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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 2,323,584 shares of common stock, par value $.01, outstanding as of
January 15, 1999.
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FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
Part I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of December 31, 1998 (unaudited) and September 30, 1998 1
Consolidated Statements of Earnings for the three
months ended December 31, 1998 and 1997 (unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity for the three months ended December 31, 1998
and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the three
months Ended December 31, 1998 and 1997 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
1
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS December 31, September 30,
1998 1998
(unaudited)
Cash and due from banks $ 4,527 1,320
Interest-bearing deposits 498 555
Federal funds sold 100 100
FHLB of Chicago stock 7,410 6,510
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $10,027
at December 31, 1998 and $11,513 at September 30, 1998) 9,910 11,177
Investment securities available for sale, at fair value 68,377 58,979
Loans receivable, net of allowance for loan losses of $630
at December 31, 1998 and $591 at September 30, 1998 441,409 425,608
Accrued interest receivable 2,594 3,547
Real estate in foreclosure 380 131
Premises and equipment 4,297 4,401
Deposit base intangible 57 66
Other assets 1,120 1,169
------- -------
$ 540,679 513,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 338,447 330,670
Borrowed funds 148,200 121,400
Advance payments by borrowers for taxes and insurance 4,710 6,919
Other liabilities 5,940 5,977
------- -------
Total liabilities 497,297 464,966
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; 2,321,684 and 2,589,784 shares
outstanding at December 31, 1998 and September 30, 1998 38 38
Additional paid-in capital 38,225 38,117
Retained earnings, substantially restricted 31,297 30,646
Treasury stock, at cost (1,460,666 and 1,192,566 shares at
December 31, 1998 and September 30, 1998, respectively) (25,315) (19,210)
Common stock acquired by Employee Stock Ownership Plan (632) (1,092)
Common stock acquired by Bank Recognition and Retention Plans (206) (242)
Accumulated other comprehensive income (25) 340
------- -------
TOTAL STOCKHOLDERS' EQUITY 43,382 48,597
Commitments and contingencies
$ 540,679 513,563
======= =======
See accompanying notes to unaudited consolidated financial statements.
2
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
Three months ended December 31, 1998 and 1997
1998 1997
(unaudited)
Interest Income:
Loans receivable $ 7,937 7,476
Investment securities 1,130 1,259
Mortgage-backed securities 184 289
Interest earning deposits 18 28
Federal funds sold 1 10
Investment in mutual funds - 17
------ ------
9,270 9,079
Interest Expense:
Deposits 3,865 4,110
Borrowed funds 1,775 1,458
------ ------
5,640 5,568
------ ------
Net interest income before provision for loan losses 3,630 3,511
Provision for loan losses 25 46
------ ------
Net interest income after provision for loan losses 3,605 3,465
Non-Interest Income:
Fees and commissions 96 90
Insurance and annuity commissions 153 180
Other 13 14
------ ------
262 284
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,421 1,341
Office occupancy and equipment 365 291
Data processing 134 127
Advertising and promotions 100 112
Federal deposit insurance premiums 52 54
Other 337 284
Amortization of intangible 9 11
Recovery of loss on impairment of investment
securities available for sale - (22)
------ ------
2,418 2,198
Income before income taxes 1,449 1,551
Income tax expense 540 574
------ ------
Net income $ 909 977
====== ======
Basic earnings per share $ 0.38 0.36
Diluted earnings per share $ 0.36 0.34
====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Three months ended December 31, 1998 and 1997
Accumulated
Common Common Other
Additional Stock Stock Comprehen-
Common Paid-In Retained Treasury Acquired Acquired sive
Stock Capital Earnings Stock by ESOP by BRRP's Income Total
--- ------ ------- ------- ------ ------ ---- -------
Balance at
September 30, 1997 38 37,494 27,939 (13,855) (1,662) (471) 134 49,617
Net income - - 977 - - - - 977
Cash dividends ($.08 per
share) - - (225) - - - - (225)
Amortization of award of
BRRP's stock - - - - - 68 - 68
Cost of ESOP shares released - - - - 570 - - 570
Exercise of stock options
and reissuance of treasury
shares (18,731 shares) - (76) - 263 - - - 187
Tax benefit related to
stock options exercised - 29 - - - - - 29
Market adjustment for
committed ESOP shares - 143 - - - - - 143
Change in accumulated other
comprehensive income - - - - - - (97) (97)
--- ------ ------- ------- ------ ----- ----- -------
Balance at
December 31, 1997 $ 38 37,590 28,691 (13,592) (1,092) (403) 37 $ 51,269
=== ====== ======= ======= ====== ===== ===== =======
Balance at
September 30, 1998 38 38,117 30,646 (19,210) (1,092) (242) 340 48,597
Net income - - 909 - - - - 909
Cash dividends ($.10 per
share) - - (258) - - - - (258)
Purchase of treasury stock
(271,500 shares) - - - (6,161) - - - (6,161)
Amortization of award of
BRRP's stock - - - - - 36 - 36
Cost of ESOP shares released - - - - 460 - - 460
Exercise of stock options
and reissuance of treasury
shares (3,400 shares) - (17) - 56 - - - 39
Tax benefit related to
stock options exercised - 6 - - - - - 6
Market adjustment for
committed ESOP shares - 119 - - - - - 119
Change in accumulated other
comprehensive income - - - - - - (365) (365)
--- ------ ------- ------- ------ ----- ------ -------
Balance at
December 31, 1998 $ 38 38,225 31,297 (25,315) (632) (206) (25) $ 43,382
=== ====== ======= ======= ====== ===== ====== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Three months ended December 31, 1998 1997
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 909 977
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 122 89
Provision for loan losses 25 46
Net amortization and accretion of premiums and discounts (15) 1
Amortization of cost of stock benefit plans 36 68
Principal payment on ESOP loan 460 570
Market adjustment for committed ESOP shares 119 143
Deferred loan costs, net of amortization (83) (66)
Amortization of deposit base intangible 9 11
Sale of real estate owned - 137
Decrease in accrued interest receivable 953 469
Decrease (increase) in other assets 63 (97)
Increase (decrease) in current taxes and other liabilities 185 (353)
-------- ------
Net cash provided by operating activities 2,783 1,995
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 10,000 16,000
Purchase of investment securities (19,968) (9,990)
Purchase of Federal Home Loan Bank of Chicago Stock (900) -
Recovery of loss on impairment of investment
securities available for sale - (22)
Loans originated for investment (54,047) (28,826)
Purchase of premises and equipment (18) (199)
Principal repayments collected on loans receivable 38,046 23,122
Principal repayments collected on investment securities - 1,297
Principal repayments collected on mortgage-backed securities 1,266 1,058
-------- ------
Net cash provided by (used in) investing activities (25,621) 2,440
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 7,777 6,477
Net increase (decrease) in FHLB advances 26,800 (16,100)
Net increase (decrease) in advance payments by borrowers
for taxes and insurance (2,209) 2,449
Purchase of treasury stock (6,161) -
Payment of common stock dividends (258) (225)
Proceeds from exercise of stock options 39 187
-------- ------
Net cash provided by (used in) financing activities 25,988 (7,212)
-------- ------
Net change in cash and cash equivalents 3,150 (2,777)
Cash and cash equivalents at beginning of period 1,975 6,004
-------- ------
Cash and cash equivalents at end of period $ 5,125 3,227
======== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 5,599 5,580
Income taxes 200 320
NON-CASH INVESTING ACTIVITIES-
Loans transferred to real estate in foreclosure $ 249 990
======== ======
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation have been included.
The results of operations and other data for the three months ended December
31, 1998 are not necessarily indicative of results that may be expected for the
entire fiscal year ended September 30, 1999.
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
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 quarter ended December 31, 1998 and
1997 has been calculated according to the guidelines of Statement 128.
Basic earnings per share are computed by dividing net income for the period by
the weighted average number of shares of common stock outstanding for the
period which were, 2,387,262 and 2,683,282 for the quarters ended December 31,
1998 and 1997, respectively. Diluted earnings per share of common stock for
the quarters ended December 31, 1998 and 1997 has been determined by dividing
net income by 2,506,426 and 2,844,253, the weighted average number of shares of
common stock and common stock equivalents outstanding. Stock options are the
only common stock equivalents and are therefore considered in the diluted
earnings per share calculations. Common stock equivalents are computed using
the treasury stock method.
(3) Comprehensive Income
In fiscal 1999 the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130) which establishes
standards for reporting and the display of comprehensive income and its
components on a full set of general purpose financial statements. SFAS 130
6
requires all items to be recognized under standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with other financial statements. The Company is required to
classify items of "other comprehensive income" by their nature in the financial
statements and display the balance of other comprehensive income separately in
the stockholders' equity section of the balance sheet. For interim reporting
purposes, the disclosure of other comprehensive income may be included in the
notes to the interim financial statements.
The Company's comprehensive income includes net income and other comprehensive
income comprised entirely of unrealized gains or losses on securities available
for sale, net of tax.
Three months ended December 31, 1998 1997
(unaudited)
Net income 909 977
Other comprehensive income, net of tax -
Unrealized loss on securities available for
sale arising during the period (365) (97)
---- ----
Comprehensive Income 544 880
==== ====
(4) Commitments and Contingencies
At December 31, 1998, the Company had outstanding commitments to originate
loans of $8.1 million, of which $5.6 million were fixed rate, with rates
ranging from 6.25% to 8.25%, and $2.5 million were adjustable rate commitments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
GENERAL
The Company's results of operations are dependent on net interest income which
is the difference between interest earned on its loan and investment
portfolios, and its cost of funds, consisting of interest paid on deposits and
borrowed money. The Company also generates non-interest income such as
transactional fees, loan servicing fees, and fees and commissions from the
sales of insurance products and securities through its subsidiary. Operating
expenses primarily consist of employee compensation, occupancy expenses,
federal deposit insurance premiums and other general and administrative
expenses. The results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
The Company reported earnings for the first quarter ended December 31, 1998 of
$909,000 compared with $977,000 for the same quarter a year ago. Earnings per
diluted share for the quarter were $0.36 per share, up $0.02 per share from the
first quarter of fiscal 1998. The increase in earnings per share was the
result of an increase in net interest income from a greater number of loans
receivable, and smaller number of shares outstanding.
On January 19, 1999, the Company also announced that its board of directors
declared a quarterly dividend of $0.11 per share, payable on February 12, 1999
7
to shareholders of record as of January 29, 1999.
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.
YEAR 2000 COMPLIANCE
The federal banking regulators recently issued guidelines establishing minimum
safety and soundness standards for achieving Year 2000 compliance. The
guidelines, which took effect October 15, 1998 and apply to all FDIC-insured
depository institutions, establish standards for developing and managing Year
2000 project plans, testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance previously issued by the agencies under
the auspices of the Federal Financial Institutions Examination Council (the
FFIEC ), but are not intended to replace or supplant the FFIEC guidance which
will continue to apply to all federally insured depository institutions.
The guidelines were issued under section 39 of the Federal Deposit Insurance
Act, as amended (the FDIA ), which requires the federal banking regulators to
establish standards for the safe and sound operation of federally insured
depository institutions. Under section 39 of the FDIA, if an institution fails
to meet any of the standards established in the guidelines, the institution s
primary federal regulator may require the institution to submit a plan for
achieving compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance
plan that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Such an order is enforceable in court in the same manner as a cease and desist
order. Until the deficiency cited in the regulator s order is cured, the
regulator may restrict the institution s rate of growth, require the institution
8
to increase its capital, restrict the rates the institution pays on deposits or
require the institution to take any action the regulator deems appropriate
under the circumstances. In addition to the enforcement procedures established
in section 39 of the FDIA, noncompliance with the standards established by the
guidelines may also be grounds for other enforcement action by the federal
banking regulators, including cease and desist orders and civil money penalty
assessments.
THE COMPANY'S STATE OF READINESS On Sunday, October 11, 1998 the Company
conducted a full-scale test of its transaction processing systems utilizing the
date of January 3, 2000. An extensive set of transactions was tested using
production teller terminals and related computer hardware, software, and data
communications systems. There were no significant failures or problems during
the testing. A few minor issues arose and will be addressed with FiServ, the
Company's data processing service provider, prior to the next test which is
scheduled for February, 1999.
Concerning non-information technology systems (embedded microcontrollers, etc.)
the Company has tested such things as vault doors, alarm systems, etc. and is
not aware of any significant problems with such systems.
There are three third parties with whom the Company has a material
relationship, and thus potential exposure to Year 2000 issues. The FiServ
systems, as mentioned above, are already being tested. The Company's main
commercial banking relationship is with Harris Bank in Chicago. Harris
newsletters indicate substantial progress with Year 2000 readiness. The
Company also has a material relationship with the Federal Home Loan Bank of
Chicago, whose newsletters also indicate substantial progress with Year 2000
readiness.
The three third party utilities on which the Company is dependent are Ameritech
(phone service), Commonwealth Edison (electricity) and People's Gas (natural
gas for heating). The Company has not identified any practical, long-term
alternatives to relying on these companies for basic utility services.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES The incremental direct
costs to address the Company's Year 2000 issues are not expected to exceed
$50,000, exclusive of any costs incurred because of the failure of one or more
of the utility companies mentioned above. At the present time, no situations
that will require material cost expenditures to become fully compliant have
been identified. However, the Year 2000 problem is pervasive and complex and
can potentially affect any computer process. Accordingly, no assurance can be
given that Year 2000 compliance can be achieved without additional
unanticipated expenditures and uncertainties that might affect future financial
results.
It is not possible at this time to quantify the estimated future costs due to
possible business disruption caused by vendors, suppliers, customers, or even
the possible loss of electric power or phone service; however, such costs could
be substantial.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES The most likely worst case Year
2000 scenario involves a complete failure of the utility companies mentioned
above for all five of our operating locations simultaneously. This scenario
would severely curtail the Company's ability to conduct its business, including
its ability to generate new loans and to develop new deposit account
relationships. The effect on existing loans and deposits is not predictable or
quantifiable.
9
THE COMPANY'S CONTINGENCY PLANS In the event of a complete utility failure,
the Company plans to operate at least two locations on a restricted schedule
during daylight hours. A manual bookkeeping system will be employed, and
battery powered satellite phones or other alternative communications systems
will be used for communication between operating locations.
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. The minimum liquidity requirement is 4% of the liquidity base,
liquidity requirements will be determined quarterly, and savings associations
have the option of calculating their liquidity requirements either on the basis
of (i) their liquidity base at the end of the preceding quarter or (ii) the
average daily balance of their liquidity base during the preceding quarter.
Savings associations must maintain liquidity in excess of the minimum
requirement if necessary to insure safe and sound operations. At December 31,
1998, the Bank was in compliance with OTS liquidity requirements, with a
liquidity ratio of 19.26%.
The Company's cash flows are comprised of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Cash flows provided by operating activities,
consisting primarily of interest and dividends received less interest paid on
deposits, were $2.8 million for the quarter ended December 31, 1998. During
the quarter, investing activities of the Company used $25.6 million. Net
investment securities purchases and maturities used $10.0 million. Net loan
activity, consisting of new loan originations net with principal amortization
and repayments used $16.0 million. Net cash provided by financing activities
amounted to $26.0 million for the quarter ended December 31, 1998. Cash
inflows from increased deposit accounts and FHLB borrowings of $34.6 million,
far outweighed the cash outflows for treasury stock purchases and payment of
Cook County real estate taxes.
At December 31, 1998, the Bank had outstanding loan commitments of $8.1
million. Management anticipates that it will have sufficient funds available
to meet its current loan commitments. Certificates of deposit scheduled to
mature in one year or less from December 31, 1998 totalled $136.8 million.
Management believes that a significant portion of such deposits will remain
with the Bank.
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
10
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
have changed the Company's or the Bank's category.
The Bank's Tangible Equity ratio at December 31, 1998 was 7.38%. The Tier 1
Capital ratio was 7.38%, the Tier 1 Risk-based ratio was 15.77%, and the Total
Risk-Based Capital ratio was 16.02%.
CHANGES IN FINANCIAL CONDITION
Total assets at December 31, 1998 increased $27.1 million to $540.7 million
from $513.6 at September 30, 1998. Net loans receivable totalled $441.4
million, an increase of $15.8 million, or an annualized growth of 3.7%, over
the balance at September 30, 1998. Loan originations in the first quarter
amounted to $54.0 million.
Total deposits increased $7.8 million to $338.4 million at December 31, 1998
compared to $330.7 million at September 30, 1998. Funding for loan
originations has come from deposit increases and additional FHLB borrowings.
Advances totalled $148.2 million at December 31, 1998, up $26.8 million from
September 30, 1998.
Book value per share on December 31, 1998 increased to $18.69, a $0.07 decrease
from $18.76 at September 30, 1998. The decrease is primarily the result of
stock repurchased during the quarter.
ASSET QUALITY
As of December 31, 1998, the Company had non-performing assets of $719,000.
The Bank's non-performing assets at December 31, 1998 include its investment in
three real estate in foreclosure properties (two single-family residence and
one multi-family) as well as non-performing loans. Classified loans and real
estate in judgement of $585,200 were categorized as substandard, consisting of
five residential mortgage loans, two multi-family properties, and two consumer
loans. There were no assets classified as doubtful.
Management has considered the composition of its non-performing assets in its
loan allowance valuation and does not anticipate any material losses on the
future sale of these properties. The decrease of $243,000 in non-performing
assets from September 30, 1998 to December 31, 1998 resulted from management's
ongoing monitoring and follow-up procedures of delinquent customers.
Management does not expect any material losses from the non-performing loans.
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 labilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees, which are considered
adjustments to yields.
Three months ended December 31,
At December 31, 1998 1998 1997
Average Average
Yield/ Average Int- Yield/ Average Int- Yield/
Balance Cost Balance erest Cost Balance erest Cost
(dollars in thousands)
Interest-earning assets:
Loans, net $ 441,409 7.54% 425,975 7,937 7.45% 388,765 7,476 7.69%
Mortgage-backed securities 9,910 7.22% 10,434 184 7.05% 16,402 289 7.05%
Interest-bearing deposits 498 4.68% 1,405 18 5.12% 1,860 28 6.02%
Investment securities,
mutual funds, and
federal funds sold 75,887 6.55% 67,149 1,131 6.74% 73,989 1,286 6.95%
-------- ----- ------- ----- ---- ------- ----- -----
Total interest-earning assets 527,704 7.39% 504,963 9,270 7.34% 481,016 9,079 7.55%
Non-interest earning assets 12,975 16,110 12,133
-------- ------- -------
Total assets $ 540,679 521,073 493,149
======== ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 151,367 3.70% 145,901 1,429 3.92% 115,716 1,083 3.74%
Money market accounts 17,311 4.04% 17,280 176 4.07% 17,483 189 4.32%
Certificate accounts 162,216 5.42% 163,716 2,260 5.52% 190,901 2,838 5.95%
-------- ----- ------- ----- ---- ------- ----- -----
Total deposits 330,894 4.56% 326,897 3,865 4.73% 324,100 4,110 5.07%
Borrowed funds 148,200 5.36% 127,351 1,775 5.58% 101,904 1,458 5.72%
-------- ----- ------- ----- ---- ------- ----- -----
Total interest-bearing
liabilities 479,094 4.81% 454,248 5,640 4.97% 426,004 5,568 5.23%
Non-interest bearing deposits 7,553 8,743 5,171
Other liabilities 10,650 10,929 10,869
-------- ------- -------
Total liabilities 497,297 473,920 442,044
Stockholders' equity 43,382 47,153 51,105
-------- ------- -------
Total liabilities and
stockholders' equity $ 540,679 521,073 493,149
Net interest income/interest
rate spread (1) 2.58% 3,630 2.37% 3,511 2.48%
Net earning assets/net
interest margin (2) $ 48,610 50,715 2.88% 55,012 2.92%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.10x 1.11x 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.
12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1997
GENERAL. Net income for the three months ended December 31, 1998 was $909,000,
compared with $977,000 in the first quarter of last year. The decrease of 7.0%
is a result of a 4.0% increase in net interest income after provision for loan
losses, offset by lower non-interest income and increased non-interest
expense.
INTEREST INCOME. Total interest income increased $191,000 to $9.3 million for
the quarter ended December 31, 1998 compared to the same quarter prior year
results of $9.1 million. Average interest earning assets increased 5.0% to
$505.0 million for the first quarter of fiscal 1999, compared to fiscal 1998 of
$481.0 million. Although the average rate decreased 21 basis points the
increased volume contributed to higher income.
INTEREST EXPENSE. Interest expense remained relatively flat from quarter to
quarter. For both quarters ended December 31, 1998 and 1997, interest expense
amounted to $5.6 million. Average deposits outstanding increased less than one
percent, however the average cost decreased 34 basis points. Average FHLB
borrowings increased to $127.4 million, up 25.0% from $101.9 million for the
quarter ended December 31, 1997. The Bank was able to utilize of FHLB
Community Investment Program advances and other term advances to help achieve
an overall cost of borrowed funds of 5.58%.
PROVISION FOR LOAN LOSSES. The Company recorded a $25,000 provision for loan
losses in the first quarter of 1999, compared to a $46,000 provision in its
comparable period of fiscal 1998. The provision for loan losses from year to
year was reduced due to $17,000 in recoveries received from loans previously
written-off. 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.
NON-INTEREST INCOME. Fee income from sales of annuities and insurance fell in
the first quarter of fiscal 1999 compared to 1998, by $27,000, or 15.0% to
$153,000.
NON-INTEREST EXPENSE. Non-interest expense for the first quarter 1999
increased $220,000 to $2.4 million from $2.2 million. The increase can be
attributed to increased salaries and benefits combined with increased office
expenses. Beginning in October 1998, the Bank began depreciating its upgraded
computer system.
INCOME TAXES. Income taxes decreased $34,000 for the three months ended
December 31, 1998 to $540,000 versus $574,000 for the prior year due to a 5.9%
decrease in pre-tax income.
13
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
Exhibit 27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fidelity Bancorp, Inc.
Dated: January 25, 1999 /s/ RAYMOND S. STOLARCZYK
---------------- --------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: January 25, 1999 /s/ JAMES R. KINNEY
---------------- --------------------------
James R. Kinney
Sr. V. P. and Chief Financial Officer