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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 June 30, 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 2,025,085 shares of common stock, par value $.01, outstanding as of
July 17, 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 June 30, 2000 (unaudited) and September 30, 1999 1
Consolidated Statements of Earnings for the three and nine
months ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 2000 and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended June 30, 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 6-14
Item 3. Quantitative and Qualitative Disclosure about Market Risks 14-15
Item 4. Recent Regulatory Developments 15-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
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 June 30, September 30,
2000 1999
(unaudited)
Cash and due from banks $ 2,490 2,714
Interest-bearing deposits 2,819 576
Federal funds sold 100 100
------- -------
Cash and cash equivalents 5,409 3,390
FHLB of Chicago stock 9,782 9,615
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,209
at June 30, 2000 and $3,637 at September 30, 1999) 3,207 3,585
Investment securities available for sale, at fair value 63,828 66,070
Loans receivable, net of allowance for loan losses of $845
at June 30, 2000 and $780 at September 30, 1999 521,977 507,557
Accrued interest receivable 3,030 3,665
Real estate in foreclosure 49 -
Premises and equipment 4,018 4,202
Deposit base intangible 17 34
Other assets 1,235 1,163
------- -------
$ 612,552 599,281
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 395,147 357,016
Borrowed funds 165,650 186,250
Advance payments by borrowers for taxes and insurance 5,740 7,986
Other liabilities 5,573 6,008
------- -------
Total liabilities 572,110 557,260
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; 2,025,085 and 2,207,846 shares
outstanding at June 30, 2000 and September 30, 1999 38 38
Additional paid-in capital 38,743 38,690
Retained earnings, substantially restricted 36,290 33,771
Treasury stock, at cost (1,757,265 and 1,574,504 shares
at June 30, 2000 and September 30, 1999, respectively) (31,391) (28,168)
Common stock acquired by Employee Stock Ownership Plan (189) (632)
Common stock acquired by Bank Recognition and Retention Plans (193) (198)
Accumulated other comprehensive loss (2,856) (1,480)
------- -------
TOTAL STOCKHOLDERS' EQUITY 40,442 42,021
------- -------
Commitments and contingencies
$ 612,552 599,281
======= =======
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 Nine Months ended
June 30, June 30,
2000 1999 2000 1999
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 9,645 8,590 28,384 24,639
Investment securities 1,304 1,284 3,922 3,653
Mortgage-backed securities 57 90 184 438
Interest earning deposits 12 9 30 36
Federal funds sold 2 1 4 3
------ ------ ------ ------
11,020 9,974 32,524 28,769
Interest Expense:
Deposits 4,657 3,732 12,954 11,219
Borrowed funds 2,775 2,254 8,077 6,087
------ ------ ------ ------
7,432 5,986 21,031 17,306
Net interest income before provision
for loan losses 3,588 3,988 11,493 11,463
Provision for loan losses 55 55 110 95
------ ------ ------ ------
Net interest income after provision
for loan losses 3,533 3,933 11,383 11,368
Non-Interest Income:
Fees and commissions 130 90 339 280
Insurance and annuity commissions 269 258 771 522
Other 16 12 42 37
------ ------ ------ ------
415 360 1,152 839
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,269 1,472 4,103 4,333
Office occupancy and equipment 387 414 1,144 1,173
Data processing 128 116 394 359
Advertising and promotions 177 98 469 303
Federal deposit insurance premiums 55 53 159 157
Other 335 357 1,014 1,037
Amortization of intangible 5 7 17 24
------ ------ ------ ------
2,356 2,517 7,300 7,386
------ ------ ------ ------
Income before income taxes 1,592 1,776 5,235 4,821
Income tax expense 586 666 1,968 1,808
------ ------ ------ ------
Net income $ 1,006 1,110 3,267 3,013
====== ====== ====== ======
Earnings per share - basic $ 0.49 0.51 1.56 1.33
Earnings per share - diluted $ 0.48 0.48 1.50 1.26
====== ====== ====== ======
Comprehensive income (loss) $ 736 (13) 1,891 1,194
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Nine months ended June 30, 2000 and 1999
Accumulated
Common Common Other
Additional Stock Stock Comprehensive
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by BRRP's (Loss) Total
--- ------ ------- ------- ------ ------ ---- -------
Balance at
September 30, 1998 $38 38,117 30,646 (19,210) (1,092) (242) 340 $48,597
Net income - - 3,013 - - - - 3,013
Purchase of treasury stock
(402,426 shares) - - - (9,312) - - - (9,312)
Cash dividends ($.32 per
share) - - (763) - - - - (763)
Amortization of award of
BRRP's stock - - - - - 41 - 41
Cost of ESOP shares released - - - - 460 - - 460
Exercise of stock options
and reissuance of treasury
shares (17,998 shares) - (125) - 310 - - - 185
Tax benefit related to
stock options exercised - 46 - - - - - 46
Market adjustment for
committed ESOP shares - 397 - - - - - 397
Change in accumulated other
comprehensive income - - - - - - (1,819) (1,819)
--- ------ ------- ------ ------ ----- ----- ------
Balance at June 30, 1999 $38 38,435 32,896 (28,212) (632) (201) (1,479) $40,845
=== ====== ======= ====== ====== ===== ===== =======
Balance at
September 30, 1999 $38 38,690 33,771 (28,168) (632) (198) (1,480) $42,021
Net income - - 3,267 - - - - 3,267
Purchase of treasury stock
(191,200 shares) - - - (3,377) - - - (3,377)
Cash dividends ($.35 per
share) - - (748) - - - - (748)
Amortization of award of
BRRP's stock - - - - - 5 - 5
Cost of ESOP shares released - - - - 443 - - 443
Exercise of stock options
and reissuance of treasury
shares (8,439 shares) - (150) - 154 - - - 4
Tax benefit related to
stock options exercised - 57 - - - - - 57
Market adjustment for
committed ESOP shares - 146 - - - - - 146
Change in accumulated other
comprehensive income - - - - - - (1,376) (1,376)
--- ------ ------- ------ ------ ----- ---- ------
Balance at June 30, 2000 $38 38,743 36,290 (31,391) (189) (193) (2,856) $40,442
=== ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended June 30, 2000 1999
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,267 3,013
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 326 365
Provision for loan losses 110 95
Net amortization and accretion of premiums and discounts (37) 23
Amortization of cost of stock benefit plans 5 41
ESOP expense 589 857
Deferred loan fees, net of amortization (261) (436)
Stock dividend from FHLB of Chicago (167) -
Amortization of deposit base intangible 17 24
Loss (gain) on sale of real estate owned 5 (45)
Decrease in accrued interest receivable 635 772
Decrease (increase)in other assets (77) 49
Increase in other liabilities 437 614
------ ------
Net cash provided by operating activities 4,849 5,372
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities (130) -
Proceeds from maturities of investment securities - 30,000
Purchase of investment securities available for sale - (39,951)
Purchase of Federal Home Loan Bank of Chicago stock - (2,675)
Proceeds from sale of real estate owned 23 438
Loans originated for investment (77,268) (155,919)
Purchase of premises and equipment (142) (210)
Principal repayments collected on loans receivable 62,958 94,467
Principal repayments collected on mortgage-backed securities 508 7,375
------ ------
Net cash used in investing activities (14,051) (66,475)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 38,131 10,511
Proceeds from (repayments of) borrowed funds (20,600) 63,000
Net decrease in advance payments
by borrowers for taxes and insurance (2,246) (1,492)
Purchase of treasury stock (3,377) (9,312)
Payment of common stock dividends (748) (763)
Proceeds from exercise of stock options 61 231
------ ------
Net cash provided by financing activities 11,221 62,175
------ ------
Net change in cash and cash equivalents 2,019 1,072
Cash and cash equivalents at beginning of period 3,390 1,975
------ ------
Cash and cash equivalents at end of period $ 5,409 3,047
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 21,184 17,033
Income taxes 1,772 1,579
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 UNAUDITED 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 interim period ended June 30,
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
Basic earnings per share for the three months ended June 30, 2000 and 1999 were
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
2,035,775 and 2,176,116, respectively. Basic earnings per share of common
stock for the nine months ended June 30, 2000 and 1999 were determined by
dividing net income by 2,097,912 and 2,262,876, the weighted average number of
shares of common stock and potential common stock outstanding.
Diluted earnings per share for the three months ended June 30, 2000 and 1999
were 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 2,115,867 and 2,291,936, respectively. Diluted earnings per share of
common stock for the nine months ended June 30, 2000 and 1999 were determined
by dividing net income by 2,182,071 and 2,382,520, 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 was computed
using the treasury stock method.
6
(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 Nine Months ended
June 30, June 30,
2000 1999 2000 1999
-------------------- -----------------
Net Income $ 1,006 1,110 3,267 3,013
Comprehensive income - net of taxes
Unrealized loss on securities available
for sale arising during the period (270) (1,123) (1,376) (1,819)
----- ----- ------ ------
$ 736 (13) 1,891 1,194
===== ===== ====== ======
(4) COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Bank had outstanding commitments to originate loans of
$6.6 million all of which were adjustable rates, with rates ranging from 7.12%
to 10.25%.
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 third fiscal quarter ended June 30, 2000
of $1.0 million, compared with $1.1 million for the same quarter a year ago, a
decrease of 9.4%. Earnings per diluted share for the quarter remained flat at
$0.48, while earnings per diluted share for the nine months ended June 30, 2000
increased 19.0% from $1.26 for the nine-month period ended June 30, 1999
compared to $1.50 for the nine month period ended June 30, 2000. The increase
in earnings per diluted share for the nine-months ended June 30, 2000 was
primarily the result of increased non-interest income and fewer shares
outstanding.
7
The Company also announced that its board of directors declared a quarterly
dividend of $0.12 per share, payable August 15, 2000 to shareholders of record
as of July 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,
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,
supplement deposits with Federal Home Loan Bank of Chicago (FHLB) advances.
8
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 June 30, 2000, the
Bank was in compliance with OTS liquidity requirements, with a liquidity ratio
of 17.30%.
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 $4.9 million for the nine months ended June 30, 2000. The
Company used $14.1 million in investing activities for the nine-month period
ended June 30, 2000. Loan originations, net of loan repayments received
totaling $14.3 million, accounts for the period s cash usage. Net cash
provided by financing activities amounted to $11.2 million for the nine months
ended June 30, 2000. The Company increased its deposits by $38.1 million
during the nine-month period. Growth in deposits during the period enabled the
Bank to reduce borrowed funds by $20.6 million. Financing activities also
included $3.4 million to repurchase the Company s common stock.
At June 30, 2000, the Bank had outstanding commitments to originate loans of
$6.6 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 June 30, 2000 totaled $184.0
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.
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 June 30, 2000, the Company and the
Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at June 30, 2000 was 7.17%. The Tier 1 Capital
ratio was 7.17%, the Tier 1 Risk-Based ratio was 14.89%, and the Total Risk-
Based Capital ratio was 15.17%.
9
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 June 30, 2000 were $612.6 million, compared to $599.3 million
at September 30, 1999. Loans receivable, net of allowance for loan losses,
grew $14.4 million. The Company continues to offer various loan products, and
prices them competitively. The Company's total loan originations for the nine
months ended June 30, 2000 were $77.3 million. Of the $70.7 million of first
mortgage loan originations, 90.3% were higher yielding, specialized products,
while consumer loans made up $6.6 million of originations.
Deposits grew 10.7% to $395.1 million at June 30, 2000, from $357.0 million at
September 30, 1999. The deposit growth allowed the Bank to pay down FHLB
advances by $20.6 million. During the quarter, $90.0 million of FHLB advances
were called and $75 million of the advances were replaced with longer, fixed
term advances to lessen the Bank s interest rate risk sensitivity. The renewed
advances have an average maturity of 18 months, and a weighted average cost of
7.23%.
Book value per share on June 30, 2000 was $19.97, 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
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.
10
ASSET QUALITY
As of June 30, 2000, the Company had non-performing assets of $587,000. The
Bank's non-performing assets at June 30, 2000 included one multi-unit building,
five single-family residences and one consumer loan. There were no assets
classified as doubtful.
The Company s ratio of non-performing loans to net loans receivable remains
below industry standards at 0.10 %. 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 June 30,
2000, 191,200 shares had been repurchased at an average price of $17.66 per
share. As of July 17, 2000, the Company could repurchase up to an additional
28,800 shares in connection with this program. The Company views stock
repurchases as part of an ongoing strategy to build value for stockholders.
11
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 June 30, Nine Months Ended
2000 1999 June 30,2000
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $515,690 9,645 7.48% 470,972 8,590 7.30% 509,736 28,384 7.42%
Mortgage-backed securities 3,241 57 7.03% 5,725 90 6.29% 3,347 184 7.33%
Interest-earning deposits 1,129 12 4.25% 791 9 4.55% 923 30 4.33%
Investment securities and
federal funds sold 74,440 1,306 7.02% 76,438 1,285 6.72% 74,643 3,926 7.01%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 594,500 11,020 7.41% 553,926 9,974 7.20% 588,649 32,524 7.37%
Non-interest earning
assets 11,968 13,187 11,435
------- ------ -------
Total assets $606,468 567,113 600,084
======= ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 139,551 1,294 3.71% 148,170 1,324 3.57% 139,621 3,799 3.63%
Money market account 13,862 131 3.78% 17,784 169 3.80% 14,776 422 3.81%
Certificate accounts 217,643 3,232 5.94% 172,662 2,239 5.19% 205,224 8,733 5.67%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total deposits 371,056 4,657 5.02% 338,616 3,732 4.41% 359,621 12,954 4.80%
Borrowed funds 177,603 2,775 6.25% 166,741 2,254 5.41% 182,155 8,077 5.91%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest-bearing
liabilities 548,659 7,432 5.42% 505,357 5,986 4.74% 541,776 21,031 5.18%
Non-interest bearing
deposits 6,763 8,022 6,268
Other liabilities 9,756 10,964 10,175
------- ------- -------
Total liabilities 565,178 524,343 558,219
Stockholders' equity 41,290 42,770 41,865
------- ------- -------
Total liabilities and
stockholders' equity $606,468 567,113 600,084
======= ======= =======
Net interest
income/interest rate
spread (1) 3,588 1.99% 3,988 2.46% 11,493 2.19%
Net earning assets/net
interest margin (2) $ 45,841 2.41% 48,569 2.88% 46,873 2.60%
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.
12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND
JUNE 30, 1999
GENERAL. Net income for the three months ended June 30, 2000 was $1.0 million,
a decrease of $104,000 from the net income of $1.1 million for the three months
ended June 30, 1999. The slight decrease was attributable to a decrease in net
interest income, which was only partially offset by increases in non-interest
income and decreases in non-interest expense.
INTEREST INCOME. Interest income increased 10.5% from $10.0 million for the
three months ended June 30, 1999 to $11.0 million for the same period in fiscal
2000. Interest income generated from loans receivable increased 12.3%,
mounting to $9.6 million for the three-month period. The Company continued to
grow its loan portfolio, increasing the average loans outstanding 9.5%, or $44.7
million, to $515.7 million for the quarter ended June 30, 2000. In addition to
increased volume, the Company was able to close higher yielding loans, thus
increasing the average yield on loans 18 basis points. The increase in loan
nterest income was a result of higher loan volumes combined with the increased
yield.
INTEREST EXPENSE. Interest expense for the quarter increased $1.4 million, from
$6.0 million the previous year to $7.4 million. This was primarily a result of
the Federal Reserve raising rates. The Company s cost of funds increased 68
basis points for the three-month period ended June 30, 2000 as compared to the
same period in 1999. The Company experienced deposit growth throughout the past
year, especially in the certificates of deposits category. Average certificates
outstanding increased $45 million for the three month period June 30, 2000,
compared to the same three months in 1999. The increased volume along with an
increase of 61 basis points in the weighted average cost accounted for the
increased deposit interest expense of $925,000, bringing interest expense on
deposits to $4.7 million for the quarter ended June 30, 2000. During the
quarter, $90 million in FHLB advances were called. The Company, concentrating
on its interest rate risk sensitivity, renewed $75 million of these advances in
longer term-fixed rate instruments. The quarter-to-quarter comparison of
average borrowings shows an increase of $10.9 million, to $177.6 million from
$166.7 million for the three month period ended June 30, 1999. The weighted
average cost of the borrowings also increased 84 basis points, causing the
related interest expense to increase $521,000 to $2.8 million, from $2.3 million
for the same period one year ago.
PROVISION FOR LOAN LOSSES. The Company recorded provisions for loan losses in
both the fiscal 2000 and 1999 third quarters of $55,000. 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 June 30, 2000, the general
cumulative allowance for loan losses was $845,000. The quality of the loan
portfolio remains good, with a ratio of 0.10% total non-performing loans to
total loans. The ratio of the allowance for loan losses to net loans receivable
was 0.16% at June 30, 2000.
NON-INTEREST INCOME. The Bank s subsidiary activities continued to generate
insurance and annuity commissions. Fees and commissions also increased from
quarter to quarter, $40,000, or 44.4% to $130,000 for the three-month period
ended June 30, 2000 compared to $90,000 in 1999. Non-interest income increased
15.3% to $415,000 for the third quarter of fiscal 2000.
13
NON-INTEREST EXPENSE. Non-interest expense for the three months ended decreased
slightly to $2.4 million for the three-month period ended June 30, 2000,
compared to $2.5 million in 1999. Increases in the Company's data processing
and advertising expenses were offset by the decrease in salaries and related
employee benefits.
INCOME TAXES. Income taxes decreased $80,000 for the three months ended
June 30, 2000 to $586,000 compared to $666,000 for the prior year due to
decreased taxable income.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND JUNE
30, 1999
GENERAL. Net income for the nine months ended June 30, 2000 increased 8.4% to
$3.3 million compared to the nine months ended June 30, 1999. Increased non-
interest income and reduced non-interest expenses contributed to the increase in
earnings for the nine-month period, as net interest income remained stable.
INTEREST INCOME. Interest income increased 13.1% to $32.5 million for the nine
months ended June 30, 2000, compared to $28.8 million for the nine months ended
June 30, 1999. The largest contributor to interest income was loans receivable,
which showed a 15.2% increase in the nine-month period ending June 30, 2000
compared to the same period a year ago. Interest generated from loans
receivable totaled $28.4 million, up from $24.6 million the previous year. This
increase was the combined result of a 14.0% increase in average loans receivable
and an increase of 7 basis points in the average yield on the loan portfolio.
The average loans outstanding increased to $509.7 million from $447.1 million
for the nine months ended June 30, 1999. As the Company grew the loan base, it
also was successful in increasing the average yield.
INTEREST EXPENSE. Gross interest expense increased $3.7 million to $21.0
million for the nine month period ended June 30, 2000 from $17.3 million
reported for the same period one year prior. Deposits continued to grow with
average interest-bearing deposits increasing $28.4 million, or 8.6%, to $359.6
million for the nine-month period in 2000 compared to $331.3 million in 1999.
The weighted average cost of deposits increased 28 basis points due to the shift
in the composition of the deposit base. The shift consisted of a decrease in
transaction accounts offset by an increase in certificates of deposits. Average
borrowed funds increased $32.7 million to $182.2 million for the nine-month
period ended June 30, 2000. The weighted average cost of borrowed funds also
increased. For the nine-month period ended June 30, 2000 the cost was 5.91%, up
48 basis points from the same period one year ago.
PROVISION FOR LOAN LOSSES. The Company recorded $110,000 in provisions for
loan losses during the first nine months of fiscal 2000, compared to a $95,000
provision in the first three-quarters of 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. The ratio of non-performing loans to total loans receivable, net
was 0.10%.
14
NON-INTEREST INCOME. Non-interest income increased 37.3%, or $313,000 to $1.2
million for the nine months ended June 30, 2000 from $839,000 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 was largely due to
the expansion of the product line to meet the needs of our customer base, and
greater productivity from the licensed sales team.
NON-INTEREST EXPENSE. Non-interest expense declined slightly for the nine-month
period ended June 30, 2000 to $7.3 million, compared to $7.4 million in 1999.
Tightly controlled operating expenses contributed to the net decrease of
$86,000. The Company s efficiency improved for the first nine months, with the
ratio of operating expenses to average assets falling to 1.62% from 1.81% in the
prior year.
INCOME TAXES. Income taxes increased $160,000 for the nine-months ended
June 30, 2000 to $2.0 million compared to $1.8 million 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 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.
15
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.
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
March 31, 2000.
Net Portfolio Value as a %
Net Portfolio Value of Present Value of Assets
------------------------------ --------------------------
Changes in
Rates $ Amount $ Change % Change NPV Ratio Change
- ---------- --------- -------- -------- --------- ---------
+ 300 bp 16,387 (42,483) (72)% 2.87% - 663 bp
+ 200 bp 30,719 (28,151) (48)% 5.23% - 427 bp
+ 100 bp 45,016 (13,854) (24)% 7.46% - 204 bp
0 bp 58,870 9.50%
- 100 bp 70,390 11,520 20 % 11.11% + 161 bp
- 200 bp 78,242 19,372 33 % 12.16% + 266 bp
- 300 bp 87,737 28,867 49 % 13.39% + 389 bp
- -------------------------------------------------------------------------------
RECENT REGULATORY DEVELOPMENTS
The Gramm-Leach-Bliley Act (the Act ), which was enacted in November, 1999, allows
eligible bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Act, an eligible 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. National banks are
also authorized by the Act to engage, through financial subsidiaries, in certain
activity that is permissible for financial holding companies (as described above)
and certain 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.
16
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. During June, 2000, all of the federal bank regulatory agencies jointly
issued regulations implementing the privacy provisions of the Act. In addition,
the Federal Reserve issued interim regulations listing the financial activities
permissible for financial holding companies and describing the extent to which
financial holding companies may engage in securities and merchant banking
activities. At this time, it is not possible to predict the impact the Act and
its implementing regulations may have on the Company.
17
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
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: July 20, 2000 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: July 20, 2000 /s/ ELIZABETH A. DOOLAN
-----------------------------
Elizabeth A. DOOLAN
V. P. and Chief Financial Officer