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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, 2001
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 2,017,810 shares of common stock, par value $.01, outstanding as of
April 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 March 31, 2001 (unaudited) and September 30, 2000 1
Consolidated Statements of Earnings for the three and six
months ended March 31, 2001 and 2000 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended March 31, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended March 31, 2001 and 2000 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-13
Item 3. Quantitative and Qualitative Disclosure about Market Risks 13-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 16
1
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS March 31, September 30,
2001 2000
(unaudited)
Cash and due from banks $ 9,132 4,690
Interest-bearing deposits 1,095 1,405
Federal funds sold 100 100
------- -------
Cash and cash equivalents 10,327 6,195
FHLB of Chicago stock 10,695 10,065
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,075
at March 31, 2001 and $3,202 at September 30, 2000) 3,000 3,179
Investment securities available for sale, at fair value 81,577 74,366
Loans held for sale 240 -
Loans receivable, net of allowance for loan losses of $1,056
at March 31, 2001 and $950 at September 30, 2000 520,434 533,999
Accrued interest receivable 3,602 4,161
Real estate in foreclosure 11 3
Premises and equipment 3,901 3,925
Deposit base intangible 6 13
Other assets 5,442 1,125
------- -------
$ 639,235 637,031
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 388,325 381,433
Borrowed funds 194,350 205,150
Advance payments by borrowers for taxes and insurance 3,253 2,198
Other liabilities 7,749 5,447
------- -------
Total liabilities 593,677 594,228
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; 2,017,810 and 2,025,085 shares
outstanding at March 31, 2001 and September 30, 2000 38 38
Additional paid-in capital 38,747 38,780
Retained earnings, substantially restricted 38,450 37,022
Treasury stock, at cost (1,764,540 and 1,757,265 shares
at March 31, 2001 and September 30, 2000, respectively) (31,541) (31,391)
Common stock acquired by Employee Stock Ownership Plan - (189)
Common stock acquired by Bank Recognition and Retention Plans (184) (191)
Accumulated other comprehensive income (loss) 48 (1,266)
------- -------
TOTAL STOCKHOLDERS' EQUITY 45,558 42,803
------- -------
Commitments and contingencies
$ 639,235 637,031
======= =======
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 Six Months ended
March 31, March 31,
2001 2000 2001 2000
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $10,059 9,449 20,293 18,739
Investment securities 1,527 1,296 3,159 2,618
Mortgage-backed securities 53 62 106 127
Other interest income 17 8 31 20
------ ------ ------ ------
11,656 10,815 23,589 21,504
Interest Expense:
Deposits 4,962 4,231 9,977 8,297
Borrowed funds 3,121 2,690 6,659 5,302
------ ------ ------ ------
8,083 6,921 16,636 13,599
Net interest income before provision
for loan losses 3,573 3,894 6,953 7,905
Provision for loan losses 40 15 110 55
------ ------ ------ ------
Net interest income after provision
for loan losses 3,533 3,879 6,843 7,850
Non-Interest Income:
Fees and commissions 115 107 233 209
Insurance and annuity commissions 257 278 403 502
Gain on sale of investment securities
available for sale 125 - 125 -
Other 15 14 136 26
------ ------ ------ ------
512 399 897 737
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,393 1,409 2,804 2,834
Office occupancy and equipment 379 399 753 757
Data processing 143 139 277 266
Advertising and promotions 49 110 204 292
Other 387 404 748 783
Amortization of intangible 3 6 7 12
------ ------ ------ ------
2,354 2,467 4,793 4,944
------ ------ ------ ------
Income before income taxes 1,691 1,811 2,947 3,643
Income tax expense 642 683 1,035 1,382
------ ------ ------ ------
Net income $ 1,049 1,128 1,912 2,261
====== ====== ====== ======
Earnings per share - basic $ 0.52 0.54 0.95 1.06
Earnings per share - diluted $ 0.50 0.52 0.91 1.02
====== ====== ====== ======
Comprehensive income $ 1,474 1,107 3,226 1,155
====== ====== ====== ======
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, 2001 and 2000
Accumulated
Common Common Other
Additional Stock Stock Comprehen-
Common Paid-In Retained Treasury Acquired Acquired sive 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) $42,021
Net income - - 2,261 - - - - 2,261
Change in accumulated other
comprehensive income - - - - - - (1,106) (1,106)
------
Total comprehensive income 1,155
Purchase of treasury stock
(148,000 shares) - - - (2,616) - - - (2,616)
Cash dividends ($.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
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 2000 $38 38,789 35,532 (30,760) (189) (194) (2,586) $40,630
=== ====== ======= ====== ====== ===== ==== =======
Balance at
September 30, 2000 $38 38,780 37,022 (31,391) (189) (191) (1,266) $42,803
Net income - - 1,912 - - - - 1,912
Change in accumulated other
comprehensive income - - - - - - 1,314 1,314
------
Total comprehensive income 3,226
Purchase of treasury stock
(21,000 shares) - - - (394) - - - (394)
Cash dividends ($.24 per
share) - - (484) - - - - (484)
Amortization of award of
BRRP's stock - - - - - 7 - 7
Cost of ESOP shares released - - - - 189 - - 189
Exercise of stock options
and reissuance of treasury
shares (14,750 shares) - (114) - 244 - - - 130
Tax benefit related to
stock options exercised - 43 - - - - - 43
Market adjustment for
committed ESOP shares - 38 - - - - - 38
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 2001 $38 38,747 38,450 (31,541) - (184) 48 $45,558
=== ====== ======= ====== ====== ===== ==== =======
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, 2001 2000
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,912 2,261
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 185 244
Deferred income taxes (84) -
Provision for loan losses 110 55
Net amortization and accretion of premiums and discounts (67) (23)
Amortization of cost of stock benefit plans 7 4
ESOP 227 555
Deferred loan fees, net of amortization 93 (137)
Stock dividend from FHLB of Chicago (401) (167)
Amortization of deposit base intangible 7 12
Decrease (increase) in accrued interest receivable 559 (28)
Decrease (increase)in other assets 679 (31)
Increase (decrease in other liabilities 1,624 (639)
------ ------
Net cash provided by operating activities 4,851 2,079
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate owned 4 11
Purchase of mortgage-backed securities held to maturity (157) (49)
Purchase of Federal Home Loan Bank of Chicago stock (229) -
Purchase of investment securities available for sale (44,030) -
Maturity of investment securities available for sale 20,000 -
Sale of investment securities available for sale 14,000 -
Loans originated (49,252) (42,792)
Purchase of premises and equipment (161) (116)
Principal repayments collected on loans receivable 62,371 35,957
Principal repayments collected on mortgage-backed securities 336 364
------ ------
Net cash provided by (used in) investing activities 2,882 (6,625)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 6,892 19,793
Net decrease in borrowed funds (10,800) (5,925)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 1,055 (4,811)
Purchase of treasury stock (394) (2,616)
Payment of common stock dividends (484) (500)
Proceeds from exercise of stock options 130 4
------ ------
Net cash provided by financing activities (3,601) 5,945
------ ------
Net change in cash and cash equivalents 4,132 1 399
Cash and cash equivalents at beginning of period 6,195 3,390
------ ------
Cash and cash equivalents at end of period $ 10,327 4,789
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 16,548 13,749
Income taxes 648 1,172
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 11 145
Due from broker 5,000 -
====== ======
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,
2001 are not necessarily indicative of results that may be expected for the
entire fiscal year ended 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 March 31, 2001 and 2000
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
2,094,108, respectively. Basic earnings per share for the six months ended
March 31, 2001 and 2000 were computed by dividing net income by the weighted
average number of shares of common stock outstanding for the periods, which
were 2,014,624 and 2,128,981, respectively. ESOP shares are considered
outstanding for the calculations unless unearned.
Diluted earnings per share for the three months ended March 31, 2001 and 2000
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 2,103,750 and 2,180,476, respectively. Diluted earnings per share for the
six months ended March 31, 2001 and 2000 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 2,103,811 and 2,215,349,
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.
6
(4) COMMITMENTS AND CONTINGENCIES
At March 31, 2001, the Bank had outstanding commitments to originate new loans
of $6.7 million, of which $1.2 million were fixed rate, with rates ranging from
6.88% to 8.09%, and $5.5 million were adjustable rate commitments.
Additionally, the Bank has six construction and development loan commitments
for $3.8 million with floating rates based on prime plus a margin. Net draws
on these construction and development loan commitments totaled $7.3 million
through March 31, 2001.
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,
2001 of $1.0 million, compared with $1.1 million for the same quarter a year
ago. Earnings per diluted share for the quarter and six months were $0.50 and
$0.91 per share in 2001, a decrease from $0.52 and $1.02 in 2000, respectively.
Earnings per share and net income were down from the previous year's results
due to increased interest expense, despite increases in interest income and
lower non-interest expense.
The Company also announced that its board of directors declared a quarterly
dividend of $0.12 per share, payable May 15, 2001 to shareholders of record as
of April 30, 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, 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 sufficient liquidity to ensure
its safe and sound operation. At March 31, 2001, the Bank believes it was in
compliance with OTS liquidity requirements.
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 for the six months ended March 31, 2001, were $4.9 million. The
Company provided $2.9 million in investing activities for the six-month period
ended March 31, 2001. Loan originations amounted to $49.3 million, offset by
$62.4 million in principal repayments. Called securities and sales of
securities totaled $39.0 million, while purchases of new securities amounted to
$44.2 million. Net cash used by financing activities amounted to $3.6 million
for the six months ended March 31, 2001. The Company increased its deposits by
$6.9 million during the six-month period and repaid FHLB advances of $10.8
million.
At March 31, 2001, the Bank had outstanding commitments to fund loans of $10.5
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, 2001 totaled $204.4 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
8
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, 2001, the Company and the
Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at March 31, 2001 was 7.41%. The Tier 1 Capital
ratio was 7.41%, the Tier 1 Risk-Based ratio was 14.87%, and the Total
Risk-Based Capital ratio was 15.20%.
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 March 31, 2001 were $639.2 million, compared to $637.0 million
at September 30, 2000. Loans receivable, net of allowance for loan losses,
decreased $13.6 million to $520.4 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, 2001 were $49.3 million, with a
weighted average yield of 8.79%.
Deposits grew to $388.3 million at March 31, 2001, up from $381.4 million at
September 30, 2000. FHLB advances decreased from $205.2 million at September
30, 2000 to $194.4 million at March 31, 2001.
Book value per share on March 31, 2001 was $22.58, compared with $21.14 at
September 30, 2000. The increase was the result of the current year's
earnings, the Company's ESOP adjustment, exercise of stock options, 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. On February 14, 2000, the Company filed a class action lawsuit in the
Circuit Court of Cook County, Illinois against LaSalle National Bank and
affiliates. The trial involving the primary defendants has been re-scheduled
to begin on June 18, 2001.
ASSET QUALITY
As of March 31, 2001, the Company had non-performing assets of $691,000,
consisting of $680,000 in non-performing loans and $11,000 of real estate in
foreclosure. The non-performing assets at March 31, 2001 included three
single-family residences, one multi-unit residence, one commercial loan, and
two consumer loans. There were no assets classified as doubtful.
The Company's ratio of non-performing loans to net loans receivable was .13% at
March 31, 2001. The low ratio is a result of management's ongoing monitoring
and follow-up procedures of delinquent customers. A review of the foreclosed
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 March 31, 2001, 212,200 shares had been repurchased at an
average price of $17.78 per share. 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
2001 2000 March 31,2001
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $532,426 10,059 7.56% 509,095 9,449 7.42% 535,474 20,293 7.58%
Mortgage-backed securities 2,931 53 7.23% 3,317 62 7.48% 2,953 106 7.18%
Interest-earning deposits 762 10 5.25% 475 7 5.89% 831 22 5.29%
Investment securities and
federal funds sold 86,775 1,534 7.07% 74,011 1,297 7.01% 85,898 3,168 7.38%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 622,894 11,656 7.49% 586,898 10,815 7.37% 625,156 23,589 7.55%
Non-interest earning
assets 10,619 11,285 11,641
------- ------ -------
Total assets $633,513 598,183 636,797
======= ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 137,743 1,209 3.51% 138,448 1,241 3.59% 138,134 2,562 3.71%
Money market account 11,520 102 3.54% 14,967 142 3.80% 11,803 211 3.58%
Certificate accounts 229,634 3,651 6.36% 201,525 2,848 5.65% 224,776 7,204 6.41%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total deposits 378,897 4,962 5.24% 354,940 4,231 4.77% 374,713 9,977 5.33%
Borrowed funds 191,121 3,121 6.53% 186,063 2,690 5.78% 199,905 6,659 6.66%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest-bearing
liabilities 570,018 8,083 5.67% 541,003 6,921 5.12% 574,618 16,636 5.79%
Non-interest bearing
deposits 7,191 6,139 6,940
Other liabilities 11,118 9,398 10,815
------- ------ -------
Total liabilities 588,327 556,540 592,373
Stockholders' equity 45,186 41,643 44,424
------- ------ -------
Total liabilities and
stockholders' equity $633,513 598,183 636,797
======= ======= =======
Net interest
income/interest rate
spread (1) 3,573 1.81% 3,894 2.25% 6,953 1.76%
Net earning assets/net
interest margin (2) $ 52,876 2.29% 45,895 2.65% 50,538 2.22%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.09x 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 and six month periods are annual-
ized for presentation purposes.
11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
MARCH 31, 2000
GENERAL. Earnings per diluted share for the quarter ended March 31, 2001 was
$0.50, down $0.02 per share from $0.52 for the same period in 2000. Net income
for the three months ended March 31, 2001 was $1.0 million, a decrease of
$79,000 from the net income of $1.1 million for the three months ended March
31, 2000. Higher interest expense offset an increase in interest income,
resulting in the 7.0% decline in earnings.
INTEREST INCOME. Income from loans receivable, the largest contributor to
interest income, was $10.1 million for the quarter ended March 31, 2001, up
6.5% from the prior year. The average loans outstanding increased 4.6%, or
$23.3 million to $532.4 million for the quarter ended March 31, 2001. The
yield on loans increased 14 basis points. Interest income from the investment
portfolio increased $231,000, which was the result of a 17.2% increase in the
average balance of investment securities for the quarter ended March 31, 2001
compared to the same quarter in 2000. Gross interest income totaled $11.7
million for the three months ended March 31, 2001, up 7.8%, or $841,000 from
$10.8 million for the quarter ended March 31, 2000.
INTEREST EXPENSE. Interest expense on deposits for the quarter increased
$731,000, from $4.2 million to $5.0 million. The increase was a direct result
of the increases in both deposit volume and costs from quarter to quarter. The
average deposit balance increased 6.7% from $354.9 million for the quarter
ended March 31, 2000 to $378.9 million for the quarter ended March 31, 2001.
The growth was attributable to an increase in certificates of deposit. Average
certificates of deposit outstanding increased $28.1 million for the three-month
period ended March 31, 2001 compared to the same period in 2000. The Company
continued to utilize the FHLB advances as a source of funds for lending
operations. The average borrowings for the quarter ended March 31, 2001
increased $5.1 million to $191.1 million from the same period in the prior
year. Interest expense on borrowed funds increased $431,000 to $3.1 million,
from $2.7 million for the quarter ended March 31, 2000.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of
$40,000 and $15,000 for the quarters ended March 31, 2001 and 2000,
respectively. The increase was primarily the result of loan growth. 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,
2001, the allowance for loan losses was $1.1 million. The ratio of the
allowance for loan losses to net loans receivable was .20% at March 31, 2001.
NON-INTEREST INCOME. Non-interest income increased $113,000 or 28.3% to
$512,000 for the second quarter of fiscal 2001. The sale of an investment
security rendered a realized gain of $125,000 for the quarter ended March 31,
2001. Insurance and annuity commissions produced $257,000, a 7.6% decrease
compared to the same period in 2000.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended March
31, 2001 decreased $113,000 to $2.4 million from the three months ended March
31, 2000 of $2.5 million. Decreases were noted in salaries and employee
benefits, office occupancy and advertising expenses. The Company's efficiency
improved, with the ratio of operating expenses to average assets falling to
1.49% for the quarter ended March 31, 2001, from 1.65% for the quarter ended
March 31, 2000.
12
INCOME TAXES. Income taxes decreased $41,000 for the three months ended March
31, 2001 to $642,000 compared to $683,000 for the prior year due to decreased
taxable income.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND
MARCH 31, 2000
GENERAL. Net income for the six months ended March 31, 2001 was $1.9 million,
a decrease of 15.4% compared to the six months ended March 31, 2000 income of
$2.3 million. This change was primarily attributed to the 22.3% increase in
interest expense offsetting an increase in interest income of 9.7%.
INTEREST INCOME. Interest income increased to $23.6 million for the six months
ended March 31, 2001, compared to $21.5 million for the six months ended March
31, 2000. Interest income from loans receivable increased $1.6 million, or
8.3% from $18.7 million to $20.3 million for the six months ended March 31,
2001. The average loans outstanding increased 5.7% or $28.7 million to $535.5
million from $506.8 million for the six months ended March 31, 2000. As the
Company grew the loan base, it also was successful in increasing the average
yield 18 basis points to an average of 7.58%. The average balance of the
investment portfolio increased to $85.9 million. Due to maturities and new
purchases during fiscal 2001, the weighted average yield increased 38 basis
points to 7.38%.
INTEREST EXPENSE. Interest expense on deposits amounted to $10.0 million, a
$1.7 million increase from the expense of $8.3 million in the same period of
the prior year. Average interest-bearing deposits increased $20.8 million, or
5.9%, to $374.7 million for the six-month period in 2001 compared to $353.9
million in 2000. The weighted average cost of deposits increased 64 basis
points due to an increase in certificates of deposits. Average borrowed funds
increased $15.5 million to $199.9 million for the six-month period ended March
31, 2001. The weighted average cost also increased. For the six-month period
ended March 31, 2001 the cost was 6.66%, up 91 basis points for the same period
one-year ago.
PROVISION FOR LOAN LOSSES. The Company recorded a $110,000 provision for loan
losses in the first six months of fiscal 2001, compared to $55,000 in 2000.
The increase was primarily the result of loan growth. 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 $160,000 to $897,000 for
the six months ended March 31, 2001 from $737,000 for the same period in 2000.
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 income from this area decreased $99,000 or 19.7%
from the six months ended March 31, 2000. Uncertainty about the stock market,
the presidential election and interest rates all contributed to slower product
sales during the first half of the fiscal year. The six month period ended
March 31, 2001 included a gain of $106,000 recorded on the sale of the Bank's
subsidiary's interest in a real estate investment and an additional gain of
$125,000 arising from the sale of an investment security.
13
NON-INTEREST EXPENSE. Non-interest expense for the six month period ended
March 31, 2001 decreased $151,000 to $4.8 million. The Company's efficiency
improved for the first six months, with the ratio of operating expenses to
average assets falling to 1.51% from 1.66% in the prior year.
INCOME TAXES. Income taxes decreased $347,000 for the six-months ended March
31, 2001 to $1.0 million compared to $1.4 million for the prior year. The
Company's effective income tax rate declined to 35.1% for the six month period
ended March 31, 2001 from 37.9% for the same period in the prior year. This
was due 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 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.
14
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 December 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 36,850 (25,137) (41)% 5.91% - 348 bp
+ 200 bp 47,279 (14,708) (24)% 7.42% - 197 bp
+ 100 bp 56,877 (5,110) (8)% 8.74% - 65 bp
0 bp 61,987 9.39%
- 100 bp 64,089 2 102 3 % 9.62% + 23 bp
- 200 bp 67,198 5,211 8 % 9.98% + 59 bp
- 300 bp 72,192 10,205 16 % 10.57% + 118 bp
- -------------------------------------------------------------------------------
15
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 24, 2001.
(b) The directors elected at the Annual Meeting are as follows:
For Withheld
Paul J. Bielat 1,822,391 69,241
Richard J. Kasten 1,821,964 69,668
The directors whose term of office continued after the Annual
Meeting are as follows:
Thomas E. Bentel
Edward J. Burda
Patrick J. Flynn
Raymond S. 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, 2001.
For Against Abstain
1,860,147 29,622 1,863
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
16
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 23, 2001 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: April 26, 2001 /s/ ELIZABETH A. DOOLAN
-----------------------------
Elizabeth A. DOOLAN
Vice President and Chief Financial Officer