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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-22826
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 2,791,978 shares of common stock, par value $.01, outstanding as of
July 18, 1997.
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FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 1997 (unaudited) and September 30, 1996 1
Consolidated Statements of Earnings for the nine and three
months ended June 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
Ended June 30, 1997 and 1996 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12-13
SIGNATURE PAGE 14
FIDELITY BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
ASSETS June 30, September 30,
1997 1996
(unaudited)
Cash and due from banks $ 885 3,848
Interest-bearing deposits 640 225
Federal funds sold 7,000 200
Investment in dollar-denominated mutual funds, at
fair value 4,140 3,146
FHLB of Chicago stock 5,175 5,795
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $18,857
at June 30, 1997 and $21,766 at September 30, 1996) 18,702 21,673
Investment securities available for sale, at fair value 64,745 78,104
Loans receivable, net of allowance for loan losses of $857
at June 30, 1997 and $810 at September 30, 1996 380,733 354,255
Accrued interest receivable 2,924 3,199
Real estate in foreclosure 109 97
Premises and equipment 3,566 3,780
Deposit base intangible 119 158
Other assets 1,105 1,382
------- -------
$ 489,843 475,862
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 335,347 302,934
Borrowed funds 91,500 115,300
Advance payments by borrowers for taxes and insurance 4,685 1,953
Other liabilities 7,430 6,847
------- -------
Total liabilities 438,962 427,034
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; 2,791,978 and 2,866,108 shares
outstanding at June 30, 1997 and September 30, 1996 38 38
Additional paid-in capital 37,293 37,079
Retained earnings, substantially restricted 30,100 27,851
Treasury stock, at cost (990,372 and 916,242 shares at
June 30, 1997 and September 30, 1996, respectively) (13,897) (12,619)
Common stock acquired by Employee Stock Ownership Plan (1,662) (2,078)
Common stock acquired by Bank Recognition and Retention Plans (516) (708)
Unrealized loss on investment securities available for sale,
less applicable taxes (475) (735)
------- -------
TOTAL STOCKHOLDERS' EQUITY 50,881 48,828
Commitments and contingencies
$ 489,843 475,862
======= =======
See accompanying notes to unaudited consolidated financial statements.
FIDELITY BANCORP, INC.
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Three Months ended Nine Months ended
June 30, June 30,
1997 1996 1996 1997
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 7,130 6,076 21,160 17,259
Investment securities 1,450 1,519 4,425 4,262
Mortgage-backed securities 340 415 1,075 1,310
Interest earning deposits 16 13 35 53
Federal funds sold 6 3 11 36
Investment in mutual funds 42 27 124 33
------ ------ ------ ------
8,984 8,053 26,830 22,953
Interest Expense:
Deposits 4,022 3,471 11,820 10,465
Borrowed funds 1,364 1,178 4,141 2,609
------ ------ ------ ------
5,386 4,649 15,961 13,074
Net interest income before provision
for loan losses 3,598 3,404 10,869 9,879
Provision for loan losses 15 10 54 90
------ ------ ------ ------
Net interest income after provision
for loan losses 3,583 3,394 10,815 9,789
Non-Interest Income:
Fees and commissions 85 87 287 283
Insurance and annuity commissions 192 105 482 401
Other 17 18 45 39
------ ------ ------ ------
294 210 814 723
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,343 1,215 4,016 3,634
Office occupancy and equipment 305 302 903 897
Data processing 116 110 357 336
Advertising and promotions 130 94 468 333
Federal deposit insurance premiums 59 170 267 499
Other 334 332 1,034 922
------ ------ ------ -----
Total general and administrative expenses 2,287 2,223 7,045 6,621
Amortization of intangible 12 16 39 48
------ ------ ------ ------
2,299 2,239 7,084 6,669
------ ------ ------ ------
Income before income taxes 1,578 1,365 4,545 3,843
Income tax expense 546 530 1,682 1,492
------ ------ ------ ------
Net income $ 1,032 835 2,863 2,351
====== ====== ====== ======
Earnings per share - primary $ 0.37 0.28 1.02 0.78
Earnings per share - fully diluted $ 0.37 0.28 1.02 0.77
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Nine months ended June 30, 1997 and 1996
Unrealized
Loss on
Common Common Investment
Additional Stock Stock Securities
Common Paid-In Retained Treasury Acquired Acquired Available
Stock Capital Earnings Stock by ESOP by BRRP's For Sale Total
--- ------ ------- ------- ------ ------ ---- -------
Balance at
September 30, 1995 $38 36,795 26,449 (5,978) (2,494) (963) (55) $53,792
Net income - - 2,351 - - - - 2,351
Purchase of treasury stock
(350,466 shares) - - - (5,573) - - - (5,573)
Cash dividends ($.16 per
share) - - (564) - - - - (564)
Amortization of award of
BRRP's stock - - - - - 191 - 191
Cost of ESOP shares released - - - - 416 - - 416
Exercise of stock options
and reissuance of treasury
shares (2,200 shares) - (6) - 28 - - - 22
Tax benefit related to
stock options exercised - 2 - - - - - 2
Market adjustment for
committed ESOP shares - 171 - - - - - 171
Change in unrealized loss
on investment securities
available for sale - - - - - - (1,007) (1,007)
--- ------ ------- ------ ------ ------ ---- -------
Balance at June 30 1996 $38 36,962 28,236 (11,523) (2,078) (772) (1,062) $49,801
=== ====== ======= ====== ====== ======= ====== =======
Balance at
September 30, 1996 38 37,079 27,851 (12,619) (2,078) (708) (735) 48,828
Net income - - 2,863 - - - - 2,863
Purchase of treasury stock
(82,030 shares) - - - (1,389) - - - (1,389)
Cash dividends ($.22 per
share) - - (614) - - - - (614)
Amortization of award of
BRRP's stock - - - - - 192 - 192
Cost of ESOP shares released - - - - 416 - - 416
Exercise of stock options
and reissuance of treasury
shares (7,900 shares) - (32) - 111 - - - 79
Tax benefit related to
stock options exercised - 13 - - - - - 13
Market adjustment for
committed ESOP shares - 233 - - - - - 233
Change in unrealized loss
on investment securities
available for sale - - - - - - 260 260
--- ------ ------- ------ ------ ----- ---- ------
Balance at June 30, 1997 $38 37,293 30,100 (13,897) (1,662) (516) (475) $50,881
=== ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements.
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended June 30, 1997 1996
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,863 2,351
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 261 287
Deferred income taxes 13 2
Provision for loan losses 54 90
Recapture of credit enhancement losses - (10)
Net amortization and accretion of premiums and discounts 21 211
Amortization of cost of stock benefit plans 192 191
Principal payment on ESOP loan 416 416
Market adjustment for committed ESOP shares 233 171
Deferred loan fees, net of amortization (337) (862)
Amortization of deposit base intangible 39 48
Sale of real estate owned 101 -
Decrease in accrued interest receivable 275 2
Decrease in other assets 267 60
Increase in other liabilities 398 617
------ ------
Net cash provided by operating activities 4,796 3,574
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 30,000 63,000
Proceeds from redemption of mutual funds - 40
Redemption of Federal Home Loan Bank of Chicago stock 935 179
Purchase of mutual funds (994) (2,956)
Purchase of Federal Home Loan Bank of Chicago stock (315) (2,789)
Purchase of investment securities available for sale (19,975) (65,000)
Loans originated for investment (66,917) (107,216)
Purchase of premises and equipment (47) (94)
Principal repayments collected on loans receivable 40,606 41,653
Principal repayments collected on investment securities 3,784 5,671
Principal repayments collected on mortgage-backed securities 2,958 3,359
------ ------
Net cash used in investing activities (9,965) (64,153)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 32,413 9,947
Proceeds from (repayments of) FHLB advances (23,800) 58,018
Net increase (decrease) in advance payments
by borrowers for taxes and insurance 2,732 (722)
Purchase of treasury stock (1,389) (5,573)
Payment of common stock dividends (614) (564)
Proceeds from exercise of stock options 79 22
------ ------
Net cash provided by financing activities 9,421 61,128
------ ------
Net change in cash and cash equivalents 4,252 549
Cash and cash equivalents at beginning of period 4,273 4,115
------ ------
Cash and cash equivalents at end of period $ 8,525 4,664
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 15,912 13,049
Income taxes 815 1,076
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 109 112
====== ======
See accompanying notes to unaudited consolidated financial statements.
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 nine months ended June 30,
1997 are not necessarily indicative of results that may be expected for the
entire fiscal year ending September 30, 1997.
The unaudited consolidated financial statements include the accounts of
Fidelity Bancorp, Inc. (the "Company") and its wholly-owned subsidiary,
Fidelity Federal Savings Bank and subsidiaries (the "Bank"). All material
intercompany accounts and transactions have been eliminated in consolidation.
(2) EARNINGS PER SHARE
Earnings per share of common stock for the three and nine months ended June 30,
1997 have been determined by dividing net income by 2,803,996 and 2,799,423,
respectively, the weighted average number of shares of common stock and common
stock equivalents outstanding. Earnings per share information for the three
and nine months ended June 30, 1996 were determined by dividing net income by
2,944,771 and 3,039,841, respectively, the weighted average number of shares of
common stock and common stock equivalents outstanding. Stock options are
regarded as common stock equivalents and are therefore considered in the
earnings per share calculations. Common stock equivalents are computed using
the treasury stock method.
(3) COMMITMENTS AND CONTINGENCIES
At June 30, 1997, the Bank had outstanding commitments to originate mortgage
loans of $5.7 million, of which $540,000 were fixed rate, with rates ranging
from 7.75% to 8.25%, and $5.2 million were adjustable rate commitments. The
Bank had a commitment to purchase a $8.45 million FHLB note with a rate of
7.4%. This note settles on July 9, 1997, and has a stated maturity of July 9,
2007, callable on July 9, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company's results of operations are dependent on net interest income which
is the difference between interest earned on its loan and investment
portfolios, and its cost of funds, consisting of interest paid on deposits and
borrowed money. The Company also generates non-interest income such as
transactional fees, loan servicing fees, and fees and commissions from the
sales of insurance products and securities through its subsidiary. Operating
expenses primarily consist of employee compensation, occupancy expenses,
federal deposit insurance premiums and other general and administrative
expenses. The results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
The Company reported earnings for the third quarter ended June 30, 1997 of $1.0
million compared with $835,000 for the same quarter a year ago, an increase of
23.6%. Earnings per fully diluted share for the quarter were $0.37 per share,
up $0.09 per share, or 32.1% from the third quarter of 1997.
For the first nine months of the fiscal year, the Company reported similar
gains in net income and earnings per share. For the nine months ended June 30,
1997, Fidelity's net income was $2.9 million, compared with $2.4 million for
the first nine months of 1996. Earnings per fully diluted share for the first
nine months were $1.02 per share, up 30.8% from the nine month period one year
ago.
The Company also announced that its board of directors declared a quarterly
dividend of $0.08 per share, payable August 15, 1997 to shareholders of record
as of July 31, 1997.
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 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 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. Management 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 ("FHLB") advances.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. This requirement, which may be varied at the direction of the Office
of Thrift Supervision ("OTS") depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
current required ratio is 5.0%. The Bank has historically maintained its
liquidity ratio for regulatory purposes at levels in excess of those required.
At June 30, 1997, the Bank's liquidity ratio was 7.45%.
The Bank'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 from operating activities, consisting
primarily of interest and dividends received less interest paid on deposits,
were $4.8 million for the nine months ended June 30, 1997. A one-time special
assessment charge of $1.6 million was recorded on September 30, 1996 as the
result of legislation regarding the Savings Association Insurance Fund (the
"SAIF"). During the nine month period ended June 30, 1997, the Company paid
the SAIF special assessment, thereby reducing the net cash provided by
operating activities. Net cash used in investing activities was $10.0 million
for the nine months ended June 30, 1997. Investing activities consisted
primarily of disbursements for loan originations and principal collected on
loans as well as maturities and reinvestments of the Bank's investment
portfolio. Net cash provided by financing activities amounted to $9.4 million
for the nine months ended June 30, 1997. The $32.4 million in increased
deposits was partially offset by net repayments of $23.8 million in FHLB
advances.
At June 30, 1997, the Bank had outstanding loan commitments of $5.7 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 June 30, 1997 totalled $168.7 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's Tangible and Leverage Capital ratio at June 30, 1997 was 8.6%. This
exceeded the Tangible Capital requirement of 1.5% of adjusted assets and the
Core ("Leverage") Capital requirement of 3% of adjusted assets by $34.3 million
and $27.1 million, respectively. The Bank's Risk-based Capital ratio was 18.3%
at June 30, 1997 which exceeded the Risk-based Capital requirement of 8% of
Risk-weighted assets by $23.7 million.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1997 were $489.8 million, compared to $475.9 million
at September 30, 1996. Loans receivable, net of allowance for loan losses,
grew at an annualized growth rate 10.0% during the first nine months of fiscal
1997. The Company continues to offer various loan products, and prices them
competitively. Current year multi-family and commercial originations accounted
for $13.0 million, or 19.4% of all originations. The Company's total loan
originations were $66.9 million for the nine months ended June 30, 1997.
Total deposits increased $32.4 million to $335.3 million at June 30, 1997
compared to the balance of $302.9 million at September 30, 1996. Growth in
deposits for the nine month period was the result of the promotion of
transaction accounts, including the introduction of a new line of checking
accounts. Management continues to utilize FHLB advances when they are a cost
effective source to fund loan activity. During the nine month period ending
June 30, 1997, the Company has repaid a net $23.8 million in FHLB advances.
Book value per share on June 30, 1997 was $18.22, compared with $17.04 at
September 30, 1996.
ASSET QUALITY
As of June 30, 1997, the Company had non-performing assets of $3.9 million.
Classified loans of $1.9 million were categorized as substandard as were $2.0
of Bennett Funding Group commercial leases (see below). The $1.9 million
amount increased from last quarter because of three additional residential
mortgage loans that were non-performing at the end of the quarter. Management
believes it has reserved sufficiently for these non-performing assets.
From October 1994 through January 1995, the Company purchased 454 full-payout
commercial equipment leases located in various parts of the country with
original aggregate outstanding principal balances of $3.0 million. Since that
time normal lease payments had reduced the aggregate outstanding balance to
$2.0 million at February 29, 1996. These leases were all originated by,
serviced by, and financially guaranteed by Bennett Funding Group of Syracuse,
New York ("BFG"). On March 29, 1996 it was reported that BFG was the target of
a civil complaint filed by the Securities and Exchange Commission. On that
same date, BFG filed a Chapter 11 bankruptcy petition in the Northern District
of New York and halted payments on the lease agreements. The Bankruptcy
Trustee is currently collecting the lease payments from the lessees and holding
them in escrow pending the outcome of the litigation concerning BFG, its
creditors, and related issues. This disruption of payment flows from the
servicer, BFG, has caused the Company to classify all the leases as
substandard, place them on non-accrual status and to categorize them as non-
performing and impaired.
The Company is vigorously pursuing available legal remedies in an attempt to
protect and collect amounts due under the terms of the underlying leases. The
substance of the Company's claims center on the assertion that it has a
perfected security interest in the leases and the proceeds thereof. The
Trustee disagrees. The opinion of the Company's bankruptcy counsel at this
time is that the Company's position should ultimately prevail. There can be no
assurance, however, of the actual results of this legal process or the extent
of the Company's recovery, if any.
Management has estimated what is believed to be the realizable value of the
leases and established a valuation allowance of $406,000. In the event that
the outcome of the litigation is not favorable, i.e. the Company's status is
that of an unsecured creditor, the recovery may be substantially smaller. Any
recovery by the Company of less than the net book value of the leases will
cause additional losses to the Company.
STOCK REPURCHASE
On November 26, 1996, the Company completed its sixth repurchase program. As
a component of its strategy to build shareholder value, the Company has
repurchased 1,002,472 shares, at an average cost of $14.03 through June 30,
1997.
RECENT REGULATORY DEVELOPMENTS
Legislation has been introduced in the Congress that would eliminate the
federal thrift charter by requiring each federal thrift to convert to a
national bank or to a state bank or state thrift. One of the pending bills
would require the conversion to occur by January 1, 1998 while the other would
require conversion by June 30, 1998. Under the proposed legislation, state
thrift institutions would be regulated for purposes of federal law as state
banks. The bills would allow a converting federal thrift to retain
nonconforming investments and activities for a period of two years following
conversion (subject to extension by the converted bank's primary federal
regulator for up to two additional one year periods). The pending legislation
would allow savings and loan holding companies that become bank holding
companies as a result of a charter conversion pursuant to the legislation to
continue to engage in any activity in which they are currently allowed to
engage, provided that they remain "qualified bank holding companies." In order
to be deemed a qualified bank holding company, each depository institution
subsidiary of the holding company that was previously a thrift institution must
continue to satisfy the qualified thrift lender test and comply with all
investment limitations to which the institution was subject as a thrift
institution. Further, the proposed legislation imposes certain restrictions on
the ability of a qualified bank holding company to acquire other depository
institutions or to be acquired. If a savings and loan holding company failed
to remain a qualified bank holding company, the company would become subject to
all of the nonbanking activities restrictions generally applicable to bank
holding companies.
The Congress is also considering legislation that would allow bank holding
companies to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. While the
scope of permissible nonbanking activities and the conditions under which the
new powers could be exercised varies among the bills, the expanded powers
generally would be available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well-capitalized and well-managed.
The bills also impose various restrictions on transactions between the
depository institution subsidiaries of bank holding companies and their nonbank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking activities permitted to such
affiliates.
At this time, the Company is unable to predict whether any of the pending bills
will be enacted and, therefore, is unable to predict the impact such
legislation may have on the operations of the Company and the Bank.
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
1997 1996 June 30,1997
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $375,286 7,130 7.60% 316,350 6,076 7.68% 367,004 21,160 7.69%
Mortgage-backed
securities 19,342 340 7.03% 23,732 415 6.99% 20,390 1,075 7.03%
Interest-bearing
deposits 1,251 16 5.12% 981 13 5.30% 924 35 5.05%
Investment securities,
mutual funds, federal
funds sold and FHLB
stock 83,336 1,498 7.19% 88,793 1,549 6.98% 85,491 4,560 7.11%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 479,215 8,984 7.50% 429,856 8,053 7.49% 473,809 26,830 7.55%
Non-interest earning
assets 10,786 12,164 11,209
------- ------- -------
Total assets $490,001 442,020 485,018
======= ======= =======
Interest-bearing liabilities:
Deposits:
Savings account 77,231 549 2.84% 97,603 703 2.99% 80,803 1,721 2.84%
Money market accounts 18,202 190 4.18% 20,805 213 4.10% 18,627 581 4.16%
Certificate accounts 232,695 3,283 5.64% 172,029 2,528 5.88% 222,812 9,518 5.70%
------- ----- ----- ------ --- ----- ------- ----- -----
Total deposits 328,128 4,022 4.90% 290,437 3,471 4.78% 322,242 11,820 4.89%
Borrowed funds 96,067 1,364 5.68% 85,470 1,178 5.51% 97,939 4,141 5.64%
------- ----- ----- ------ --- ----- ------- ----- -----
Total interest-bearing
liabilities 424,195 5,386 5.08% 375,907 4,649 4.95% 420,181 15,961 5.06%
Non-interest bearing
deposits 4,626 5,519 4,613
Other liabilities 10,344 8,596 10,053
------- ------ -------
Total liabilities 439,165 390,022 434,847
Stockholders' equity 50,836 51,998 50,171
------- ------ -------
Total liabilities and
stockholders' equity $490,001 442,020 485,018
======= ======= =======
Net interest
income/interest rate
spread (1) 3,598 2.42% 3,404 2.55% 10,869 2.49%
Net earning
assets/net interest
margin (2) $55,020 3.00% 53,931 3.17% 53,628 3.06%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.13x 1.14x 1.13x
(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.
(4) The consumer loan receivable portfolio includes $2.0 million of Bennett
Funding Group commercial leases for which there has been no interest
recorded since February 1996. (see Asset Quality)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
GENERAL. Net income for the three months ended June 30, 1997 was $1.0 million,
an increase of $197,000 from the net income of $835,000 for the three months
ended June 30, 1996. Current quarter pre-tax income increased 15.6% due to a
5.7% increase in net interest income before provision. The increase is
primarily due to a $1.1 million increase in loans receivable income.
INTEREST INCOME. Interest income increased $931,000, or 11.6% to $9.0 million
in the 1997 period from $8.1 million for the 1996 period. The increase in
interest income is the result of an 11.5% increase in interest-earning assets.
The yield from 1996 to 1997 has remained level at 7.5%. Due to greater
originations and lower pay-offs, the average loan portfolio increased 18.6% to
$375.3 million. The decreased average balance of mortgage-backed securities is
purely a result of continued monthly repayments. The average investment
portfolio decreased 6.1% to $83.3 million. The changes in the investment
portfolio have been limited to maturities and purchases of similar products.
The investment portfolio earned 21 basis points more than the same quarter a
year ago.
INTEREST EXPENSE. Increasing deposit rates combined with a 13.0% larger
average deposit base caused interest expense on savings to increase by
$551,000, or 15.9% for the three months ended June 30, 1997. The cost of
borrowed funds increased $186,000 from the previous year's quarter because of
increased utilization of FHLB advances. The cost of these advances has
increased 17 basis points while the average FHLB advances balance increased
from $85.5 million to $96.1 million.
PROVISION FOR LOAN LOSSES. The Company recorded a $15,000 provision for loan
losses in the third quarter as compared to a $10,000 provision for loan losses
in the 1996 period. As of June 30, 1997, the cumulative allowance for loan
losses was $857,000, or 22.4% of non-performing loans. The ratio of the
allowance for loan losses to net loans receivable stands at 0.23%. See
discussion regarding non-performing assets in the "Asset Quality" section of
the Management's Discussion and Analysis of Financial Condition. Management
believes that its allowance for loan losses is adequate to provide for
potential foreseeable losses.
NON-INTEREST INCOME. Non-interest income increased 40.0% to $294,000 from
$210,000 in the same quarter the previous year. Insurance and annuity
commissions increased $87,000 due to increased sales activity. The increase is
due to the INVEST program sponsoring and promoting seminars for the benefit of
customers.
NON-INTEREST EXPENSE. Non-interest expense for the quarter ended June 30, 1997
totalled $2.3 million, compared to $2.2 million in 1996. Advertising
expenditures have increased $36,000 in a planned effort to introduce new
products to the community. The results of this effort are reflected in the
increased deposits. Federal deposit insurance premiums decreased by $111,000
or 65.3%, primarily as a result of the recently-passed FDIC deposit insurance
legislation.
INCOME TAXES. Income taxes increased $16,000 for the three months ended June
30, 1997 to $546,000 compared to $530,000 for the prior year due to increased
pre-tax income as well as slight changes in the effective tax rate.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
GENERAL. Net income for the nine months ended June 30, 1997 was $2.9 million,
an increase of $512,000 from the net income of $2.4 million for the nine months
ended June 30, 1996. This 21.8% increase can be attributed to a 10.0% increase
in net interest income before provision for loan losses.
INTEREST INCOME. Interest income increased $3.9 million, or 16.9%, to $26.8
million in the 1997 period from $23.0 million for the 1996 period. The
increase is attributable primarily to increased interest income from loans
receivable. Successful originations account for the 25.7% increase in average
loans receivable. The increased volume of $75.1 million, offset by the 19
basis point decrease in weighted average loan yields, accounts for the 22.6%
increase in loan receivable interest income. Also contributing to the increase
was the $229,000 increase in income generated from the investment portfolio.
Although the average volume of investments remained stable at $85 million, the
average yield increased 28 basis points over the prior year.
INTEREST EXPENSE. Interest expense increased $2.9 million, or 22.1%, to $16.0
million for the nine months ended June 30, 1997. A $35.7 million increase in
the average deposit balance accounts for the increase in deposit interest cost.
The average cost of savings products remained at 4.9%. Interest expense on
borrowed funds reflects the 59.2% increase in the average FHLB advances. The
weighted average rate from June 30, 1997 to June 30, 1996 remained at 5.6%.
The current quarter average balance of $97.9 million in borrowed funds
increased $36.4 million from the one year prior average balance of $61.5
million.
PROVISION FOR LOAN LOSSES. The Company recorded a $54,000 provision for loan
losses in the first nine months of fiscal 1997, as compared to a $90,000
provision in its comparable period one year ago. The provision for the loan
losses reflect 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. See discussion regarding
non-performing assets in the "Asset Quality" section of the Management's
Discussion and Analysis of Financial Condition.
NON-INTEREST INCOME. Non-interest income generated from insurance and annuity
commissions increased $81,000, or 20.2% compared to $401,000 the previous year.
The increase is a result of increased INVEST sales efforts.
NON-INTEREST EXPENSE. Non-interest expense for 1997 totalled $7.1 million, an
increase of $415,000 or 6.2%, from $6.7 million for the nine months ended June
30, 1996. Salaries and employee benefits continued to increase due to
additional personnel and market adjustments for the ESOP shares to be released
December 31, 1997. In addition to compensation, advertising increased due to
the introduction of new products to customers. Insurance premium expense
decreased $232,000 primarily as a result of legislation passed September 30,
1996 regarding FDIC premiums, partially offset by the premiums on increased
balances in savings deposits.
INCOME TAXES. Income taxes increased $190,000 for the nine months ended June
30, 1997 to $1.7 million compared to $1.5 million for the prior year due to
increased taxable income and updates of the effective tax rate.
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
The Bank is involved in legal proceedings regarding the Bennett
Funding Group ("BFG") bankruptcy proceedings, in which the Bank has
an investment in commercial leases guaranteed by BFG. The
Bankruptcy Trustee has filed an adversary complaint against the
Bank for claimed violations of the automatic stay provisions of the
bankruptcy code with respect to post-petition collection efforts of
the Bank. The monies collected by the Bank, aggregating approxi-
mately $60,000, have since been remitted to the Trustee's escrow
account after obtaining assurances from the court that the funds
would be protected pending the outcome of the litigation. The
Trustee's claim for $10 million for sanctions and actual damages
based on the Bank's post-petition collection activity is also being
vigorously contested. The Trustee has also filed an adversary
proceeding against 60 banks, including the Bank, asserting various
causes of action. The results of these adversary proceeding are not
expected to have a material adverse impact on the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
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 21, 1997 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: July 21, 1997 /s/ JAMES R. KINNEY
-----------------------------
James R. Kinney
Sr. V. P. and Chief Financial Officer