
The Act also generally prohibits any company from acquiring control of a
savings association or savings and loan holding company unless the acquiring
company engages solely in permissible activities. The Act creates an exemption
from the general prohibitions for unitary savings and loan holding companies in
existence, or formed pursuant to an application pending before the Office of
Thrift Supervision, on or before May 4, 1999.
Various bank regulatory agencies have begun issuing regulations as mandated by
the Act. The Federal Reserve has issued interim regulations listing the
financial activities permissible for financial holding companies and describing
the parameters under which financial holding companies may engage in securities
and merchant banking activities. In addition, all federal bank regulatory
agencies have jointly issued a proposed regulation that would implement the
privacy provisions of the Act. At this time, it is not possible to predict the
impact the Act and its implementing regulations may have on the Company.
16
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
(a) The Company held its Annual Meeting of Stockholders on
January 26, 2000.
(b) The directors elected at the Annual Meeting are as follows:
For Withheld
Thomas E. Bentel 1,993,554 38,364
Raymond S. Stolarczyk 1,991,154 40,764
The directors whose term of office continued after the Annual
Meeting are as follows:
Paul J. Bielat
Patrick J. Flynn
Raymond J. Horwat
Bonnie J. Stolarczyk
(c) A brief description of each other matter voted on and the
number votes cast:
(i) Ratification of Crowe, Chizek and Company LLP as
independent
auditors for the fiscal year ending September 30, 2000.
For Against Abstain
2,014,845 4,805 12,268
17
ITEM 5. OTHER INFORMATION
(a) Change in Board of Directors
Effective March 1, 2000, Bonnie J. Stolarczyk resigned from the
Company's board of directors, but will remain on the board of
the
bank. Raymond J. Horwat retired from both the Company's and
the
Bank's board of directors on his 75th birthday, March 9, 2000.
The vacancies created on the board at the Company level were
filled by the appointment of Edward J. Burda and Richard J.
Kasten, who are both Bank directors, on April 17, 2000.
(b) Change in Management
The Company announced the appointment of Elizabeth A. Doolan to
Vice President, Finance & Treasurer for the Company and the
Bank
on April 14, 2000. The appointment is effective May 1, 2000.
She
replaces James R. Kinney, Senior Vice President, Finance &
Treasurer who is retiring from the banking industry to pursue
other personal business interests as of April 30th.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fidelity Bancorp, Inc.
Dated: April 26, 2000 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: April 26, 2000 /s/ JAMES R. KINNEY
-----------------------------
James R. KINNEY
Sr. V. P. and Chief Financial Officer