===============================================================================
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, 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 2,014,110 shares of common stock, par value $.01, outstanding as of
July 17, 2001.
===============================================================================
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, 2001 (unaudited) and September 30, 2000 1
Consolidated Statements of Earnings for the three and nine
months ended June 30, 2001 and 2000 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 2001 and 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended June 30, 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 6-14
Item 3. Quantitative and Qualitative Disclosure about Market Risks 14-15
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 and SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS June 30, September 30,
2001 2000
(unaudited)
Cash and due from banks $ 5,529 4,690
Interest-bearing deposits 244 1,405
Federal funds sold 100 100
------- -------
Cash and cash equivalents 5,873 6,195
FHLB of Chicago stock, at cost 10,879 10,065
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $2,925
at September 30, 2000) -- 2,901
Mortgage-backed securities available for sale 29,489 --
Investment securities available for sale, at fair value 71,010 74,366
Loans held for sale 235 --
Loans receivable, net of allowance for loan losses of $1,120
at June 30, 2001 and $950 at September 30, 2000 513,597 534,277
Accrued interest receivable 3,696 4,161
Real estate in foreclosure -- 3
Premises and equipment 3,940 3,925
Deposit base intangible 4 13
Other assets 435 1,125
------- -------
$ 639,158 637,031
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 389,153 381,433
Borrowed funds 190,260 205,150
Advance payments by borrowers for taxes and insurance 5,608 2,198
Other liabilities 8,076 5,447
------- -------
Total liabilities 593,097 594,228
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; 2,014,110 and 2,025,085 shares
outstanding at June 30, 2001 and September 30, 2000 38 38
Additional paid-in capital 38,729 38,780
Retained earnings, substantially restricted 39,295 37,022
Treasury stock, at cost (1,768,240 and 1,757,265 shares
at June 30, 2001 and September 30, 2000, respectively) (31,636) (31,391)
Common stock acquired by Employee Stock Ownership Plan -- (189)
Common stock acquired by Bank Recognition and Retention Plans (181) (191)
Accumulated other comprehensive income (loss) (184) (1,266)
------- -------
TOTAL STOCKHOLDERS' EQUITY 46,061 42,803
------- -------
$ 639,158 637,031
======= =======
See accompanying notes to unaudited consolidated financial statements.
2
FIDELITY BANCORP and SUBSIDIARY
Consolidated Statements of Earnings
(Dollars in thousands, except for earnings per share)
Three Months ended Nine Months ended
June 30, June 30,
2001 2000 2001 2000
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 9,532 9,645 29,825 28,384
Investment securities 1,385 1,304 4,544 3,922
Mortgage-backed securities 251 57 357 184
Other interest income 17 14 48 34
------ ------ ------ ------
11,185 11,020 34,774 32,524
Interest Expense:
Deposits 4,760 4,657 14,737 12,954
Borrowed funds 2,808 2,775 9,467 8,077
------ ------ ------ ------
7,568 7,432 24,204 21,031
Net interest income before provision
for loan losses 3,617 3,588 10,570 11,493
Provision for loan losses 70 55 180 110
------ ------ ------ ------
Net interest income after provision
for loan losses 3,547 3,533 10,390 11,383
Non-Interest Income:
Fees and commissions 118 130 351 339
Insurance and annuity commissions 222 269 625 771
Gain on sale of investment securities 77 -- 202 --
Other 27 16 163 42
------ ------ ------ ------
444 415 1,341 1,152
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,299 1,269 4,103 4,103
Office occupancy and equipment 392 387 1,145 1,144
Data processing 98 128 375 394
Advertising and promotions 123 177 327 469
Other 343 390 1,091 1,173
Amortization of intangible 2 5 9 17
------ ------ ------ ------
2,257 2,356 7,050 7,300
------ ------ ------ ------
Income before income taxes 1,734 1,592 4,681 5,235
Income tax expense 647 586 1,682 1,968
------ ------ ------ ------
Net income $ 1,087 1,006 2,999 3,267
====== ====== ====== ======
Earnings per share - basic $ 0.54 0.49 1.49 1.56
Earnings per share - diluted $ 0.52 0.48 1.42 1.50
====== ====== ====== ======
Comprehensive income $ 855 736 4,081 1,891
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP and SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Dollars in thousands (except for earnings per share)
Nine months ended June 30, 2001 and 2000
Common Common Accumulated
Additional Stock Stock Other
Common Paid-In Retained Treasury Acquired Acquired Comprehensive
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) $42,021
Net income - - 3,267 - - - - 3,267
Change in accumulated other
comprehensive loss (1,376) (1,376)
--- ------ ------- ------- ------ ------ ---- -------
Total comprehensive income 1,891
Purchase of treasury stock
(191,200 shares) - - - (3,377) - - - (3,377)
Cash dividends ($.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
--- ------ ------- ------ ------ ----- ---- ------
Balance at June 30, 2000 $38 38,743 36,290 (31,391) (189) (193) (2,856) $40,442
=== ====== ======= ====== ====== ===== ==== =======
Balance at
September 30, 2000 $38 38,780 37,022 (31,391) (189) (191) (1,266) $42,803
Net income - - 2,999 - - - - 2,999
Change in accumulated other
comprehensive income 1,082 1,082
--- ------ ------- ------ ------ ----- ----- ------
Total comprehensive income 4,081
Purchase of treasury stock
(28,800 shares) - - - (562) - - - (562)
Cash dividends ($0.36 per
share) - - (726) - - - - (726)
Amortization of award of
BRRP's stock - - - - - 10 - 10
Cost of ESOP shares released - - - - 189 - - 189
Exercise of stock options
and reissuance of treasury
shares (18,850 shares) - (143) - 317 - - - 174
Tax benefit related to
stock options exercised - 54 - - - - - 54
Market adjustment for
committed ESOP shares - 38 - - - - - 38
--- ------ ------- ------ ------ ----- ----- ------
Balance at June 30, 2001 $38 38,729 39,295 (31,636) - (181) (184) $46,061
=== ====== ======= ====== ====== ===== ===== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP and SUBSIDIARY
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
Nine months ended June 30, 2001 2000
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,999 3,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 286 326
Deferred income taxes (84) -
Provision for loan losses 180 110
Net amortization and accretion of premiums and discounts (74) (37)
Amortization of cost of stock benefit plans 10 5
ESOP 227 589
Deferred loan fees, net of amortization 250 261
Stock dividend from FHLB of Chicago (585) (167)
Amortization of deposit base intangible 9 17
Loss on sale of real estate owned 5 5
Gain on sale of securities and loans (216) -
Decrease in accrued interest receivable 465 635
Decrease (increase)in other assets 679 (77)
Increase in other liabilities 2,043 437
------ ------
Net cash provided by operating activities 6,194 4,849
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate owned 280 23
Purchase of mortgage-backed securities (30,322) -
Purchase of FHLB of Chicago stock (229) -
Purchase of investment securities (38,647) -
Maturity of investment securities 20,000 -
Proceeds from sale of investment securities 26,568 -
Loans originated (93,752) (77,398)
Proceeds from loans sold 1,280 -
Purchase of premises and equipment (301) (142)
Principal repayments collected on loans receivable 112,242 62,958
Principal repayments collected on mortgage-backed securities 1,185 508
------ ------
Net cash used in investing activities (1,696) (14,051)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 7,720 38,131
Net decrease in borrowed funds (14,890) (20,600)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 3,410 (2,246)
Purchase of treasury stock (562) (3,377)
Payment of common stock dividends (726) (748)
Proceeds from exercise of stock options 228 61
------ ------
Net cash provided by (used in) financing activities (4,820) 11,221
------ ------
Net change in cash and cash equivalents (322) 2,019
Cash and cash equivalents at beginning of period 6,195 3,390
------ ------
Cash and cash equivalents at end of period $ 5,873 5,409
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 24,266 21,184
Income taxes 1,464 1,772
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 277 145
====== ======
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 three and nine months ended
June 30, 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 June 30, 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 2,014,655 and 2,035,775
respectively. Basic earnings per share for the nine months ended June 30, 2001
and 2000 were computed by dividing net income by 2,014,634 and 2,097,912, the
weighted average number of shares of common stock outstanding. ESOP shares are
considered outstanding for the calculations unless unearned.
Diluted earnings per share for the three months ended June 30, 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 that
were 2,107,086 and 2,115,867, respectively. Diluted earnings per share for the
nine months ended June 30, 2001 and 2000 were computed by dividing net income
by 2,107,065 and 2,182,071, the weighted average number of shares of common
stock and potential common stock outstanding. 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.
(4) COMMITMENTS AND CONTINGENCIES
At June 30, 2001, the Bank had outstanding commitments to originate new loans
of $10.7 million, of which $1.4 million were fixed rate, with rates ranging
6
from 7.00% to 8.49%, and $9.3 million were adjustable rate commitments.
Additionally, the Bank has six construction and development loan commitments
currently totaling $4.2 million with floating rates based on prime plus a
margin. Net draws on these construction and development loan commitments
totaled $10.9 million through June 30, 2001.
(5) RECLASSIFICATIONS
Certain reclassifications have been made in prior years financial statements to
conform to the current year's presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Fidelity Bancorp, Inc. (the "Company"), is a savings and loan holding company
incorporated under the laws of the state of Delaware and is primarily engaged
in the retail banking business through its wholly-owned subsidiary, Fidelity
Federal Savings Bank (the "Bank).
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, 2001
of $1.1 million, compared with $1.0 million for the same quarter a year ago, an
increase of 8.1%. Earnings per diluted share for the quarter ended June 30,
2001 was $0.52, an increase of $0.04 from the same quarter in 2000. Earnings
per diluted share for the nine months ended June 30, 2001 of $1.42 decreased
$0.08 from the nine-month period ended June 30, 2000. Earnings per share and
net income were down in 2001 from 2000 for the nine-month period due to
increased interest expense, despite increases noted in interest income and
lower non-interest expense. The Federal Reserve's rates reductions have caused
a decrease in prime rate, which resulted in a decrease in interest received on
loans and interest bearing deposits at banks. The Company's net interest
margin has improved since the second quarter and with maturing certificates of
deposit rolling off or renewing at lower costs, further improvement is
expected.
The Company also announced that its board of directors declared a quarterly
dividend of $0.12 per share, payable August 15, 2001 to shareholders of record
as of July 31, 2001.
7
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, to supplement deposits with Federal Home Loan Bank of Chicago
(FHLB) advances.
Federal regulations require the Bank to maintain sufficient liquidity to ensure
its safe and sound operation. At June 30, 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 nine months ended June 30, 2001, were $6.2 million. The
Company used $1.7 million in investing activities for the nine-month period
ended June 30, 2001. Loan originations amounted to $93.8 million, offset by
$112.2 million in principal repayments. Called securities and sales of
8
securities totaled $46.6 million, while purchases of new securities amounted to
$69.0 million. Net cash used by financing activities amounted to $4.8 million
for the nine months ended June 30, 2001. The Company increased its deposits
by $7.7 million and its escrow balances by $3.4 million during the nine-month
period, and repaid FHLB advances of $14.9 million.
At June 30, 2001, the Bank had outstanding commitments to fund loans of $14.9
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, 2001 totaled $213.1 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, 2001, the Company and the
Bank met the capital adequacy requirements to which they are subject. The
Bank's Tangible Equity ratio at June 30, 2001 was 7.61%. The Tier 1 Capital
ratio was 7.61%, the Tier 1 Risk-Based ratio was 15.58% and the Total
Risk-Based Capital ratio was 15.94%.
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 June 30, 2001 were $639.2 million, compared to $637.0 million
at September 30, 2000. The slight increase is due to increases in
mortgage-backed securities available for sale, which were funded by loan
repayments and growth in deposits. Loans receivable, net of allowance for
loan losses, decreased $20.7 million to $513.6 million. The decrease was a
result of the repayments from substantial refinance activity sparked by the
Federal Reserve's rate reductions. Principal repayments from mortgages
amounted to $112.2 million for the nine month period ended June 30, 2001
compared to $63.0 million the prior year period. 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, 2001 were $93.8
million, with a weighted average yield of 8.21%.
9
Deposits grew to $389.2 million at June 30, 2001, from $381.4 million at
September 30, 2000. Increases in certificate of deposit products can be
attributed to investor uncertainty in the stock market and the direction of
short term interest rates. FHLB advances decreased from $205.2 million at
September 30, 2000 to $190.3 million at June 30, 2001 due to increases in
deposits as well as advance payments by borrowers for taxes.
Book value per share on June 30, 2001 was $22.87, compared with $21.14 at
September 30, 2000. The increase was the result of the Company's current
year's earnings 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 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
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 had been rescheduled
to begin on June 18, 2001, but has been adjourned without setting a new date.
ASSET QUALITY
As of June 30, 2001, the Company had non-performing loans of $890,000. The
Bank's non-performing loans at June 30, 2001 included one multi-unit building,
five single-family residences and two auto loans. There were no assets
classified as doubtful.
The Company's ratio of non-performing loans to net loans receivable was 0.17 %
at June 30, 2001. The low ratio is a result of management's ongoing monitoring
and follow-up procedures of delinquent customers. A review of the non-
performing loans has established that no specific allowances were necessary,
and management does not expect any material losses.
STOCK REPURCHASE
The Company announced its 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. This repurchase program was completed on April 24, 2001 at an average
price of $17.91 per share. 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
2001 2000 June 30,2001
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $511,930 9,532 7.45% 515,690 9,645 7.48% 527,856 29,825 7.53%
Mortgage-backed securities 14,863 251 6.76% 3,241 57 7.03% 6,867 357 6.93%
Interest-bearing deposits 1,458 15 4.12% 1,129 12 4.25% 939 37 5.25%
Investment securities and
federal funds 80,938 1,387 6.85% 74,440 1,306 7.02% 84,171 4,555 7.22%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 609,189 11,185 7.34% 594,500 11,020 7.41% 619,833 34,774 7.48%
Non-interest earning
assets 13,907 11,968 12,396
------- ------ -------
Total assets $623,096 606,468 632,229
======= ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 138,579 1,128 3.26% 139,551 1,294 3.71% 138,283 3,690 3.56%
Money market account 11,642 104 3.57% 13,862 131 3.78% 11,749 315 3.57%
Certificate accounts 227,689 3,528 6.20% 217,643 3,232 5.94% 225,746 10,732 6.34%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total deposits 377,910 4,760 5.04% 371,056 4,657 5.02% 375,778 14,737 5.23%
Borrowed funds 176,866 2,808 6.35% 177,603 2,775 6.25% 192,232 9,467 6.57%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total interest-bearing
liabilities 554,796 7,568 5.46% 548,659 7,432 5.42% 568,010 24,204 5.68%
Non-interest bearing
deposits 9,155 6,763 7,678
Other liabilities 12,738 9,756 11,458
------- ------- -------
Total liabilities 576,689 565,178 587,146
Stockholders' equity 46,407 41,290 45,083
------- ------- -------
Total liabilities and
stockholders' equity $623,096 606,468 632,229
======= ======= =======
Net interest
income/interest rate
spread (1) 3,617 1.89% 3,588 1.99% 10,570 1.80%
Net earning assets/net
interest margin (2) $ 54,393 2.37% 45,841 2.41% 51,823 2.27%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.10x 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 nine month periods are
annualized for presentation purposes.
12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND
JUNE 30, 2000
GENERAL. Earnings per diluted share for the quarter ended June 30, 2001 was
$0.52, an increase of $0.04 from $0.48 for the same period in 2000. Net
income for the three months ended June 30, 2001 was $1.1 million, an increase
of $81,000 from the net income of $1.0 million for the three months ended June
30, 2000. An increase in net interest income as well as non-interest income,
together with a decrease in general and administrative expenses, contributed to
the 8.1% increase in net income.
INTEREST INCOME. Income from loans receivable was $9.5 million for the quarter
ended June 30, 2001, down slightly from the previous year of $9.6 million. The
average loans outstanding decreased $3.8 million, or 0.7% to $511.9 million
for the quarter ended June 30, 2001 and the yield on loans dropped 3 basis
points. Interest income from mortgage-backed and investment securities
increased $275,000, which was the result of a 23.3% increase in the average
balance for the quarter ended June 30, 2001 compared to the same quarter in
2000. Gross interest income totaled $11.2 million for the three months ended
June 30, 2001, up 1.5%, or $165,000 from $11.0 million for the quarter ended
June 30, 2000.
INTEREST EXPENSE. Total interest expense for the quarter increased $136,000
from $7.4 million the previous year to $7.6 million. Interest expense on
deposits increased $103,000, from $4.7 million the previous year to $4.8
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 1.8% from $371.1 million for the quarter ended June 30, 2000 to
$377.9 million for the quarter ended June 30, 2001. The growth was primarily
attributable to an increase in certificates of deposit. Average certificates
of deposit outstanding increased $10.0 million for the three-month period ended
June 30, 2001 compared to the same period in 2000. The Company continued to
utilize FHLB advances as a source of funds for lending and investment
opportunities when required. The average borrowings for the quarter ended June
30, 2001 decreased slightly to $176.9 million from $177.6 million at June 30,
2000. The interest expense on these borrowed funds rose $33,000, while the
average cost of borrowed funds increased 10 basis points to 6.35% for the
quarter ended June 30, 2001 from 6.25% the same quarter in 2000.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of
$70,000 and $55,000 for the quarters ending June 30, 2001 and 2000,
respectively. 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, 2001, the allowance for loan losses was $1.1
million. The quality of the loan portfolio remains good, with a ratio of
0.17% total non-performing loans to total loans. The ratio of the allowance
for loan losses to net loans receivable was 0.22% at June 30, 2001.
NON-INTEREST INCOME. Non-interest income increased $29,000 or 7.0% to $444,000
for the third quarter of fiscal 2001. The third quarter of 2001 included a net
gain on sales of loans to FHLMC of $14,000 and a gain on the sale of an
investment security of $77,000. Insurance and annuity commissions generated
$222,000, a 17.5% decrease compared to the same period in 2000. Fee income
was down due to reduced sales combined with a change in the commission
structure paid to the sales representatives.
13
NON-INTEREST EXPENSE. Non-interest expense for the three months ended June 30,
2001 decreased $99,000 to $2.3 million compared to $2.4 million in 2000.
Increases in the Company's salaries and related employee benefits were offset
by decreases in data processing, advertising and other general and
administrative expenses.
INCOME TAXES. Income taxes increased $61,000 for the three months ended June
30, 2001 to $647,000 compared to $586,000 for the prior year primarily due to
increased taxable income.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 2001 AND
JUNE 30, 2000
GENERAL. Net income for the nine months ended June 30, 2001 decreased 8.2% to
$3.0 million compared to the nine months ended June 30, 2000. This change was
primarily attributed to the 15.1% increase in interest expense offsetting an
increase in interest income of 6.9%.
INTEREST INCOME. Interest income increased to $34.8 million for the nine
months ended June 30, 2001, compared to $32.5 million for the nine months
ended June 30, 2000. Interest income from loans receivable increased $1.4
million, or 5.1% from $28.4 million to $29.8 million for the nine months ended
June 30, 2001. The average loans outstanding increased 3.6% or $18.2 million
to $527.9 million from $509.7 million for the nine months ended June 30, 2001.
As the Company grew the loan base, it was also successful in increasing the
average yield 11 basis points to an average of 7.53%. The average balance of
the investment portfolio increased to $91.0 million. Interest generated from
mortgage- backed and investment securities for the current nine-month period
increased 19.5% from the nine-month period ended June 30, 2000. Changes in
the mix of the investment portfolio to include government and agency, corporate
and municipal securities increased the weighted average yield 21 basis points
to 7.22%.
INTEREST EXPENSE. Interest expense on deposits amounted to $14.7 million, a
$1.7 million increase from the expense of $13.0 million in the same period of
the prior year. Average interest-bearing deposits increased $16.2 million, or
4.5%, to $375.8 million for the nine-month period in 2001 compared to $359.6
million in 2000. The weighted average cost of deposits increased 43 basis
points due to an increase in certificates of deposits. Average borrowed funds
increased $10.1 million to $192.2 million for the nine-month period ended June
30, 2001. The weighted average cost also increased. For the nine-month
period ended June 30, 2001, the cost was 6.57%, up 66 basis points for the same
period one year ago.
PROVISION FOR LOAN LOSSES. The Company recorded a $180,000 provision for loan
losses during the first nine months of fiscal 2001, compared to a $110,000
provision in 2000. The increase was the combined result of loan growth and
changes in loan product mix. 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 $189,000 to $1.3 million
for the nine months ended June 30, 2001 from $1.2 million 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
14
Financial Corporation. The income from this area decreased $146,000 or 18.9%
from the nine months ended June 30, 2000. Uncertainties regarding the stock
market and lower interest rates contributed to slower product sales during the
first three quarters of the fiscal year. The nine month period ended June 30,
2001 included a gain of $106,000 recorded on the sale of the Bank's
subsidiary's interest in a real estate investment, a gain of $202,000 arising
from the sales of investment securities and an additional $20,400 gain from the
sales of loans to FHLMC.
NON-INTEREST EXPENSE. Non-interest expense for the nine-months ended June 30,
2001 decreased $250,000 to $7.1 million. The Company's efficiency improved for
the first nine months, with the ratio of operating expenses to average assets
falling to 1.49% from 1.62% in the prior year.
INCOME TAXES. Income taxes decreased $286,000 for the nine-months ended June
30, 2001 to $1.7 million compared to $2.0 million. The Company's effective
income tax rate declined to 35.9% for the nine-month period ended June 30,
2001 from 37.6% for the same period in the prior year. This was primarily 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.
14
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, 2001.
Net Portfolio Value as a %
Net Portfolio Value of Present Value of Assets
------------------------------ --------------------------
Changes in
Rates $ Amount $ Change % Change NPV Ratio Change
- ---------- --------- -------- -------- --------- ---------
+ 300 bp 48,103 (28,294) (37)% 7.61% - 378 bp
+ 200 bp 59,188 (17,209) (23)% 9.16% - 223 bp
+ 100 bp 67,863 (8,534) (11)% 10.30% - 109 bp
0 bp 76,397 11.39%
- 100 bp 80,806 4,409 6 % 11.90% + 51 bp
- 200 bp 82,952 6,555 9 % 12.11% + 72 bp
- 300 bp 86,084 9,687 13 % 12.44% + 105 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
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.
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: July 26, 2001 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: July 26, 2001 /s/ ELIZABETH A. DOOLAN
-----------------------------
Elizabeth A. DOOLAN
V. P. and Chief Financial Officer