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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 December 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 2,011,710 shares of common stock, par value $.01, outstanding as of
January 18, 2001.
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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 December 31, 2000 (unaudited) and September 30, 2000 1
Consolidated Statements of Earnings for the three
months ended December 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity for the three months ended December 31, 2000
and 1999 (unaudited) 3
Consolidated Statements of Cash Flows for the three
months Ended December 31, 2000 and 1999 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements
(unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
Item 3. Quantitative and Qualitative Disclosures about Market Risks 11-12
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,
ASSETS 2000 2000
Cash and due from banks $ 5,495 4,690
Interest-earning deposits 616 1,405
Federal funds sold 100 100
------- --------
Cash and cash equivalents 6,211 6,195
FHLB of Chicago stock, at cost 10,485 10,065
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,131
at December 31, 2000 and $3,202 at September 30, 2000) 3,065 3,179
Investment securities available for sale, at fair value 75,801 74,366
Loans receivable, net of allowance for loan losses of $1,017
at December 31, 2000 and $950 at September 30, 2000 541,204 533,999
Accrued interest receivable 3,725 4,161
Real estate in foreclosure 11 3
Premises and equipment 3,879 3,925
Deposit base intangible 9 13
Other assets 432 1,125
------- -------
$ 644,822 637,031
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 385,532 381,433
Borrowed funds 203,130 205,150
Advance payments by borrowers for taxes and insurance 5,608 2,198
Other liabilities 6,275 5,447
------- -------
Total liabilities 600,545 594,228
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; 2,010,785 and 2,025,085 shares
outstanding at December 31, 2000 and September 30, 2000,
respectively 38 38
Additional paid-in capital 38,811 38,780
Retained earnings, substantially restricted 37,642 37,022
Treasury stock, at cost (1,771,565 and 1,757,265 shares at
December 31, 2000 and September 30, 2000, respectively) (31,651) (31,391)
Common stock acquired by Employee Stock Ownership Plan - (189)
Common stock acquired by Bank Recognition and Retention Plans (186) (191)
Accumulated other comprehensive income (377) (1,266)
------- -------
TOTAL STOCKHOLDERS' EQUITY 44,277 42,803
$ 644,822 637,031
======= =======
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, 2000 1999
------ ------
Interest Income:
Loans receivable $ 10,234 9,290
Investment securities 1,632 1,322
Mortgage-backed securities 53 65
Other interest income 14 12
------ ------
11,933 10,689
Interest Expense:
Deposits 5,015 4,066
Borrowed funds 3,538 2,612
------ ------
8,553 6,678
------ ------
Net interest income before provision for loan losses 3,380 4,011
Provision for loan losses 70 40
------ ------
Net interest income after provision for loan losses 3,310 3,971
Non-Interest Income:
Fees and commissions 118 103
Insurance and annuity commissions 146 224
Other 121 12
------ ------
385 339
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,411 1,425
Office occupancy and equipment 374 358
Data processing 134 127
Advertising and promotions 155 182
Other 361 380
Amortization of intangible 4 6
------ ------
2,439 2,478
Income before income taxes 1,256 1,832
Income tax expense 393 699
------ ------
Net income $ 863 1,133
====== ======
Earnings per share - basic $ 0.43 0.53
====== ======
Earnings per share - diluted $ 0.41 0.51
====== ======
Comprehensive income $ 1,752 48
====== ======
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, 2000 and 1999 Accumulated
Other
Common Common Comprehen-
Additional Stock Stock sive
Common Paid-In Retained Treasury Acquired Acquired Income
Stock Capital Earnings Stock by ESOP by BRRP's (Loss) Total
--- ------ ------- ------- ------ ------ ---- -------
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
=== ====== ======= ======= ====== ===== ===== =======
Balance at
September 30, 2000 38 38,780 37,022 (31,391) (189) (191) (1,266) $ 42,803
Net income - - 863 - - - - 863
Purchase of treasury stock
(16,000 shares) - - - (290) - - - (290)
Cash dividends ($.12 per
share) - - (243) - - - - (243)
Amortization of award of
BRRP's stock - - - - - 5 - 5
Cost of ESOP shares released - - - - 189 - - 189
Exercise of stock options
and reissuance of treasury
shares (1,700 shares) - (11) - 30 - - - 19
Tax benefit related to
stock options exercised - 4 - - - - - 4
Market adjustment for
committed ESOP shares - 38 - - - - - 38
Change in accumulated other
comprehensive income - - - - - - 889 889
--- ------ ------- ------- ------ ----- ------ -------
Balance at
December 31, 2000 $ 38 38,811 37,642 (31,651) - (186) (377) $ 44,277
=== ====== ======= ======= ====== ===== ====== =======
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, 2000 1999
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 863 1,133
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 89 109
Deferred income taxes (85) 1
Provision for loan losses 70 40
Net amortization and accretion of premiums and discounts (4) (11)
Amortization of cost of stock benefit plans 5 2
ESOP 227 519
Deferred loan costs, net of amortization (62) (45)
Stock dividend from FHLB of Chicago (191) -
Amortization of deposit base intangible 4 6
Decrease in accrued interest receivable 436 847
Decrease (increase) in other assets 689 (197)
Increase (decrease) in other liabilities 373 (21)
-------- ------
Net cash provided by operating activities 2,414 2,383
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate owned 4 -
Purchase of mortgage-backed securities held to maturity (77) -
Purchase of Federal Home Loan Bank of Chicago Stock (229) -
Loans originated for investment (33,767) (20,760)
Purchase of premises and equipment (43) (75)
Principal repayments collected on loans receivable 26,548 21,080
Principal repayments collected on mortgage-backed securities
held to maturity 191 209
-------- ------
Net cash provided by (used in) investing activities (7,373) 454
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,099 948
Net increase (decrease) in borrowed funds (2,020) 2,290
Net increase (decrease) in advance payments by borrowers
for taxes and insurance 3,410 (2,742)
Purchase of treasury stock (290) (1,038)
Payment of common stock dividends (243) (243)
Proceeds from exercise of stock options 19 4
-------- ------
Net cash provided by (used in) financing activities 4,975 (781)
-------- ------
Net change in cash and cash equivalents 16 2,056
Cash and cash equivalents at beginning of period 6,195 3,390
-------- ------
Cash and cash equivalents at end of period $ 6,211 5,446
======== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,414 6,587
Income taxes 190 -
NON-CASH INVESTING ACTIVITIES-
Loans transferred to real estate in foreclosure $ 11 145
======== ======
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, 2000 are not necessarily indicative of results that may be expected for the
entire fiscal year ending September 30, 2001.
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
Basic earnings per share for the three months ended December 31, 2000 and 1999
were computed by dividing net income by the weighted average number of shares
of common stock outstanding for the periods, which were 2,014,563 and
2,144,952, respectively. ESOP shares are considered outstanding for the
calculation unless unearned.
Diluted earnings per share for the three months ended December 31, 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 2,096,148 and 2,230,969, respectively. Diluted earnings per share
include the dilutive effects of additional potential issuable under stock
options.
(3) Comprehensive Income
The Company's comprehensive income includes net income and other comprehensive
income (loss) comprised entirely of unrealized gains or losses on securities
available for sale, net of tax effects, which are also recognized as separate
components of equity.
Three months ended December 31, 2000 1999
---- ----
Net income 863 1,133
Other comprehensive income, net of tax -
Unrealized gain (loss) on securities available
for sale arising during the period 889 (1,085)
----- ----
Comprehensive Income 1,752 48
===== ====
6
(4) Commitments and Contingencies
At December 31, 2000, the Bank had outstanding commitments to originate loans
of $8.7 million, of which $195,000 was at a fixed 8.375% rate and $8.5 million
were adjustable rate commitments. In addition to the outstanding commitments
there are six construction and development loan commitments for a total of
$10.1 million with floating rates based on prime plus a margin. Draws on these
construction and development loan commitments totaled $6.1 million through
December 31, 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,
2000 of $863,000, compared with $1.1 million for the same quarter a year ago.
Earnings per diluted share for the quarter ended December 31, 2000 were $0.41
per share, a decrease of $0.10 from the quarter ended December 31, 1999.
Despite a significant increase in interest income, earnings per share and net
income declined in the first quarter due to higher interest expense.
The Company also announced that the board of directors declared a quarterly
dividend of $0.12 per share, payable February 15, 2001 to shareholders of
record as of January 31, 2001.
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
7
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, proceeds from principal and interest on loans and mortgage-backed
securities. While maturities and scheduled amortization of loan and mortgage
prepayments are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by interest rate cycles and economic
conditions. The Bank generally manages the pricing of its deposits to be
competitive and increase core deposit relationships. The Bank utilizes
particular sources of funds based on comparative costs and availability.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The minimum liquidity requirement is 4% of the liquidity base.
Liquidity requirements are determined quarterly, and 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.
Savings associations must maintain liquidity in excess of the minimum
requirement if necessary to insure safe and sound operations. At December 31,
2000, the Bank was in compliance with OTS liquidity requirements, with a
liquidity ratio of 14.98%.
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, 2000. Net
cash used in investing activities was $7.4 million for the three month period
ended December 31, 2000. Loan originations amounted to $33.8 million, which
were offset primarily by $26.7 million in principal repayments received from
loans and mortgage-backed securities. Cash flows provided by financing
activities amounted to $5.0 million for the three months ended December 31,
2000. Deposits increased $4.1 million in the first quarter of fiscal 2001, as
did advance payments from borrowers, by $3.4 million. These sources of funds
were partially offset by $2.0 million in repayment of FHLB advances.
At December 31, 2000, 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, 2000 totaled $200.9 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, 2000, the Company and
the Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at December 31, 2000 was 7.01%. The Tier 1
Capital ratio was 7.01%, the Tier 1 Risk-based ratio was 14.39%, and the Total
Risk-Based Capital ratio was 14.71%.
The most recent notification 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, 2000 were $644.8 million, compared to $637.0
million at September 30, 2000. Loans receivable, net of allowance for loan
losses, grew $7.2 million. The Company continues to offer various loan
products, and prices them competitively. The Company's loan originations for
the quarter ended December 31, 2000 were $33.8 million, with a weighted average
yield of 8.98%.
Deposits grew to $385.5 million at December 31, 2000, up from $381.4 million at
September 30, 2000. FHLB advances decreased from $205.2 million at September
30, 2000 to $203.1 million at December 31, 2000.
Book value per share on December 31, 2000 was $22.02, compared with $21.14 at
September 30, 2000. The increase was the result of the current quarter
earnings, the Company's ESOP adjustment and the change in accumulated other
comprehensive income.
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
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.
9
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 2000
Form 10-K filed with the Securities and Exchange Commission on December 20,
2000. The lawsuit involving the primary defendants has been re-scheduled to
March 15, 2001.
ASSET QUALITY
As of December 31, 2000, the Company had non-performing assets of $519,000.
The non-performing assets at December 31, 2000 included one multi-unit
building, one commercial building, three single-family residences, and two
consumer loans. There were no assets classified as doubtful.
The Company's ratio of non-performing loans to net loans receivable remains
below industry standards. The consistently low 0.08% non-performing assets to
total assets 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 it's most recent stock repurchase plan, the 10th, on
October 19, 1999 for 110,000 shares and expanded it to 220,000 on January 26,
2000. Through December 31, 2000, 207,200 shares had been repurchased at an
average price of $17.70 per share. 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,
2000 1999
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
(dollars in thousands)
Interest-earning assets:
Loans receivable, net $ 538,457 10,234 7.60% $ 504,489 9,290 7.37%
Mortgage-backed securities 2,924 53 7.25% 3,481 65 7.47%
Interest-bearing deposits 748 12 6.42% 892 11 4.93%
Investment securities,
and federal funds sold 85,241 1,634 7.67% 75,738 1,323 6.99%
-------- ----- ----- ------- ----- -----
Total interest-earning assets 627,370 11,933 7.61% 584,600 10,689 7.31%
Non-interest earning assets 12,632 11,044
-------- -------
Total assets $ 640,002 595,644
======== =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 138,518 1,353 3.91% 140,853 1,265 3.59%
Money market accounts 12,079 109 3.61% 15,490 149 3.85%
Certificate accounts 220,023 3,553 6.46% 196,599 2,652 5.40%
-------- ----- ----- ------- ----- -----
Total deposits 370,620 5,015 5.41% 352,942 4,066 4.61%
Borrowed funds 208,497 3,538 6.79% 182,791 2,612 5.72%
-------- ----- ----- ------- ----- -----
Total interest-bearing
liabilities 579,117 8,553 5.91% 535,733 6,678 4.99%
Non-interest bearing deposits 6,680 5,906
Other liabilities 10,522 11,355
-------- -------
Total liabilities 596,319 552,994
Stockholders' equity 43,683 42,650
-------- -------
Total liabilities and
stockholders' equity $ 640,002 $ 595,644
======== =======
Net interest income/interest
rate spread (1) 3,380 1.70% 4,011 2.32%
===== ===== ===== =====
Net earning assets/net
interest margin (2) $ 48,253 2.16% $ 48,867 2.74%
======== ===== ======= =====
Ratio of interest-earning
assets to interest-bearing
liabilities 1.08x 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 month periods are annualized for
presentation purposes.
11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
AND DECEMBER 31, 1999
GENERAL. Earnings per diluted share for the quarter ended December 31, 2000
were down $0.10 per share from $0.51 for the same period in 1999. Net income
for the quarter ended December 31, 2000 was $863,000, down from $1.1 million in
1999. Despite a significant increase in interest income, earnings per share
and net income declined in the first quarter due to higher interest expense.
INTEREST INCOME. Income from loans receivable, the chief contributor to
interest income, was $10.2 million for the quarter ended December 31, 2000, up
10.2% from the prior year. The Company increased average loans outstanding by
6.7%, or $34.0 million, to $538.5 million for the quarter ended December 31,
2000. The yield on loans increased 23 basis points. Interest income from the
investment portfolio increased $311,000, which was the result of a 12.3%
increase in average balance of investment securities for the quarter ended
December 31, 2000 compared to that same quarter in 1999. Gross interest income
totaled $11.9 million for the quarter ended December 31, 2000, up 11.6%, or
$1.2 million from $10.7 million for the three months ended December 31, 1999.
INTEREST EXPENSE. Interest expense on deposits for the quarter increased
$949,000, from $4.1 million the previous year to $5.0 million. The increase
was a direct result of the increases in both deposit volume and cost from
quarter to quarter. The average deposit balance increased 5.0% from $352.9
million for the first fiscal quarter of 2000 to $370.6 million for the quarter
ended December 31, 2000. The average deposit cost to the Company increased 80
basis points, primarily due to an increased volume of higher cost certificates
of deposit. Average certificates outstanding increased $23.4 million for the
three month period ended December 31, 2000, compared to the same three months
in 1999. The Company continued to utilize FHLB of Chicago advances as a
source of funds for lending operations. The average borrowings for the quarter
ended December 31, 2000 increased $25.7 million to $208.5 million from the
three month period ended December 31, 1999 of $182.8 million. Interest expense
on borrowed funds increased $926,000 to $3.5 million, from $2.6 million for the
quarter ended December 31, 1999.
PROVISION FOR LOAN LOSSES. The Company recorded provisions for loan losses of
$70,000 and $40,000, respectively, for the quarters ended December 31, 2000 and
1999. The increase was primarily a result of loans receivable increasing 6.8%
from $507.9 million at December 31, 1999 to $542.2 million at December 31,
2000. 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, 2000, the cumulative allowance for loan losses was $1,017,000.
The ratio of the allowance for loan losses to net loans receivable was 0.19%
at December 31, 2000.
NON-INTEREST INCOME. Non-interest income increased 13.6% to $385,000 for the
first fiscal quarter of 2000 compared to the same quarter ending in 1999.
Included in non-interest income was a pre-tax gain of $106,000 recorded on the
sale of the Bank's subsidiary's interest in a real estate investment.
Insurance and annuity commissions produced $146,000, a $78,000 decrease
compared to the same period in 1999. Uncertainty about the stock market, the
presidential election and interest rates all contributed to slower product
sales during the quarter.
12
NON-INTEREST EXPENSE. Non-interest expense for the three months ended December
31, 2000 decreased $39,000 from the quarter ended December 31, 1999.
Management has continued its efforts to control operating expenses. The
Company's efficiency improved, with the ratio of operating expenses to average
assets falling to 1.52% for the quarter ended December 31, 2000, from 1.66% for
the quarter ended December 31, 1999.
INCOME TAXES. Income taxes decreased $306,000 for the three months ended
December 31, 2000 to $393,000 compared to $699,000 for the prior year. The
effective tax rate dropped to 31.3% for the three months ended December 31,
2000 compared to 38.2% in the quarter ended December 31, 1999. The decrease
relates to the utilization of capital loss carry forwards in connection with
the gain on sale of the Bank's subsidiary's interest in a real estate property.
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 June 30, 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 20,828 (36,217) (63)% 3.61% - 553 bp
+ 200 bp 33,386 (23,658) (41)% 5.63% - 351 bp
+ 100 bp 45,924 (11,121) (19)% 7.54% - 160 bp
0 bp 57,045 9.14%
- 100 bp 65,318 8,273 15 % 10.27% + 113 bp
- 200 bp 71,041 13,996 25 % 11.00% + 186 bp
- 300 bp 79,173 22,128 39 % 12.04% + 290 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
None
(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 22, 2001 /s/ RAYMOND S. STOLARCZYK
---------------- --------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: January 22, 2001 /s/ ELIZABETH A. DOOLAN
---------------- --------------------------
Elizabeth A. Doolan
Vice President and Chief Financial
Officer