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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, 1998
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 2,833,468 shares of common stock, par value $.01, outstanding as of
July 23, 1998.
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1
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, 1998 (unaudited) and September 30, 1997 1
Consolidated Statements of Earnings for the nine and three
months ended June 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1998 and 1997 (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
2
FIDELITY BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
ASSETS June 30, September 30,
1998 1997
(unaudited)
Cash and due from banks $ 1,929 436
Interest-bearing deposits 1,306 2,314
Federal funds sold 100 100
Investment in dollar-denominated mutual funds, at
fair value - 3,154
FHLB of Chicago stock 5,513 5,700
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $13,246
at June 30, 1998 and $17,124 at September 30, 1997) 13,067 16,875
Investment securities available for sale, at fair value 61,559 70,297
Loans receivable, net of allowance for loan losses of $554
at June 30, 1998 and $460 at September 30, 1997 409,486 388,262
Accrued interest receivable 2,827 3,445
Real estate in foreclosure 424 215
Premises and equipment 4,378 3,593
Deposit base intangible 75 107
Other assets 1,044 1,136
------- -------
$ 501,708 495,634
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 327,921 323,443
Borrowed funds 109,800 113,400
Advance payments by borrowers for taxes and insurance 4,913 2,197
Other liabilities 5,900 6,977
------- -------
Total liabilities 448,534 446,017
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; 2,833,468 and 2,794,978 shares
outstanding at June 30, 1998 and September 30, 1997 38 38
Additional paid-in capital 37,822 37,494
Retained earnings, substantially restricted 30,020 27,939
Treasury stock, at cost (948,882 and 987,372 shares at
June 30, 1998 and September 30, 1997, respectively) (13,399) (13,855)
Common stock acquired by Employee Stock Ownership Plan (1,092) (1,662)
Common stock acquired by Bank Recognition and Retention Plans (277) (471)
Unrealized gain on investment securities available for sale,
less applicable taxes 62 134
------- -------
TOTAL STOCKHOLDERS' EQUITY 53,174 49,617
Commitments and contingencies
$ 501,708 495,634
======= =======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Three Months ended Nine Months ended
June 30, June 30,
1998 1997 1998 1997
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 7,566 7,130 22,467 21,160
Investment securities 1,137 1,450 3,624 4,425
Mortgage-backed securities 245 340 806 1,075
Interest earning deposits 21 16 67 35
Federal funds sold 9 6 21 11
Investment in mutual funds - 42 17 124
------ ------ ------ ------
8,978 8,984 27,002 26,830
Interest Expense:
Deposits 3,955 4,022 12,042 11,820
Borrowed funds 1,376 1,364 4,161 4,141
------ ------ ------ ------
5,331 5,386 16,203 15,961
Net interest income before provision
for loan losses 3,647 3,598 10,799 10,869
Provision for loan losses 90 15 151 54
------ ------ ------ ------
Net interest income after provision
for loan losses 3,557 3,583 10,648 10,815
Non-Interest Income:
Fees and commissions 75 85 244 287
Insurance and annuity commissions 181 192 517 482
Other 15 17 44 45
------ ------ ------ ------
271 294 805 814
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,477 1,343 4,284 4,016
Office occupancy and equipment 331 305 929 903
Data processing 138 116 390 357
Advertising and promotions 47 130 199 468
Federal deposit insurance premiums 55 59 164 267
Other 298 334 932 1,034
------ ------ ------ -----
Total general and administrative expenses 2,346 2,287 6,898 7,045
Amortization of intangible 10 12 32 39
------ ------ ------ ------
2,356 2,299 6,930 7,084
------ ------ ------ ------
Income before income taxes 1,472 1,578 4,523 4,545
Income tax expense 538 546 1,652 1,682
------ ------ ------ ------
Net income $ 934 1,032 2,871 2,863
====== ====== ====== ======
Earnings per share - basic $ 0.34 0.39 1.06 1.09
Earnings per share - diluted $ 0.32 0.37 1.00 1.03
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Nine months ended June 30, 1998 and 1997
Unrealized Gain
(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, 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) $50,881
=== ====== ======= ====== ====== ======= ====== =======
Balance at
September 30, 1997 38 37,494 27,939 (13,855) (1,662) (471) 134 49,617
Net income - - 2,871 - - - - 2,871
Cash dividends ($.28 per
share) - - (790) - - - - (790)
Amortization of award of
BRRP's stock - - - - - 194 - 194
Cost of ESOP shares released - - - - 570 - - 570
Exercise of stock options
and reissuance of treasury
shares (45,990 sahres) - (184) - 456 - - - 272
Tax benefit related to
stock options exercised - 68 - - - - - 68
Market adjustment for
committed ESOP shares - 444 - - - - - 444
Change in unrealized gaim
on investment securities
available for sale - - - - - - (72) (72)
--- ------ ------- ------ ------ ----- ---- ------
Balance at June 30, 1998 $38 37,822 30,020 (13,399) (1,092) (277) 62 $53,174
=== ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Nine months ended June 30, 1998 1997
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,871 2,863
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 266 261
Deferred income taxes - 13
Provision for loan losses 151 54
Net amortization and accretion of premiums and discounts (5) 21
Amortization of cost of stock benefit plans 194 192
Principal payment on ESOP loan 570 416
Market adjustment for committed ESOP shares 444 233
Deferred loan fees, net of amortization (284) (337)
Amortization of deposit base intangible 32 39
Sale of real estate owned 271 101
Gain on sale ofreal estate owned (24) -
Decrease in accrued interest receivable 618 275
Decrease in other assets 70 267
Increase (decrease) in other liabilities (1,037) 398
------ ------
Net cash provided by operating activities 4,137 4,796
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 36,023 30,000
Redemption of Federal Home Loan Bank of Chicago stock 1,405 935
Purchase of Federal Home Loan Bank of Chicago stock (1,218) (315)
Purchase of investment securities available for sale (29,945) (19,975)
Loans originated for investment (104,717) (66,917)
Purchase of premises and equipment (1,051) (47)
Principal repayments collected on loans receivable 83,174 40,606
Principal repayments collected on investment securities 2,579 3,784
Principal repayments collected on mortgage-backed securities 3,800 2,958
------ ------
Net cash used in investing activities (9,950) (8,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,478 32,413
Repayments of) FHLB advances (3,600) (23,800)
Net increase in advance payments by borrowers
for taxes and insurance 2,716 2,732
Purchase of treasury stock - (1,389)
Payment of common stock dividends (790) (614)
Proceeds from exercise of stock options 340 79
------ ------
Net cash provided by financing activities 3,144 9,421
------ ------
Net change in cash and cash equivalents (2,669) 5 246
Cash and cash equivalents at beginning of period 6,004 4,273
------ ------
Cash and cash equivalents at end of period $ 3,335 9,519
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 16,181 15,912
Income taxes 1,290 815
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 1,032 109
====== ======
See accompanying notes to unaudited consolidated financial statements.
6
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,
1998 are not necessarily indicative of results that may be expected for the
entire fiscal year ending September 30, 1998.
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
In February 1997, the FASB issued Statement 128, "Earnings Per Share."
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. It replaces the presentations of primary EPS with the
presentation of basic EPS, and replaces fully diluted EPS with diluted EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and dominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
Earnings per share of common stock for the three and nine months ended June 30,
1998 has been calculated according to the guidelines of Statement 128 and
earnings per share of common stock for the three and nine months ended June 30,
1997 has been restated to conform with Statement 128.
Diluted earnings per share for the three months ended June 30, 1998 and 1997
are computed by dividing net income by the weighted average number of shares of
common stock and potential common stock outstanding for the period which were
2,875,908 and 2,783,184, respectively. Diluted earnings per share of common
stock for the nine months ended June 30, 1998 and 1997 has been determined by
dividing net income by 2,860,379 and 2,778,609, the weighted average number of
shares of common stock and potential common stock outstanding. Stock options
are the only potential common stock and are therefore considered in the diluted
earnings per share calculations. Potential common stock are computed using the
treasury stock method.
(3) Commitments and Contingencies
At June 30, 1998, the Bank had outstanding commitments to originate mortgage
7
loans of $7.87 million, of which $3.96 million were fixed rate, with rates
ranging from 6.625% to 8.50%, and $3.91 million were adjustable rate
commitments.
(4) Pending Accounting Changes
Statement 130, "Reporting Comprehensive Income," established standards for
reporting and presentation of comprehensive income and its components in a full
set of general-purpose financial statement. Statement 130 is effective for
both interim and annual periods beginning after December 15, 1997, and is not
expected to have a material impact on the consolidated financial statements.
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, 1998 of
$934,000 compared with $1.0 million for the same quarter a year ago, a slight
decrease of 9.5%. Earnings per diluted share for the quarter were $0.32 per
share, down $0.05 per share, from the third quarter of 1997.
For the nine months ended June 30, 1998, Fidelity's net income was $2.9
million, stable compared with the year earlier period. Earnings per diluted
share for the first nine months of 1998 were $1.00 per share, down $0.03 per
share from one year ago, due to an increase in the number of shares
outstanding. Instead of producing an increase in income, additions to earning
assets went to replenishing record mortgage repayments.
The Company also announced that its board of directors declared a quarterly
dividend of $0.10 per share, payable August 14, 1998 to shareholders of record
as of July 31, 1998.
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
8
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.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include
those developed and maintained by the Company's third-party data processing
vendor such as teller and platform systems, and purchased software such as
spreadsheet and word processing programs which run on in-house computer
networks. The Company does not have any internally developed computer programs
and does not have any programming staff. During fiscal 1997 the Company
initiated a review and assessment of all hardware and software to confirm that
it will function properly in the year 2000.
The results of that review show good remediation efforts on the part of our
software suppliers, with continuing communication concerning their progress at
least quarterly. Remediation efforts are expected to be largely complete by
December 1998, with time thereafter for testing. The costs associated with
these efforts are not expected to have a significant impact on the Company's
ongoing results of operations.
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 minimum levels of liquid
assets. During a portion of the first quarter, OTS regulations required the
Bank to maintain, for each calendar month, an average daily balance of liquid
assets (including cash, certain time deposits, bankers acceptances, and
specified United States Government, state or federal agency obligations) equal
to at least 5% of the average daily balance of its liquidity base , defined as
net withdrawable accounts plus short-term borrowings (i.e., those repayable in
12 months or less) during the preceding calendar month. During a portion of
the first quarter, OTS regulations also required the Bank to maintain, for each
calendar month, an average daily balance of short-term liquid assets (generally
9
liquid assets having maturities of 12 months or less) equal to at least 1% of
the average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. Penalties may be imposed for
failure to meet liquidity ratio requirements.
Pursuant to amendments adopted by the OTS effective November 24, 1997, the
minimum liquidity requirement has been reduced to 4% of the liquidity base, the
short-term liquidity requirement has been eliminated, liquidity requirements
will be determined quarterly, rather than monthly, and savings associations
have the option of calculating their liquidity requirements either on the basis
of (i) their liquidity base at the end of the preceding quarter or (ii) the
average daily balance of their liquidity base during the preceding quarter.
The amended regulations also provide, however, that savings associations must
maintain liquidity in excess of the minimum requirement if necessary to insure
safe and sound operations. At June 30, 1998, the Bank was in compliance with
TS liquidity requirements, with a liquidity ratio of 17.78%.
The Company's cash flows are comprised of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Cash flows provided by operating activities,
consisting primarily of interest and dividends received less interest paid on
deposits, were $4.1 million for the nine months ended June 30, 1998. During
the nine months ended June 30, 1998, the Company used $10.0 million in
investing activities. Cash provided from a net decrease in investment
securities of $6.1 million in addition to $89.6 million received from repayment
collected on Loans receivable, investment securities and mortgage backed
assisted in the funding of a record $104.7 million of loan originations. Net
cash provided by financing activities amounted to $3.1 million for the nine
months ended June 30, 1998.
At June 30, 1998, the Bank had outstanding loan commitments of $7.9 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, 1998 totalled $147.5 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.
The most recent notification, May 1997, from the federal banking agencies
categorized the Company and the Bank as well capitalized under the regulatory
framework for prompt corrective action. Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios of tangible equity to tangible assets of 2%, Tier 1 capital
(leverage capital) to adjusted total assets of 5%, Tier 1 risk-based capital to
risk-weighted assets of 6%, and of Total risk-based capital to risk-weighted
assets of 10%. There are no conditions or events since that notification that
10
have changed the Company's or the Bank's category.
The Bank's Tangible Equity ratio at June 30, 1998 was 9.11%. The Tier 1 Capital
ratio was 9.11%, the Tier 1 Risk-based ratio was 19.14%, and the Total Risk-
Based Capital ratio was 19.37%.
CHANGES IN FINANCIAL CONDITION
Total Company assets at June 30, 1998 were $501.7 million, compared to $495.6
million at September 30, 1997. For the nine months ended June 30, 1998, loans
receivable increased $21.2 million, or 5.5%, to $409.5 million from $388.3
million at September 30, 1997. For the nine month period, principal repayments
totaled $83.2 million. New loans closed during the first nine months showed a
sharp increase, totaling $104.7 million, up $37.8 million from 1997. The
Company continues to offer various loan products, and prices them
competitively. Current year multi-family and commercial originations accounted
for $19.5 million, or 18.7% of all originations.
Total deposits increased $4.5 million to $327.9 million at June 30, 1998
compared to the balance of $323.4 million at September 30, 1997. The increase
is a result of replacing higher-yielding certificates of deposit with
transaction accounts. Borrowed funds decreased $3.6 million to $109.8 million
in the same period. Management continues to utilize FHLB advances when they
are a cost effective source to assist in funding the increased loan activity.
Book value per share on June 30, 1998 was $18.77, compared with $17.75 at
September 30, 1997.
ASSET QUALITY
As of June 30, 1998, the Company had non-performing assets of $1.2 million.
Classified loans of $784,000 were categorized as substandard as were $92,300
of Bennett Funding Group commercial leases. Due to the $21.2 million net
increase in loans receivable, the Company increased the loan provision by
$151,000 for the nine month period ended June 30, 1998. Management believes
it has reserved sufficiently for these non-performing assets.
STOCK REPURCHASE
As announced on May 21, 1998, the company plans to repurchase five percent of
its common stock as part of its ongoing commitment to build value for Fidelity
Bancorp stockholders. There are 142,000 shares remaining to be repurchased.
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
1998 1997 June 30,1998
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $394,083 7,566 7.68% 375,286 7,130 7.60% 389,850 22,467 7.68%
Mortgage-backed
securities 14,054 245 6.97% 19,342 340 7.03% 15,294 806 7.03%
Interest-bearing
deposits 1,536 21 5.47% 1,251 16 5.12% 1,623 67 5.50%
Investment securities,
mutual funds, federal
funds sold and FHLB
stock 63,677 1,146 7.20% 83,336 1,498 7.19% 68,580 3,662 7.12%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 473,350 8,978 7.59% 479,215 8,984 7.50% 475,347 27,002 7.57%
Non-interest earning
assets 15,603 10,786 14,575
------- ------- -------
Total assets $488,953 490,001 489,922
======= ======= =======
Interest-bearing liabilities:
Deposits:
Savings account 129,876 1,286 3.96% 111,441 973 3.49% 122,219 3,492 3.81%
Money market accounts 17,885 186 4.16% 18,202 190 4.18% 17,913 563 4.19%
Certificate accounts 174,012 2,483 5.71% 198,485 2,859 5.76% 183,254 7,987 5.81%
------- ----- ----- ------ --- ----- ------- ----- -----
Total deposits 321,773 3,955 4.92% 328,128 4,022 4.90% 323,386 12,042 4.96%
Borrowed funds 95,982 1,376 5.73% 96,067 1,364 5.68% 97,203 4,161 5.71%
------- ----- ----- ------ --- ----- ------- ----- -----
Total interest-bearing
liabilities 417,755 5,331 5.10% 424,195 5,386 5.08% 420,589 16,203 5.14%
Non-interest bearing
deposits 6,952 4,626 5,940
Other liabilities 10,872 10,344 10,994
------- ------ -------
Total liabilities 435,579 439,165 437,523
Stockholders' equity 53,374 50,836 52,399
------- ------ -------
Total liabilities and
stockholders' equity $488,953 490,001 489,922
======= ======= =======
Net interest
income/interest rate
spread (1) 3,647 2.48% 3,598 2.42% 10,799 2.44%
Net earning
assets/net interest
margin (2) $55,595 3.08% 55,020 3.00% 54,758 3.03%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.13x 1.13x 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.
12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
GENERAL. Net income for the three months ended June 30, 1998 was $934,000, a
decrease of $98,000 from the net income of $1,032,000 for the three months
ended June 30, 1997. The decline in earnings was due primarily to a greater
provision for loan losses and an increase in expenses related to employee
benefits.
INTEREST INCOME. Interest income remained stable at $9.0 million. The average
interest-earning assets decreased 1.2% to $473.4 million from $479.2 million
the prior year. The growth in the loan portfolio coupled with a change in the
loan product mix has increased the average yield by 8 basis points and
increasing the interest income from loans by 6.1% to $7.6 million for the
current quarter. The decreased average balance of mortgage-backed securities
is purely a result of continued monthly repayments. The average investment
portfolio decreased 25.6% to $63.7 million. The changes in the investment
portfolio have been limited to maturities and managerial decisions to fund
loans with these proceeds.
INTEREST EXPENSE. Interest expense remained flat at $5.3 million for the
quarters ended June 30, 1998 and 1997. Both the average deposit base and the
cost of these deposits were essentially unchanged. FHLB borrowings and have
also remained flat at $96.0 million for the quarters ended June 30, 1998 and
1997. The borrowing rate has also remained steady at 5.7% for the same periods
in 1998 and 1997.
PROVISION FOR LOAN LOSSES. The Company recorded a $90,000 provision for loan
losses in the third quarter compared to a $15,000 provision for loan losses in
the same 1997 period. As of June 30, 1998, the cumulative allowance for loan
losses was $554,000, or 0.14% of loans receivable portfolio. The increase in
the quarter to quarter provision is a result of the increase in the size and
composition of the loan portfolio. Management believes that its allowance for
loan losses is adequate to provide for potential foreseeable losses.
NON-INTEREST INCOME. Non-interest income decreased 7.8% to $271,000 from
$294,000 in the same quarter the previous year. The decrease is a result of
slightly less annuity and insurance commissions and less service fees.
NON-INTEREST EXPENSE. Non-interest expense for the quarter ended June 30, 1998
remained stable at $2.3 million. Salaries and employee benefits are up 10.0%
due to ESOP expense and a general increase in employee medical insurance costs.
Advertising expenditures have decreased due to no plans for introducing new
savings product due to the flat yield curve. The results of this are reflected
in only small increases in deposits.
INCOME TAXES. Income taxes decreased $8,000 for the three months ended June
30, 1998 to $538,000 compared to $546,000 for the prior year due to slightly
decreased pre-tax income as well as slight changes in the effective tax rate.
13
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
GENERAL. Net income for the nine months ended June 30, 1998 was $2.9 million,
an increase of $8,000 from June 30, 1997. The slight increase is the result of
increased interest income combined with decreased general and administrative
expenses.
INTEREST INCOME. Interest income increased $172,000, to $27.0 million in the
1998 period from $26.8 million for the 1997 period. The net increase is
attributable primarily to increased interest income from loans receivable.
Although repayments were at a record high during this current nine month
period, an even higher volume of loan closings account for the 6.2% increase in
average loans receivable.
INTEREST EXPENSE. Interest expense remained stable at $16 million for the nine
months ended June 30, 1998 and 1997. Average deposit balances remained at $323
million for the two nine month periods. The average cost of these savings
products increased 7 basis points to 4.96%. Interest expense on borrowed funds
remained at $4.1 million. The average balance of FHLB advances and the
weighted average rate from June 30, 1998 to June 30, 1997 remained at flat.
PROVISION FOR LOAN LOSSES. The Company recorded a $151,000 provision for loan
losses in the first nine months of fiscal 1998, as compared to a $54,000
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.
NON-INTEREST INCOME. Non-interest income remained at $800,000 for the
comparable nine month periods ended June 30, 1998 and 1997. Income generated
from insurance and annuity commissions increased $35,000, or 7.3% compared to
$582,000 the previous year. The increase is a result of increased INVEST sales
efforts.
NON-INTEREST EXPENSE. Non-interest expense for 1998 totalled $6.9 million, an
decrease of $154,000 or 2.2%, from $7.1 million for the nine months ended June
30, 1997. Employee benefits continued to increase due to market adjustments
for the ESOP shares to be released December 31, 1998. Advertising and other
expenses decreased due to an management effort to control expenses and
concentrate on interest-earning assets. Insurance premium expense decreased
$103,000 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 decreased $30,000 for the nine months ended June
30, 1998 to $1.7 million due to slightly decreased taxable income.
14
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
The Company and the Bank are not engaged in any legal proceedings of
a material nature at the present time.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fidelity Bancorp, Inc.
Dated: July 24, 1998 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: July 24, 1998 /s/ JAMES R. KINNEY
-----------------------------
James R. Kinney
Sr. V. P. and Chief Financial Officer