===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 2,268,746 shares of common stock, par value $.01, outstanding as of
April 20, 1999.
===============================================================================
FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 1999 (unaudited) and September 30, 1998 1
Consolidated Statements of Earnings for the three and six
months ended March 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended March 31, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended March 31, 1999 and 1998 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 16-17
SIGNATURE PAGE 15
1
FIDELITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS March 31, September 30,
1999 1998
(unaudited)
Cash and due from banks $ 1,994 1,320
Interest-bearing deposits 220 555
Federal funds sold 100 100
FHLB of Chicago stock 8,460 6,510
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $8,901
at March 31, 1999 and $11,513 at September 30, 1998) 8,783 11,177
Investment securities available for sale, at fair value 67,849 80,979
Loans receivable, net of allowance for loan losses of $654
at March 31, 1999 and $591 at September 30, 1998 458,644 425,608
Accrued interest receivable 3,486 3,547
Real estate in foreclosure 259 131
Premises and equipment 4,279 4,401
Deposit base intangible 49 66
Other assets 1,104 1,169
------- -------
$ 555,227 513,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 334,906 330,670
Borrowed funds 169,200 121,400
Advance payments by borrowers for taxes and insurance 2,893 6,919
Other liabilities 5,775 5,977
------- -------
Total liabilities 512,774 464,966
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; 2,268,746 and 2,589,784 shares
outstanding at March 31, 1999 and September 30, 1998 38 38
Additional paid-in capital 38,313 38,117
Retained earnings, substantially restricted 32,035 30,646
Treasury stock, at cost (1,513,604 and 1,192,566 shares
at March 31, 1999 and September 30, 1998, respectively) (26,739) (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 (356) 340
------- -------
TOTAL STOCKHOLDERS' EQUITY 42,453 48,597
Commitments and contingencies
$ 555,227 513,563
======= =======
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 Six Months ended
March 31, March 31,
1999 1998 1999 1998
-------------------- -----------------
(unaudited)
Interest Income:
Loans receivable $ 8,112 7,425 16,049 14,901
Investment securities 1,239 1,206 2,369 2,487
Mortgage-backed securities 164 272 348 561
Interest earning deposits 9 18 27 46
Federal funds sold 1 2 2 12
Investment in mutual funds - - - 17
------ ------ ------ ------
9,525 8,923 18,795 18,024
Interest Expense:
Deposits 3,622 3,977 7,487 8,087
Borrowed funds 2,058 1,327 3,833 2,785
------ ------ ------ ------
5,680 5,304 11,320 10,872
Net interest income before provision
for loan losses 3,845 3,619 7,475 7,152
Provision for loan losses 15 15 40 61
------ ------ ------ ------
Net interest income after provision
for loan losses 3,830 3,604 7,435 7,091
Non-Interest Income:
Fees and commissions 94 79 190 169
Insurance and annuity commissions 111 156 264 336
Other 12 15 25 29
------ ------ ------ ------
217 250 479 534
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,440 1,466 2,861 2,807
Office occupancy and equipment 394 307 759 598
Data processing 109 125 243 252
Advertising and promotions 105 40 205 152
Federal deposit insurance premiums 52 55 104 109
Other 343 350 680 634
Amortization of intangible 8 11 17 22
------ ------ ------ ------
2,451 2,354 4,869 4,574
------ ------ ------ ------
Income before income taxes 1,596 1,500 3,045 3,051
Income tax expense 602 540 1,142 1,114
------ ------ ------ ------
Net income $ 994 960 1,903 1,937
====== ====== ====== ======
Earnings per share - basic $ 0.45 0.36 0.83 0.72
Earnings per share - diluted $ 0.42 0.34 0.78 0.68
====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
Six months ended March 31, 1999 and 1998
Unrealized
Gain (Loss)
Common Common on 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, 1997 $38 37,494 27,939 (13,855) (1,662) (471) 134 $49,617
Net income - - 1,937 - - - - 1,937
Cash dividends ($.18 per
share) - - (506) - - - - (506)
Amortization of award of
BRRP's stock - - - - - 131 - 131
Cost of ESOP shares released - - - - 570 - - 570
Exercise of stock options
and reissuance of treasury
shares (26,552 shares) - (106) - 372 - - - 266
Tax benefit related to
stock options exercised - 39 - - - - - 39
Market adjustment for
committed ESOP shares - 298 - - - - - 298
Change in accumulated other
comprehensive income - - - - - - (108) (108)
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 1998 $38 37,725 29,370 (13,483) (1,092) (340) 26 $52,244
=== ====== ======= ====== ====== ===== ==== =======
Balance at
September 30, 1998 $38 38,117 30,646 (19,210) (1,092) (242) 340 $48,597
Net income - - 1,903 - - - - 1,903
Purchase of treasury stock
(82,030 shares) - - - (7,803) - - - (7,803)
Cash dividends ($.21 per
share) - - (514) - - - - (514)
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 (15,998 shares) - (109) - 274 - - - 165
Tax benefit related to
stock options exercised - 41 - - - - - 41
Market adjustment for
committed ESOP shares - 264 - - - - - 264
Change in accumulated other
comprehensive income - - - - - - (696) (696)
--- ------ ------- ------ ------ ----- ---- ------
Balance at March 31, 1999 $38 38,313 32,035 (26,739) (632) (206) (356) $42,453
=== ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six months ended March 31, 1999 1998
------ ------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,903 1,937
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 244 177
Deferred income taxes 41 -
Provision for loan losses 40 61
Net amortization and accretion of premiums and discounts (18) (3)
Amortization of cost of stock benefit plans 36 131
Principal payment on ESOP loan 460 570
Market adjustment for committed ESOP shares 264 298
Deferred loan fees, net of amortization (207) (35)
Amortization of deposit base intangible 17 22
Proceeds from sale of real estate owned 147 -
Decrease in accrued interest receivable 61 315
Decrease (increase)in other assets 75 (10)
Increase (decrease in other liabilities 210 (770)
------ ------
Net cash provided by operating activities 3,273 2,693
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 20,000 26,023
Purchase of investment securities available for sale (29,957) (19,980)
Purchase of Federal Home Loan Bank of Chicago stock (1,950) -
Loans originated for investment (102,674) (57,643)
Purchase of premises and equipment (122) (515)
Principal repayments collected on loans receivable 69,519 55,576
Principal repayments collected on investment securities - 2,092
Principal repayments collected on mortgage-backed securities 2,392 1,967
------ ------
Net cash provided by(used in) investing activities (42,792) 7,520
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 4,236 7,002
Proceed from (repayments of) FHLB advances 47,800 (20,700)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance (4,026) 611
Purchase of treasury stock (7,803) -
Payment of common stock dividends (514) (506)
Proceeds from exercise of stock options 165 305
------ ------
Net cash provided by (used in) financing activities 39,858 (13,288)
------ ------
Net change in cash and cash equivalents 339 (3,075)
Cash and cash equivalents at beginning of period 1,975 6,004
------ ------
Cash and cash equivalents at end of period $ 2,314 2,929
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 11,064 10,892
Income taxes 1,150 1,290
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 262 1,032
====== ======
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included.
The results of operations and other data for the six months ended March 31,
1999 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 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 six months ended March 31,
1999 and 1998 has been calculated according to the guidelines of Statement 128.
Diluted earnings per share for the three months ended March 31, 1999 and 1998
are computed by dividing net income by the weighted average number of shares of
common stock and potential common stock outstanding for the periods which were
2,349,196 and 2,863,747, respectively. Diluted earnings per share of common
stock for the six months ended March 31, 1999 and 1998 has been determined by
dividing net income by 2,427,812 and 2,852,615, 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.
6
(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
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 Six Months ended
March 31, March 31,
1999 1998 1999 1998
-------------------- -----------------
Net Income $ 994 960 1,903 1,937
Comprehensive income - net of taxes
Unrealized loss on securities available
for sale arising during the period (331) 11 (696) (108)
----- ----- ------ ------
$ 663 971 1,207 1,829
===== ===== ====== ======
(4) COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Bank had outstanding commitments to originate loans of
$11.4 million, of which $5.8 million were fixed rate, with rates ranging from
6.375% to 7.875%, and $5.6 million were adjustable rate commitments.
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.
7
The Company reported earnings for the second fiscal quarter ended March 31,
1999 of $994,000, compared with $960,000 for the same quarter a year ago, an
increase of 3.6%. Earnings per diluted share for the quarter and six months
ended were $0.42 and $0.78 per share, in 1999, an increase from $0.34 and $.068
in 1998, respectively.
The Company also announced that its board of directors declared a quarterly
dividend of $0.11 per share, payable May 14, 1999 to shareholders of record as
of April 30, 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 COMPANY'S STATE OF READINESS On Sunday, February 7, 1999, the Company
conducted its second full-scale test of its transaction processing systems
utilizing Year 2000 dates. 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.
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
8
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 the Company's 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.
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
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
9
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 March 31,
1999, the Bank was in compliance with OTS liquidity requirements, with a
liquidity ratio of 17.79%.
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 $3.3 million for the six months ended March 31, 1999. The
Company used $42.8 million in investing activities for the six month period
ended March 31, 1999. Record loan originations of $102.7 million accounts for
the significant cash usage. Maturing investment securities and principal
repayments received from loans and mortgage-backed securities amounted to $91.9
million. Net cash provided by financing activities amounted to $39.9 million
for the six months ended March 31, 1999. The Company increased its borrowings
from the FHLB by $47.8 million during the six months ended March 31, 1999.
Financing activities used $4.0 million to pay the first installment of real
estate taxes from advance payments for borrowers for taxes and insurance.
At March 31, 1999, the Bank had outstanding loan commitments of $11.4 million.
Management anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit scheduled to mature in one
year or less from March 31, 1999 totaled $135.2 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, July, 1998, 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 March 31, 1999 was 7.22%. The Tier 1
Capital ratio was 7.22%, the Tier 1 Risk-based ratio was 15.62%, and the Total
Risk-Based Capital ratio was 15.37%.
CHANGES IN FINANCIAL CONDITION
Total assets at March 31, 1999 were $555.2 million, compared to $513.6 million
10
at September 30, 1998. Loans receivable, net of allowance for loan losses,
grew $33.0 million, primarily as a result of record loan originations of $102.7
million. The Company continues to offer various loan products, and prices them
competitively. The Company's total loan originations for the six months ended
March 31, 1999 increased 78.1% or $45.0 million above the 1998 six month
originations of $57.6 million.
Deposits remained stable, at $334.9 million at March 31, 1999, up slightly from
$330.7 million at September 30, 1998. FHLB advances increased 39.4% from $121.4
million at September 30, 1998 to $169.2 million at March 31, 1999. Additional
borrowings were necessary as the result of significant new loan growth.
Book value per share on March 31, 1999 was $18.71, compared with $18.76 at
September 30, 1998. The decrease was primarily the result of the Company'
ongoing stock repurchase plan.
ASSET QUALITY
As of March 31, 1999, the Company had non-performing assets of $387,000. The
Bank's non-performing assets at March 31, 1999 included two single-family
residences held in foreclosed real estate owned by the Bank, as well as
non-performing loans. Classified loans of $128,000 were categorized as
substandard, consisting of three residential mortgage loans and one consumer
loans. There were no assets classified as doubtful.
The decrease of $575,000 in non-performing assets from September 30, 1998 to
March 31, 1999 resulted from management's ongoing monitoring and follow-up
procedures of delinquent customers. A review of the two foreclosed residential
properties has established that no specific allowances were necessary,
management does not expect any material losses from the non-performing loans.
STOCK REPURCHASE
As announced on November 18, 1998, the Company adopted a plan to repurchase up
to ten percent, or 240,000 shares, of its common stock as part of its ongoing
commitment to build value for Company stockholders. Through March 31, 1999,
175,400 shares had been repurchased at an average price of $24.48 per share.
As of April 23, 1999, there are 64,600 shares remaining to be repurchased in
this program.
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 March 31, Six Months Ended
1999 1998 March 31,1999
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
Interest-earning assets:
Loans receivable, net $444,497 8,112 7.30% 389,816 7,425 7.62% 435,134 16,049 7.38%
Mortgage-backed securities 9,297 164 7.06% 15,416 272 7.06% 9,872 348 7.05%
Interest-earning deposits 734 9 4.90% 1,363 18 5.28% 1,099 27 4.91%
Investment securities,
mutual funds, and
federal funds sold 76,182 1,240 6.51% 68,109 1,208 7.09% 71,591 2,371 6.62%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 530,710 9,525 7.18% 474,704 8,923 7.52% 517,696 18,795 7.26%
Non-interest earning
assets 13,339 12,872 14,738
------- ------ -------
Total assets $544,049 487,576 532,434
======= ======= =======
Interest-bearing liabilities:
Deposits:
Passbook & NOW accounts 151,522 1,366 3.61% 121,621 1,123 3.69% 148,680 2,795 3.76%
Money market account 17,509 168 3.84% 17,885 188 4.20% 17,393 344 3.96%
Certificate accounts 159,274 2,088 5.24% 184,781 2,666 5.77% 161,519 4,348 5.38%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total deposits 328,305 3,622 4.41% 324,287 3,977 4.91% 327,592 7,487 4.57%
Borrowed funds 154,612 2,058 5.32% 93,633 1,327 5.67% 140,832 3,833 5.44%
------- ----- ----- ------- ---- ----- ------- ----- -----
Total interest-bearing
liabilities 482,917 5,680 4.70% 417,920 5,304 5.08% 468,424 11,320 4.83%
Non-interest bearing
deposits 7,453 5,696 8,106
Other liabilities 10,116 11,254 10,527
------- ------ -------
Total liabilities 500,486 434,870 487,057
Stockholders' equity 43,563 52,706 45,377
------- ------ -------
Total liabilities and
stockholders' equity $544,049 487,576 532,434
======= ======= =======
Net interest
income/interest rate
spread (1) 3,845 2.47% 3,619 2.44% 7,475 2.43%
Net earning assets/net
interest margin (2) $ 47,793 2.90% 56,784 3.05% 49,272 2.89%
Ratio of interest-earning
assets to interest-bearing
liabilities 1.10x 1.14x 1.11x
(1) Interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
(3) Average yields and costs for the three and six month periods are annual-
ized for presentation purposes.
12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 1998
GENERAL. Net income for the three months ended March 31, 1999 was $994,000, an
increase of $34,000 from the net income of $960,000 for the three months ended
March 31, 1998. The 3.6% increase in earnings for the quarter was primarily a
result of increased net interest income from a greater volume of loans
receivable.
INTEREST INCOME. Income from loans receivable, the chief contributor to
interest income, was $8.1 million for the quarter ended March 31, 1999, up
9.3% from the prior year. The average balance of loans increased 14.0% to
$444.5 million compared to the average for the second quarter a year ago of
$389.8 million. The yield on loans increased 32 basis points. The increase in
loan interest income was a result of higher loan volumes. Interest income from
the investment portfolio increased $33,000, which was the result of the change
in the composition of the portfolio. Gross interest income totaled $9.5
million for the three month ended March 31, 1999, up 6.8%, or 602,000 from $8.9
million for the quarter ended March 31, 1998.
INTEREST EXPENSE. Interest expense from deposits for the quarter decreased
$355,000, from $4.0 million the previous year to $3.6 million. The decrease was
a direct result of the 50 basis point decrease in the weighted average deposit
cost. Average interest bearing deposits increased only 1.2% to $328.3 million
for the three month period ended March 31, 1999. The Company increased its
FHLB of Chicago advances during the quarter to fund high loan volume. The
average borrowings for the quarter to quarter comparison increased $61.0
million to $154.6 million for the three month period ended March 31, 1999. The
weighted average cost decreased 35 basis points, causing the interest expense
on borrowed funds to increase $731,000 to $1.3 million.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses in
both the 1999 and 1998 second quarters of $15,000. The provision for loan
losses reflects management's on-going evaluation of losses on loans and the
adequacy of the allowance for loan losses based on all pertinent
considerations, including current market conditions. As of March 31, 1999, the
cumulative allowance for loan losses was $654,000. The ratio of the allowance
for loan losses to net loans receivable remained at .14% at March 31, 1999 and
September 30, 1999.
NON-INTEREST INCOME. Non-interest income decreased 13.2% to $217,000 for the
second quarter. Insurance and annuity commissions produced $111,000, a $45,000
decrease compared to the same period in 1998 while fees and commissions
produced a modest gain from the previous quarter.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended both
March 31, 1999 and 1998 totaled $2.4 million. The largest increase was
depreciation expenses relating to the Bank's new computer hardware and
software, which were upgraded in 1998.
INCOME TAXES. Income taxes increased $62,000 for the three months ended March
31, 1999 to $602,000 compared to $540,000 for the prior year due to decreased
taxable income.
13
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND
MARCH 31, 1998
GENERAL. Net income for the six months ended March 31, 1999 was flat at $1.9
million compared to the six months ended March 31, 1997. This is due to the
increase in net interest income offset by the decreased non-interest income
combined with the increase in non-interest expense.
INTEREST INCOME. Interest income increase 4.3% to $18.8 million for the six
months ended March 31, 1999, compared to $18.0 million for the six months ended
March 31, 1998. Interest income from loans receivable increased $1.1 million,
or 7.7% from $14.9 million to $16.1 million for the six months ended March 31,
1999. The average loans outstanding increased 11.8%, or $45.9 million to
$435.1 million from $389.3 million for the six months ended March 31, 1998.
The average balance of the investment portfolio remained at approximately $71.6
million. Due to maturities and new purchases the weighted average yield
dropped 56 basis points to 6.62%.
INTEREST EXPENSE. Interest expense on deposits amounted to $7.5 million, a
$600,000 decrease from the March 31, 1998 expense of $8.1 million. Average
interest-bearing deposits increased $3.4 million, or 1.5%, to $327.6 million
for the six month period in 1999 compared to 1998. The weighted average cost
of deposits decreased 42 basis points due to the change in the composition of
the deposit base. Average certificates of deposit decreased$26.4 million,
while transaction accounts increased $29.8 million. Average borrowed funds
increased $43.0 million to $140.8 million for the six month period ended March
31, 1999. The weighted average cost decreased 25 basis points.
PROVISION FOR LOAN LOSSES. The Company recorded a $40,000 provision for loan
losses in the first six months of fiscal 1999, compared to a $61,000 provision
in 1998. The adequacy of the loan loss provision is analyzed on a monthly
basis. Management considers the changes in the type and volume of the loan
portfolio, the specific delinquent loans, the historical loss experience, and
the current economic trends, as well as loan growth and other factors deemed
appropriate when evaluating the allowance for loan losses.
NON-INTEREST INCOME. Non-interest income decreased $55,000 to $479,000 for the
six months ended March 31, 1999 from $534,000 for the same period in 1998.
Included in non-interest income are commissions from INVEST financial
corporation.
NON-INTEREST EXPENSE. Non-interest expense for 1999 totaled $4.9 million, an
increase of $295,000 or 6.5%, from $4.6 million for the six months ended March
31, 1998. The increase can be attributed to slight increases in salaries and
employee benefits, office occupancy and equipment, and other expenses. The
increase in occupancy and equipment expense represents the increased
depreciation of the upgraded computer system. The Company's ratio of operating
expenses to average assets reflected continued improvement in the first half of
fiscal 1999, falling to 1.83%, from 1.87% the previous year.
INCOME TAXES. Income taxes remained flat at $1.1 million for the six months
ended March 31, 1999 and 1998.
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
(a) The Company held its Annual Meeting of Stockholders on
January 27, 1999.
(b) The directors elected at the Annual Meeting are as follows:
For Withheld
Patrick J. Flynn 2,105,595 16,521
Raymond J. Horvat 2,105,295 16,821
The directors whose term of office continued after the Annual
Meeting are as follows:
Thomas E. Bentel
Paul Bielat
Bonnie Stolarczyk
Raymond S. Stolarczyk
(c) A brief description of each other matter voted on and the
number votes cast:
(i) Ratification of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending September 30, 1999.
For Against Abstain
2,098,805 8,058 15,253
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: April 26, 1999 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: April 26, 1999 /s/ JAMES R. KINNEY
-----------------------------
James R. KINNEY
Sr. V. P. and Chief Financial Officer