UNITED STATES
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 period ended June 30, 2001
-------------
Commission File Number: 001-15089
Fidelity BancShares (N.C.), Inc.
(Exact name of Registrant as specified in its charter)
Delaware 56-1586543
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 South Main Street, Fuquay-Varina, North Carolina 27526
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(919) 552-2242
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past one hundred eighty-one days.
Yes [X] No [ ]
Common Stock, $25 Par Value - 28,026 shares
---------------------------------------------------------------
(Number of shares outstanding, by class, as of August 14, 2001)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
----------------- ----------------- ----------------
2001 2000 2000
----------------- ----------------- ----------------
(unaudited) (unaudited)
Assets
Cash and due from banks.................................................... $ 39,909,797 $ 35,657,872 $ 50,118,929
Interest bearing deposits in other banks................................... 57,444,366 27,178,095 6,343,765
Federal funds sold......................................................... 60,800,000 28,850,000 6,500,000
----------------- ----------------- ----------------
Total cash and cash equivalents.................................... 158,154,163 91,685,967 62,962,694
----------------- ----------------- ----------------
Investment securities:
Held to maturity (estimated fair value of $110,887,388,
$142,796,950, and $142,364,430, respectively)...................... 109,975,854 142,904,792 144,777,383
Available for sale (cost of $3,644,668 , $2,644,602, and $2,644,602).. 12,694,789 8,799,080 6,543,197
----------------- ----------------- ----------------
Total investment securities........................................ 122,670,643 151,703,872 151,320,580
----------------- ----------------- ----------------
Loans...................................................................... 631,041,705 614,817,472 592,821,488
Allowance for loan losses.................................................. (8,606,851) (7,297,833) (6,028,024)
----------------- ----------------- ----------------
Loans, net......................................................... 622,434,854 607,519,639 586,793,464
----------------- ----------------- ----------------
Federal Home Loan Bank of Atlanta stock, at cost........................... 2,309,400 2,169,700 2,169,700
Premises and equipment, net................................................ 34,685,348 34,749,653 34,799,345
Accrued interest receivable................................................ 4,735,676 5,961,767 5,526,576
Intangible assets.......................................................... 18,072,079 12,777,041 13,337,580
Other assets............................................................... 1,787,669 1,102,807 1,530,447
----------------- ----------------- ----------------
Total assets....................................................... $964,849,832 $ 907,670,446 $ 858,440,386
================= ================= ================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand deposits................................... $130,108,033 $ 110,191,311 $ 113,034,667
Savings and interest-bearing demand deposits.......................... 278,266,199 288,374,723 264,671,996
Time deposits......................................................... 411,509,026 373,953,911 354,503,463
----------------- ----------------- ----------------
Total deposits..................................................... 819,883,258 772,519,945 732,210,126
Short-term borrowings...................................................... 28,633,244 26,641,586 23,351,627
Long-term borrowings....................................................... 23,000,000 23,000,000 23,000,000
Accrued interest payable................................................... 7,652,632 6,306,181 5,483,033
Other liabilities.......................................................... 3,226,664 1,689,965 1,616,290
----------------- ----------------- ----------------
Total liabilities.................................................. 882,395,798 830,157,677 785,661,076
----------------- ----------------- ----------------
Shareholders' equity:
Common stock ($25 par value; 29,200 shares authorized; 28,070,
28,070, and 28,170 shares issued and outstanding, respectively).... 701,750 701,750 704,250
Surplus............................................................... 6,176,362 6,176,362 6,198,366
Accumulated other comprehensive income................................ 5,475,323 3,688,615 2,256,126
Retained earnings..................................................... 70,100,599 66,946,042 63,620,568
----------------- ----------------- ----------------
Total shareholders' equity......................................... 82,454,034 77,512,769 72,779,310
----------------- ----------------- ----------------
Total liabilities and shareholders' equity......................... $964,849,832 $ 907,670,446 $ 858,440,386
================= ================= ===============
See accompanying notes to consolidated financial statements.
2
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30, Six months ended June 30,
---------------------------------------- ----------------------------------------
2001 2000 2001 2000
------------------ ----------------- ------------------ ------------------
(unaudited) (unaudited)
Interest income:
Interest and fees on loans............. $ 14,199,407 $ 13,861,431 $ 28,887,796 $ 26,886,128
Interest and dividends on
investment securities:
Non taxable interest income......... - 19,050 - 38,100
Taxable interest income............. 1,983,952 2,371,541 4,430,445 4,856,613
Dividend income..................... 74,267 96,450 150,046 137,532
Interest on federal funds sold......... 699,375 187,219 971,944 341,062
------------------ ----------------- ------------------ ------------------
Total interest income............ 16,957,001 16,535,691 34,440,231 32,259,435
------------------ ----------------- ------------------ ------------------
Interest expense:
Deposits............................... 7,139,879 6,597,530 14,631,439 12,841,187
Short-term borrowings.................. 219,501 252,735 464,967 478,460
Long-term borrowings................... 488,750 488,750 977,500 977,500
------------------ ----------------- ------------------ ------------------
Total interest expense........... 7,848,130 7,339,015 16,073,906 14,297,147
------------------ ----------------- ------------------ ------------------
Net interest income.............. 9,108,871 9,196,676 18,366,325 # 17,962,288
Provision for loan losses................... 750,000 750,000 1,500,000 1,125,000
------------------ ----------------- ------------------ ------------------
Net interest income after
provision for loan losses....... 8,358,871 8,446,676 16,866,325 16,837,288
------------------ ----------------- ------------------ ------------------
Noninterest income:
Service charges on deposit accounts.... 1,562,994 1,053,546 2,805,064 1,915,446
Other service charges and fees......... 813,873 672,523 1,554,130 1,206,110
Other income........................... 25,409 162,225 47,595 169,904
Gain on exchange of marketable
equity securities..................... - - 458,395 -
Gain on sale of marketable
equity securities..................... 43,083 - 43,083 -
------------------ ----------------- ------------------ ------------------
Total noninterest income......... 2,445,359 1,888,294 4,908,267 3,291,460
------------------ ----------------- ------------------ ------------------
Noninterest expenses:
Salaries and employee benefits......... 4,244,581 3,798,245 8,428,941 7,452,005
Occupancy and equipment................ 1,195,216 1,180,354 2,396,101 2,318,205
Data processing........................ 789,888 632,717 1,500,917 1,214,918
Amortization of intangibles............ 380,528 280,270 727,636 560,539
Other expense.......................... 1,303,529 1,123,288 2,564,812 2,141,817
Impairment loss on fixed assets........ 173,317 - 477,972 -
------------------ ----------------- ------------------ ------------------
Total noninterest expense........ 8,087,059 7,014,874 16,096,380 13,687,484
------------------ ----------------- ------------------ ------------------
Net income before income taxes... 2,717,171 3,320,096 5,678,212 6,441,264
Income tax expense.......................... 993,013 1,210,725 2,074,518 2,340,088
------------------ ----------------- ------------------ ------------------
Net income....................... $ 1,724,158 $ 2,109,371 $ 3,603,694 $ 4,101,176
================== ================= ================== ==================
Per share information:
Net income............................. $ 61.42 $ 74.88 $ 128.38 $ 145.59
Cash dividends declared................ $ 8.00 $ 8.00 $ 16.00 $ 16.00
Weighted average shares
outstanding........................... 28,070 28,170 $ 28,070 28,170
See accompanying notes to consolidated financial statements.
3
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
Accumulated
Common Stock other Total
---------------------------- comprehensive Retained Comprehensive shareholders'
Shares Amount Surplus income earnings income equity
--------- -------- ----------- ------------ ------------- -------------- -------------
Balance December 31, 1999......... 28,170 $704,250 $ 6,198,366 $ 3,021,971 $ 59,970,112 $ 69,894,699
------- ---------- ------------ ------------ ------------- -------------
Net income.................... - - - - 4,101,176 $ 4,101,176 4,101,176
Cash dividends
($16.00 per share).......... - - - - (450,720) - (450,720)
Unrealized loss on securities
available for sale, net of
deferred taxes of $440,210.. - - - (765,845) - (765,845) (765,845)
------- ---------- ------------ ------------ ------------- ------------- -------------
Comprehensive income $ 3,335,331
=============
Balance June 30, 2000............. 28,170 $704,250 $ 6,198,366 $ 2,256,126 $63,620,568 $ 72,779,310
======= ========== ============ ============ ============= =============
Balance December 31, 2000......... 28,070 $ 701,750 $ 6,176,362 $ 3,688,615 $66,946,042 $ 77,512,769
------- ---------- ------------ ------------ ------------- -------------
Net income.................... - - - - 3,603,694 $3,603,694 3,603,694
Cash dividends
($16.00 per share).......... - - - - (449,137) - (449,137)
Unrealized gain on securities
available for sale, net of
deferred taxes of $1,108,933 - - - 1,786,708 - 1,786,708 1,786,708
------- ---------- ------------ ------------ ------------- ------------- -------------
Comprehensive income $5,390,402
=============
Balance June 30, 2001............. 28,070 $ 701,750 $ 6,176,362 $5,475,323 $ 70,100,599 $ 82,454,034
======= ========== ============ ============ ============= ==============
See accompanying notes to consolidated financial statements.
4
FIDELITY BANCSHARES (N.C.), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended June 30,
---------------------------------------
2001 2000
----------------- ------------------
Cash flows from operating activities:
Net income......................................................................... $ 3,603,694 $ 4,101,176
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................................... 1,934,004 1,787,459
Accretion on investment securities.............................................. (301,210) (118,369)
(Gain) Loss on disposition of premises and equipment............................ (182,858) 583
Impairment loss on fixed assets................................................ 477,972 -
Provision for loan losses....................................................... 1,500,000 1,125,000
Origination of loans held for sale.............................................. (5,972,250) (2,281,700)
Proceeds from sales of loans held for sale...................................... 6,004,882 2,293,949
Gain on sales of loans held for sale............................................ (32,632) (12,249)
Gain on exchange of marketable equity securities................................ (458,395) -
Gain on sale of marketable equity securities.................................... (43,083) -
Proceeds from sales of other real estate owned.................................. 100,003 -
(Gain) Loss on other real estate................................................ - (138,235)
Decrease (increase) in accrued interest receivable.............................. 1,226,091 (702,309)
(Increase ) decrease in other assets, net....................................... (369,861) 90,544
Increase (decrease) in other liabilities, net................................... 427,765 (420,470)
Increase in accrued interest payable............................................ 1,346,451 753,248
----------------- ------------------
Net cash provided by operating activities.................................... 9,260,573 6,478,627
----------------- ------------------
Cash flows from investing activities:
Purchase of securities held to maturity............................................ (89,770,124) (39,653,069)
Purchase of securities available for sale.......................................... (1,000,066) -
Proceeds from maturities and issuer calls of securities held to maturity........... 123,000,272 30,000,499
Proceeds from sale of securities availble for sale................................. 501,478 -
Purchase of FHLB of Atlanta stock.................................................. (139,700) (110,400)
Proceeds from sale of assets acquired in settlement of loans....................... - 368,096
Net increase in loans.............................................................. (12,954,009) (41,911,968)
Purchases of premises and equipment................................................ (544,755) (3,191,906)
Net cash received on branch purchases.............................................. 38,694,108 -
----------------- ------------------
Net cash provided (used) by investing activities............................. 57,787,204 (54,498,748)
----------------- ------------------
Cash flows from financing activities:
Net (decrease )increase in deposits................................................ (2,122,102) 16,196,500
Net increase in short-term borrowings.............................................. 1,991,658 379,076
Cash dividends paid................................................................ (449,137) (450,720)
-----------------
Net cash (used) provided by financing activities............................. (579,581) 16,124,856
----------------- ------------------
Net increase (decrease) in cash and cash equivalents.................................... 66,468,196 (31,895,265)
Cash and cash equivalents at beginning of year.......................................... 91,685,967 94,857,959
----------------- ------------------
Cash and cash equivalents at end of year................................................ $158,154,163 $ 62,962,694
================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest........................................... $ 14,727,455 $ 13,543,899
================= ==================
Cash paid during the period for income taxes....................................... $ 2,367,160 $ 2,569,164
================= ==================
Supplemental disclosure of noncash financing and investing activities:
Unrealized gains (losses) on available-for-sale securities, net of deferred tax
benefit (expense) of ($1,108,933) and $440,210, respectively.................... $ 1,786,708 $ (765,845)
================= ==================
Foreclosed loans transferred to other real estate....................................... $ 415,000 $ -
================= ==================
See accompanying notes to consolidated financial statements.
5
Fidelity BancShares (N.C.), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
Fidelity BancShares (N.C.), Inc. ("BancShares") is the holding company for The
Fidelity Bank (the "Bank"), which operates 64 branches primarily in central
North Carolina, and FIDBANK Capital Trust I (the "Trust"), a statutory business
trust created under the laws of the State of Delaware that issued $23.0 million
of 8.50% Capital Securities (the "Capital Securities") in June 1999 maturing in
2029. The Bank also has two wholly owned subsidiaries, Fidelity Properties,
Inc. and TFB Financial Services.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements.
In June 1998, The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
BancShares adopted the provisions of SFAS No. 133 on January 1, 2001, but, as a
result of BancShares' limited use of derivative instruments, the adoption of
SFAS No. 133 did not have a material impact on its consolidated financial
statements.
In September 2000, FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a replacement
of FASB Statement No. 125." SFAS No. 140 supersedes and replaces the guidance
in FASB Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. Statement No. 140 revises the
standards for accounting for securization and other transfers of financial
assets and collateral and requires certain disclosures, but carries over most of
the provisions of Statement No. 125 without reconsideration. Statement No. 140
also is effective for transfers of financial assets occurring after March 31,
2001; it is applied prospectively. Statement No. 140 also is effective for
recognition and reclassification of collateral and for disclosures relating to
securization transactions and collateral in financial statements for fiscal
years ended after December 15, 2000. BancShares adopted the required provisions
of SFAS No. 140 on April 1, 2001 and December 31, 2000, respectively. The
adoption of SFAS No. 140 had no impact on BancShares consolidated financial
statements.
On July 20, 2001, The Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations"; and Statement No. 142, "Goodwill
and Other Intangible Assets". These statements are effective September 1, 2001.
At this time, Bancshares has not determined what effect that the adoption of
SFAS No. 141 and 142 will have on the consolidated financial statements.
In the opinion of management, the consolidated financial statements contain all
material adjustments necessary to present fairly the consolidated financial
position of BancShares as of and for each of the periods presented, and all such
adjustments are of a normal recurring nature. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
These financial statements should be read in conjunction with financial
statements and notes included in Fidelity BancShares (N.C.), Inc.'s Form 10K
filed with the Securities and Exchange Commission. Certain amounts for prior
periods have been reclassified to conform with statement presentations for 2001.
However, the reclassifications have no effect on shareholders' equity or net
income as previously reported.
Note 2. Net Income Per Share
Net income per share has been computed by dividing net income by the weighted
average number of shares outstanding during the period. For all periods
presented, BancShares had no potential dilutive common stock.
6
Note 3. Allowance for Loan Losses
A summary of the allowance for loan losses follows:
(Unaudited)
Six months ended June 30,
-------------------------
2001 2000
------------ -----------
Balance at beginning of year......... $7,297,833 $5,141,647
Provision for loan losses....... 1,500,000 1,125,000
Loans charged off............... (787,112) (932,687)
Loan recoveries................. 596,130 694,064
---------- ----------
Balance at end of the period......... $8,606,851 $6,028,024
========== ==========
Note 4. Long Term Borrowings
The $23.0 million long-term obligations at June 30, 2001 are Capital Trust
Securities of the Trust. These long-term obligations, which qualify as Tier 1
Capital for BancShares, bear interest at 8.50% and mature in 2029. BancShares
may redeem the long-term obligations in whole or in part on or after June 30,
2004. The sole asset of the Trust is $23.0 million of 8.50% Junior Subordinated
Debentures of BancShares due 2029. BancShares has entered into a guaranty
agreement which, when taken together with its obligations under the trust
agreement under which the Trust exists, the junior subordinated debentures, and
the indenture under which the debentures were issued, provides a full and
unconditional guarantee on a subordinated basis by BancShares of the Trust's
payment of distributions and other payments on the capital securities.
Note 5. Branch Acquisitions
In February 2001, BancShares acquired the Mebane, Rockingham and Yanceyville,
North Carolina branches of First Union National Bank. This acquisition was
accounted for as a purchase, and, therefore the results of operations prior to
purchase of the branches are not included in the consolidated financial
statements. The combined loans and deposits acquired were $3.9 million and
$49.5 million, respectively, and the purchase included $6.0 million in
intangible assets.
Note 6. Gain on Marketable Equity Securities
During the first quarter of 2001, BancShares recognized a nonrecurring
securities gain of $458,395. This gain was recognized as a result of a business
combination involving a company in which BancShares had an equity interest.
During the second quarter of 2001, BancShares recognized a nonrecurring
securities gain of $43,083 when the equity interest received in the business
combination was sold.
Note 7. Impairment Loss on Fixed Assets
In April 2001, BancShares analyzed the results of operations for two branches
through the first three months taking in consideration recent economic
conditions and the performance of these branches during the first quarter.
BancShares concluded that the carrying value of these branches was impaired and
therefore recorded an impairment loss of $304,656 to reduce the carrying value
of these branches to fair value. The fixed assets consisted primarily of
leasehold improvements, which are deemed to have very minimal fair value. This
impairment charge was recognized in the first quarter and the branches were
considered assets to be held and used. In late April 2001, the Board of
Directors BancShares approved the closing of the two branches in the second and
third quarters of 2001. BancShares recorded an additional charge of $173,000 in
the second quarter, which is primarily related to the remaining lease payments
and costs to close these branches.
Note 8. Related Parties
BancShares has entered into various service contracts with another bank holding
company (the "Corporation") and its subsidiary. The Corporation has two
significant shareholders, who also are significant shareholders of BancShares.
The first significant shareholder at June 30, 2001, beneficially owned 11,155
shares, or 39.74%, of BancShares' outstanding common stock. At the same date,
the second significant shareholder beneficially owned 1,696 shares, or 6.04%, of
BancShares' outstanding common stock.
These two significant shareholders are directors and executive officers of the
Corporation and at June 30, 2001, beneficially owned 2,527,814 shares, or
28.68%, and 1,452,494 shares, or 16.48%, of the Corporation's outstanding Class
A common stock, and 649,188 shares, or 38.26%, and 199,052 shares, or 11.73%,
7
of the Corporation's outstanding Class B common stock. The above totals include
478,728 Class A common shares, or 5.43%, and 104,644 Class B Common shares, or
6.17%, that are considered to be beneficially owned by both of the shareholders
and, therefore, are included in each of their totals.
The following table lists the various charges paid to the Corporation:
(Dollars in thousands) (Unaudited)
Six Months Ended June 30, 2001
--------------------------------------------
2001 2000
---------------- ------------
Data and item processing..................... $1,542 $1,316
Forms, supplies and equipment................ 159 190
Trustee for employee benefit plans........... 494 500
Other services (refunds)..................... - (84)
---------------- ------------
$2,195 $1,922
================ ============
8
TABLE 1.
Financial Summary
2001 2000 Six months ended
-------------------------- ----------------------------------- June 30,
Second First Fourth Third Second ------------------------
Quarter Quarter Quarter Quarter Quarter 2001 2000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Summary of Operations
Interest income................. $ 16,957 $ 17,483 $ 17,748 $ 17,039 $ 16,536 $ 34,440 $ 32,260
Interest expense................ 7,848 8,226 8,304 7,873 7,339 16,074 14,297
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............. 9,109 9,257 9,444 9,166 9,197 18,366 17,963
Provision for loan losses....... 750 750 750 750 750 1,500 1,125
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 8,359 8,507 8,694 8,416 8,447 16,866 16,838
Noninterest income.............. 2,445 2,463 1,905 1,970 1,888 4,908 3,291
Noninterest expense............. 8,087 8,009 7,376 7,332 7,015 16,096 13,688
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes 2,717 2,961 3,223 3,054 3,320 5,678 6,441
Income taxes.................... 993 1,081 1,167 1,110 1,211 2,074 2,340
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income...................... $ 1,724 $ 1,880 $ 2,056 $ 1,944 $ 2,109 $ 3,604 $ 4,101
========== ========== ========== ========== ========== ========== ==========
Selected Period-End Balances
Total assets.................... $ 964,849 $ 959,336 $ 907,670 $ 871,166 $ 858,440 $ 964,849 $ 858,440
Investment securities and
federal funds sold............ 183,471 185,940 180,554 163,330 157,821 183,471 157,821
Loans, gross.................... 631,042 625,722 614,817 601,674 592,821 631,042 592,821
Interest earning assets......... 874,266 842,813 824,719 786,369 759,156 874,266 759,156
Deposits........................ 819,883 819,863 772,520 741,702 732,210 819,883 732,210
Interest bearing liabilities.... 741,408 737,166 711,971 670,337 665,527 741,408 665,527
Shareholders' equity............ 82,454 80,587 77,513 75,072 72,779 82,454 72,779
Common shares outstanding....... 28,070 28,070 28,070 28,070 28,170 28,070 28,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
Selected Average Balances
Total assets.................... $ 953,347 $ 911,741 $ 877,015 $ 853,104 $ 848,124 $ 932,659 $ 841,399
Investment securities and
federal funds sold............. 189,354 177,115 165,536 165,513 163,690 183,269 176,685
Loans, gross.................... 628,356 621,868 609,556 596,915 582,139 625,130 571,526
Interest earning assets......... 868,094 826,812 799,046 771,519 768,703 847,568 763,443
Deposits........................ 812,867 775,293 744,188 726,281 723,169 794,183 716,917
Interest bearing liabilities.... 736,776 709,705 679,141 661,843 659,648 723,315 657,867
Shareholders' equity............ 81,522 79,321 76,641 74,358 72,627 80,427 71,636
Common shares outstanding....... 28,070 28,070 28,070 28,119 28,170 28,070 28,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
Profitability Ratios
Rate of return (annualized) on:
Total assets................... 0.73% 0.84% 0.93% 0.91% 1.00% 0.78% 0.98%
Shareholders' equity........... 8.48 9.61 10.67 10.34 11.68 9.04 11.51
Dividend payout ratio........... 13.02 11.95 10.92 11.55 10.68 12.46 10.99
---------- ---------- ---------- ----------- ---------- ---------- ----------
Liquidity and Capital
Ratios (averages)
Loans to deposits............... 77.30% 80.21% 81.91% 82.19% 80.50% 78.71% 79.72%
Shareholders' equity to
total assets.................. 8.55 8.70 8.74 8.77 8.56 8.62 8.51
---------- ---------- ---------- ----------- ---------- ---------- ----------
Per Share of Common Stock
Net income...................... $ 61.42 $ 66.96 $ 73.24 $ 69.14 $ 74.88 $ 128.38 $ 145.59
Cash dividends.................. 8.00 8.00 8.00 8.00 8.00 16.00 16.00
Book value...................... 2,937.44 2,870.92 2,761.42 2,674.45 2,583.58 2,937.44 2,583.58
---------- ---------- ---------- ----------- ---------- ---------- ----------
9
TABLE 2.
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Year to date
2001 2000
---------------------------- ---------------------------- Increase (decrease) due to:
Interest Interest -----------------------------
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
Balance Expense Rate Balance Expense Rate Volume Rate Change
-------- ------- ---- -------- ------- ---- ------ ------- ------
ASSETS
Interest earning assets:
Loans....................... $625,130 $28,938 9.33% $571,526 $26,934 9.48% $2,504 $ (500) $2,004
Taxable investment
securities................. 129,896 3,555 5.52 155,990 4,455 5.74 (730) (170) (900)
Non taxable investment
securities................. - - - 2,000 60 6.03 (30) (30) (60)
Federal funds
sold...................... 42,892 972 4.57 11,639 341 5.89 812 (181) 631
Other investments........... 12,723 150 2.38 9,173 138 3.03 29 (17) 12
Interest bearing deposits
in other banks............. 36,927 875 4.78 13,115 402 6.16 647 (174) 473
-------- ------- ---- -------- ------- ---- ------ ------- ------
Total interest earning
assets...................... $847,568 $34,490 8.21% $763,443 $32,330 8.52% $3,232 $(1,072) $2,160
-------- ------- ---- -------- ------- ---- ------ ------- ------
Noninterest earning assets:
Cash and due from banks..... 33,384 28,609
Premises and equipment...... 34,834 34,189
Other assets................ 24,992 20,581
Reserve for loan losses..... (8,119) (5,423)
-------- --------
Total assets................. $932,659 $841,399
======== ========
LIABILITIES & EQUITY
Interest bearing
liabilities:
Demand deposits............ $106,473 $ 530 1.00% $105,602 $ 846 1.61% $ (41) $ (275) $ (316)
Savings deposits........... 167,428 2,405 2.90 152,253 2,656 3.51 319 (570) (251)
Time deposits.............. 401,376 11,696 5.88 354,972 9,339 5.29 1,287 1,070 2,357
Short-term borrowings...... 25,038 465 3.75 22,040 479 4.37 58 (72) (14)
Long-term borrowings....... 23,000 978 8.57 23,000 978 8.55 - - -
-------- ------- ---- -------- ------- ---- ------ ------- ------
Total interest bearing
liabilities................. $723,315 $16,074 4.48% $657,867 $14,298 4.37% $1,623 $ 153 $1,776
-------- ------- ---- -------- ------- ---- ------ ------- ------
Noninterest bearing
liabilities:
Demand deposits............ 118,906 104,090
Other liabilities.......... 10,011 7,806
Shareholders' equity....... 80,427 71,636
-------- --------
Total liabilities and
equity...................... $932,659 $841,399
======== ========
Interest rate spread......... 3.72% 4.15%
==== ====
Net interest income and net
interest margin............. $18,416 4.38% $18,032 4.75% $1,609 $(1,225) $ 384
======= ==== ======= ==== ====== ======= ======
10
TABLE 3.
Consolidated Taxable Equivalent Rate/Volume Variance Analysis - Second Quarter
2001 2000
---------------------------- ---------------------------- Increase (decrease) due to:
Interest Interest -----------------------------
Average Income/ Yield/ Average Income/ Yield/ Yield/ Total
Balance Expense Rate Balance Expense Rate Volume Rate Change
-------- ------- ---- -------- ------- ---- ------ ------- ------
ASSETS
Interest earning assets:
Loans..................... $628,356 $14,222 9.08 $582,139 $13,884 9.59% $1,074 $ (736) $ 338
Taxable investment
securities.............. 112,616 1,470 5.24 142,737 2,050 5.78 (413) (167) (580)
Non taxable investment
securities............... - - - 2,000 30 6.03 (15) (15) (30)
Federal funds sold........ 65,122 699 4.31 12,129 187 6.20 694 (182) 512
Other investments......... 13,925 74 2.13 8,994 96 4.29 26 (48) (22)
Cash and due from banks... 48,075 513 4.28 20,704 322 6.26 358 (167) 191
-------- ------- ---- -------- ------- ---- ------ ------- ------
Total interest earning
assets.................... $868,094 $16,978 7.84% $768,703 $16,569 8.67% $1,724 $(1,315) $ 409
-------- ------- ---- -------- ------- ---- ------ ------- ------
Noninterest earning assets:
Interest bearing deposits
in other banks........... 34,079 30,558
Premises and equipment.... 34,853 34,610
Other assets.............. 24,724 19,803
Reserve for loan losses... (8,403) (5,550)
-------- --------
Total assets............... $953,347 $848,124
======== ========
LIABILITIES & EQUITY
Interest bearing
liabilities:
Demand deposits.......... $105,667 $ 193 0.73% $102,847 $ 409 1.60% $ (26) $ (190) $ (216)
Savings deposits......... 172,235 1,088 2.53 158,923 1,362 3.45 119 (393) (274)
Time deposits............ 410,352 5,859 5.73 353,052 4,827 5.50 801 231 1,032
Short-term borrowings.... 25,522 220 3.46 21,826 253 4.66 35 (68) (33)
Long-term borrowings..... 23,000 488 8.51 23,000 488 8.53 - - -
-------- ------- ---- -------- ------- ---- ------ ------- ------
Total interest bearing
liabilities............... $736,776 $ 7,848 4.27% $659,648 $ 7,339 4.47% $ 929 $ (420) $ 509
-------- ------- ---- -------- ------- ---- ------ ------- ------
Noninterest bearing
liabilities:
Demand deposits.......... 124,613 108,347
Other liabilities........ 10,436 7,502
Shareholders' equity..... 81,522 72,627
-------- --------
Total liabilities and
equity.................... $953,347 $848,124
======== ========
Interest rate spread....... 3.57% 4.20%
==== ====
Net interest income and net
interest margin........... $ 9,130 4.22% $ 9,230 4.83% $ 795 $ (895) $ (100)
======= ==== ======= ==== ====== ======= ======
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
Management's discussion and analysis of earnings and related financial data
are presented to assist in understanding the financial condition and results of
operations of Fidelity BancShares (N.C.), Inc. and Subsidiaries ("BancShares").
This discussion and analysis should be read in conjunction with the unaudited
Consolidated Financial Statements and related notes presented within this
report. The focus of this discussion concerns BancShares' banking subsidiary,
The Fidelity Bank (the "Bank"), which operates 64 branches in North Carolina.
Financial Condition and Results of Operations.
Net Income. In the first six months of 2001, BancShares' net income
decreased $497,000 to $3.6 million from $4.1 million in the first six months of
2000, a decrease of 12.13%. Net income for the second quarter of 2001 decreased
$385,000 or 18.26% when compared to the same period of 2000. The decrease in
net income resulted primarily from increases in the provision for loan losses
and noninterest expense, which were only partially offset by growth in net
interest income and noninterest income. Net income for the second quarter of
2001 includes operations, not present in the second quarter of 2000, from three
branches which were acquired from First Union National Bank ("First Union")
during the first quarter of 2001. Loans and deposits acquired from First Union
were approximately $3.9 million and $49.5 million, respectively. The
acquisition resulted in BancShares recording an intangible asset of
approximately $6.0 million.
Net income per share for the first six months of 2001 was $128.38, a
decrease of $17.21 per share, or 11.82%, from $145.59 per share in 2000. For
the second quarter of 2001, net income per share was $61.42 a decrease of $13.46
or 17.98%, from $74.88 per share for the second quarter of 2000. Return on
average assets for the first six months of 2001 and 2000 was 0.78% and 0.98%,
respectively. For the second quarter of 2001 and 2000, return on average assets
was .73% and 1.00%, respectively. Return on average equity for first six
months of 2001 and 2000 was 9.04% and 11.51%, respectively. For the second
quarter of 2001 and 2000, return on equity was 8.48% and 11.68%. Various
profitability, liquidity and capital ratios are presented in Table 1. To
understand the changes and trends in interest-earning assets and interest-
bearing liabilities, refer to the average balance sheets and net interest income
analysis presented in Table 2.
Net Interest Income. The greatest portion of BancShares' earnings is from
net interest income, which is the difference between interest income on
interest-earning assets and interest paid on deposits and other interest-bearing
liabilities. The primary factors affecting net interest income are changes in
the volume and yields/rates on interest-earning assets and interest-bearing
liabilities, and the ability to respond to changes in interest rates through
asset/liability management. For the first six months of 2001, net interest
income was $18.4 million as compared to $18.0 million for the same period in
2000, an increase of $384,000 or 2.13%. Of the $384,000 increase in net
interest income, $1.6 million resulted from an increase in the volume of
interest earning assets and interest bearing liabilities, the affect of which
was offset by the impact of rate changes which contributed to a $1.2 million
decrease in the net interest income. The net interest margin for the first six
months of 2001 and 2000 was 4.38% and 4.75%, respectively. Net interest income
and net interest margin for the second quarter of 2001 and 2000 were $9.1
million or 4.22% and $9.2 million and 4.83%, respectively.
Interest income for the first six months of 2001 was $34.5 million as
compared to $32.3 million in 2000, an increase of $2.2 million or 6.69%. The
increase in interest income in the first six months of 2001 over the first six
months of 2000 is primarily attributable to an increase in average loan balances
outstanding from $571.5 million to $625.1 million, an increase of $53.6 million
or 9.38%. Interest income from loans amounted to $28.9 million in the first six
months of 2001 as compared to $26.9 million in the first six months of 2000, an
increase of $2.0 million or 7.44%. BancShares' loan growth is largely due to
growth within the existing branch network. Earnings from investments and federal
funds sold provided the balance of interest income, contributing $5.6 million
and $5.4 million for the first six months of 2001 and 2000, respectively.
Average interest-earning assets for the first six months of 2001 increased to
$847.6 million, a 11.02% increase, from $763.4 million in the first six months
of 2000. The yield on interest-earnings assets for the first six months of 2001
and 2000 was 8.21% and 8.52%, respectively. Trends in interest earning assets
are shown in Table 2.
Interest expense for the first six months of 2001 was $16.1 million
compared to $14.3 million in 2000, an increase of $1.8 million or 12.42%. The
increase in interest expense in the first six months of 2001, compared to the
first six months of 2000, is primarily attributable to increased average
interest-bearing deposit balances, primarily time deposits and savings accounts
(from the first quarter 2001 acquisition). Average interest-bearing deposits
increased $62.5 million or 10.19%, from $612.8 million in the first six months
of 2000 to $675.3 million in the first six months of 2001. The average rate
paid on interest-bearing deposits was 4.37% and 4.21% for the first six months
of 2001 and 2000, respectively. Borrowings contributed $1.4 million in interest
expense during the first six months of 2001 compared to $1.5 million during the
first six months of 2000, an increase of $14,000 or .97%. The yield on
12
interest-bearing liabilities for the first six months of 2001 and 2000 was 4.48%
and 4.37%, respectively. Trends in interest bearing liabilities are shown in
Table 2 to the consolidated financial statements.
Asset Quality and Provision for Possible Loan Losses. For the first six
months of 2001 and 2000, management added $1.5 million and $1.1 million,
respectively, to the allowance for loan losses as provisions for loan losses.
The increased provision in the first six months of 2001 was prompted by strong
loan portfolio growth, the entering of new markets through de novo branches in
2000 and 2001, and the impact of the declining economy on borrowers. During the
first six months of 2001, management charged-off loans totaling $787,000 and had
recoveries of $596,000, resulting in net charge-offs of $191,000. During the
same period in 2000, management charged-off $933,000 in loans and had recoveries
of $694,000, resulting in net charge-offs of $239,000. The ratio of allowance
for loan losses to loans increased to 1.36% at June 30, 2001 from 1.19% at
December 31, 2000. As previously mentioned, this increase is due to BancShares
entering new markets and the impact of the declining economy on borrowers. The
following table presents BancShares' comparative asset quality ratios:
June 30, December 31,
2001 2000
--------- ------------
Ratio of annualized net loans charged off to
average loans..................................... 0.06% 0.08%
Allowance for loan losses to loans................ 1.36 1.19
Non-performing assets to total gross loans and
other real estate owned........................... 0.06 0.01
Non-performing assets to total assets............. 0.04 0.01
Management considers the allowance for loan losses, at June 30, 2001, to be
adequate to cover the losses and risks inherent in the loan portfolio at that
date and will continue to monitor its portfolio and to adjust the relative level
of the allowance as needed. BancShares had no impaired loans at June 30, 2001.
Management actively maintains a current loan watch list and knows of no other
loans which are material and (i) represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies have the authority to require the Bank to increase the
allowance based on the examiners' judgements about information available to them
at the time of their examinations.
Noninterest Income. Noninterest income increased $1.6 million or 49.12%
for the first six months of 2001 over the first six months of 2000. Noninterest
income, consisting primarily of service charges on deposit accounts and other
service charges and fees, increased during the first six months of 2001
primarily due to increased deposit base from acquired branches, de novo branch
openings during the second and third quarters of 2000 and growth in the existing
branch network. BancShares' average deposits increased $77.3 million or 10.78%
to $794.2 million in the first six months of 2001 from $716.9 million in the
first six months of 2000. Noninterest income includes a nonrecurring securities
gain of $501,478. This gain was recognized as a result of an exchange and
subsequent sale of an equity investment. For the second quarter of 2001,
noninterest income increased $557,000 or 29.50% over the same period of 2000.
Noninterest Expense. Noninterest expense increased $2.4 million or 17.60%
from $13.7 million in the first six months of 2000 to $16.1 million in the first
six months of 2001, including increases of $977,000 in salaries and employee
benefits, $78,000 in occupancy and equipment expense, $286,000 in data
processing cost, $423,000 in other expenses and $167,000 in intangibles
amortization. The increases represented increases of 13.11% in salaries and
employee benefits, 3.36% in occupancy and equipment expenses, 23.54% in data
processing costs, 19.75% in other expenses and 29.81% in intangibles
amortization over the first six months of 2000. For the second quarter of 2001
noninterest expense increased $1.1 million or 15.28% over the same period in
2000. Noninterest expense increased due to expansion of BancShares' branch
network. BancShares acquired three branches during the first six months of
2001, opened three de novo branches during the second and third quarters of
2000, and has seen increased activity within the existing branch network.
BancShares also had a one time impairment loss of $477,975 on fixed assets
during the six months ended June 30, 2001, of which $173,317 was recorded in the
second quarter. During April, BancShares analyzed the results of operations of
two branches through the first three months of 2001 taking into consideration
recent economic conditions and the projected performance of these branches.
BancShares concluded the carrying value of these branches were impaired and
therefore recorded an impairment loss of $304,656 in the first quarter to reduce
the carrying value of these branches to fair value. The fixed assets consisted
primarily of leasehold improvements, which are deemed to have very minimal fair
value. In the second quarter the Board of Directors of BancShares approved to
13
closed these two branches and recorded an additional charge of $173,000 for the
remaining lease payments and costs to close these branches.
Income Taxes. In the first six months of 2001, BancShares had income tax
expense of $2.1 million, a decrease of $266,000 or 11.35%, from $2.3 million in
the first six months of 2000. The resulting effective income tax rates, based
on the accruals for the three months ended June 30, 2001 and 2000, were 36.53%
and 36.33%, respectively.
Capital Resources.
Shareholders' Equity and Capital Adequacy. Sufficient levels of capital
are necessary to sustain growth and absorb losses. To this end, the Federal
Reserve, which regulates BancShares, and the FDIC, which regulates the Bank, has
established minimum capital guidelines for the institutions they supervise.
Regulatory guidelines define minimum requirements for BancShares' leverage
capital ratio. Leverage capital equals total equity and certain long-term
borrowings less goodwill and certain other intangibles and is measured relative
to total adjusted assets as defined by regulatory guidelines. According to
these guidelines, BancShares' leverage ratio at June 30, 2001 was 8.76% as
compared to 9.72% at December 31, 2000.
BancShares is also required to meet minimum requirements for risk-based
capital ("RBC"). BancShares' assets, including loan commitments and other off-
balance sheet items, are weighted according to federal guidelines for the risk
considered inherent in each asset. At June 30, 2001, the Total Capital Ratio
was 13.83% as compared to 14.28% at December 31, 2000.
The following table presents regulatory capital amounts calculations and
ratios of BancShares:
June 30, December 31,
2001 2000
-------- ------------
Tier 1 capital.................... $81,907 $94,114
Total capital..................... 94,529 84,047
Leverage capital ratio............ 8.76% (1) 9.72% (1)
Tier 1 capital ratio.............. 11.95 (1) 12.75 (1)
Total capital ratio............... 13.79 (1) 14.28 (1)
__________
(1) These ratios exceed the minimum required regulatory capital ratios.
At June 30, 2001, and December 31, 2001, BancShares was in compliance
with its regulatory capital requirements, and all of its regulatory capital
ratios exceed the minimum ratios required for it to be classified as "well
capitalized." Growth in BancShare's assets resulting from acquisitions of
branch offices and the opening of de novo branches has reduced, and is expected
to continue to reduce, BancShare's capital ratios.
Liquidity, Market Risk and Interest Sensitivity.
Liquidity. Liquidity refers to the ability of BancShares to generate
sufficient funds to meet its financial obligations and commitments at a
reasonable cost. Maintaining liquidity ensures that funds will be available for
reserve requirements, customer demand for loans, withdrawal of deposit balances
and maturities of other deposits and liabilities. Past experiences help
management anticipate cyclical demands and amounts of cash required. These
obligations can be met by existing cash reserves or funds from maturing loans
and investments, but in the normal course of business are met by deposit growth.
In assessing liquidity, many relevant factors are considered, including
stability of deposits, quality of assets, economy of the markets served,
business concentration, competition and BancShares' overall financial condition.
BancShares' liquid assets include all investment securities (minus pledged
securities), federal funds sold, interest-bearing deposits in other banks and
cash and due from banks. These assets represented 24.87% of deposits at June
30, 2001, an increase from 20.52% at December 31, 2000. BancShares' liquidity
ratio, which is defined as cash plus short-term marketable securities (minus
pledged securities) divided by deposits and short-term liabilities, was 12.64%
at June 30, 2001, compared to 9.79% at December 31, 2000. These ratios have
increased due to deposit growth exceeding loan growth in the first quarter of
2001, primarily due to the acquisition of three First Union Branches.
14
The consolidated statements of cash flows disclose the principal sources
and uses of cash from operating, investing and financing activities for the six
months ended June 30, 2001 and 2000. BancShares has no brokered deposits.
Jumbo time deposits are considered to include all time deposits of $100,000 or
more. BancShares has never aggressively bid on these deposit. Most jumbo
deposit customers have other relationships with the Bank, including savings,
demand and other time deposits, and in some cases, loans. At June 30, 2001, and
December 31, 2000, jumbo time deposits represented 11.79% and 10.47%,
respectively, of total deposits.
Management believes that BancShares has the ability to generate sufficient
amounts of cash to cover normal requirements and any additional needs, which
arise, within realistic limitations, and management is not aware of any known
demands, commitments or uncertainties that will affect liquidity in a material
way.
Market Risk. Market risk reflects the risk of economic loss resulting from
adverse changes in market price and interest rates. The risk of loss can be
reflected in either diminished current market values or reduced potential net
interest income in future periods.
BancShares' market risk arises primarily from interest rate risk inherent
in its lending and deposit taking activities. Management seeks to manage this
risk through the use of short-term maturities. The composition and size of the
investment portfolio is managed so as to reduce the interest rate risk in the
deposit and loan portfolios while at the same time maximizing the yield
generated by the portfolio.
The table below presents in tabular form the contractual balances and the
estimated fair value of financial instruments at their expected maturity dates
as of June 30, 2001. The expected maturity categories take into consideration
historical prepayment experience as well as management's expectations based on
the interest rate environment as of June 30, 2001. For core deposits without
contractual maturity (i.e. interest bearing checking, savings and money market
accounts), the table presents principal cash flows as maturing in one year since
they are subject to immediate repricing.
Maturing in period ended June 30,
------------------------------------------------------------------
There- Fair
2001 2002 2003 2004 2005 after Total Value
-------- ------- ------- ------- ------- ------ -------- --------
(Dollars in thousands)
Assets
Loans:
Fixed rate........ $105,652 $81,072 $93,928 $28,593 $15,228 $21,041 $345,514 $347,029
Average rate (%).. 9.30% 8.99% 8.72% 8.28% 7.79% 7.74% 8.82%
Variable rate..... $149,063 $21,351 $19,196 $ 5,429 $ 5,858 $84,631 $285,528 $285,528
Average rate (%).. 7.58% 7.46% 7.47% 7.45% 7.33% 8.26% 7.76%
Investment securities:
Fixed rate........ $ 94,904 $15,064 - - - $ 8 $109,976 $110,887
Average rate (%).. 5.24% 4.72% - - - 10.88% 5.67%
Liabilities
Savings and interest
bearing checking:
Fixed rate........ $278,266 - - - - - $278,266 $278,266
Average rate (%).. 1.28% - - - - - 1.28%
Certificates of
deposit:
Fixed rate........ $324,028 $59,157 $14,464 $13,860 - - $411,509 $416,910
Average rate (%).. 5.29% 5.84% 6.01% 6.08% - - 5.84%
Short-term obligations:
Variable rate..... $ 28,633 - - - - - $ 28,633 $ 28,633
Average rate (%).. 2.97% - - - - - 2.97%
Long-term obligations:
Fixed rate........ - - - - - $23,000 $ 23,000 $ 23,000
Average rate (%).. - - - - - 8.50% 8.50%
__________
(1) Marketable equity securities with a book value of approximately $3,644,668
and a fair value of approximately $12,694,789 have been excluded from this
table.
15
Interest Sensitivity. The table below presents BancShares interest
sensitivity position at June 30, 2001. The difference between interest sensitive
asset and interest sensitive liability repricing within time periods is referred
to as the interest rate sensitivity gap. Assets and liabilities with
maturities of one year or less and those that may be adjusted within the period
are considered interest-sensitive. The interest-sensitivity position has
meaning only as of the date for which it was prepared.
As of June 30, 2001, BancShares had a positive one-year cumulative gap
position of 12.46% and a positive total cumulative gap position of 15.20%. At
December 31, 2000, BancShares had a one-year positive cumulative gap position of
12.49% and a total positive cumulative gap position of 19.08%. The decrease in
the one-year cumulative gap position at June 30, 2001 is due to the
repositioning of securities, which at December 31, 2000, would mature in less
than one year and at June 30, 2001, will mature in greater than one year.
June 30, 2001
----------------------------------------------------------------------------------
1-30 31-90 91-180 181-365 Total Total
Days Days Days Days One-Year Non
Sensitive Sensitive Sensitive Sensitive Sensitive Sensitive Sensitive
--------- --------- --------- --------- --------- --------- ---------
Assets:
Loans................................. $276,215 $ 30,691 $ 17,642 $ 35,284 $359,832 $271,210 $631,042
Investment securities................. - 9,915 14,968 70,022 94,905 27,767 122,672
Federal funds sold.................... 60,800 - - - 60,800 - 60,800
Other................................. - - - - - 2,309 2,309
Interest bearing deposits
in other banks....................... 57,444 - - - 57,444 - 57,444
-------- -------- -------- -------- -------- -------- --------
Total interest earning
assets.............................. $394,459 $ 40,606 $ 32,610 $105,306 $572,981 $301,286 $874,267
======== ======== ======== ======== ======== ======== ========
Liabilities:
Savings and checking
with interest........................ $ - $ - $ - $ - $ - $166,886 $166,886
Money market savings.................. 111,380 - - - 111,380 - 111,380
Time deposits......................... 42,502 72,528 113,730 95,237 323,997 87,512 411,509
Short-term borrowings................. 28,633 - - - 28,633 - 28,633
Long-term borrowings.................. - - - - - 23,000 23,000
-------- -------- -------- -------- -------- -------- --------
Total interest bearing
liabilities......................... $182,515 $ 72,528 $113,730 $ 95,237 $464,010 $277,398 $741,408
======== ======== ======== ======== ======== ======== ========
Interest-sensitivity gap.............. $211,944 $(31,922) $(81,120) $ 10,069 $108,971 $ 23,888 $132,859
======== ======== ======== ======== ======== ======== ========
Cumulative interest
sensitivity gap...................... $211,944 $180,022 $ 98,902 $108,971 $108,971 $132,859 $132,859
Cumulative interest
sensitivity gap to
total interest earning
assets............................... 24.24% 20.59% 11.31% 12.46% 12.46% 15.20% 15.20%
16
Accounting and Other Matters.
In June 1998, the Financial Accounting Standard Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This statement,
as amended by SFAS No. 137 and SFAS No. 138, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Earlier application of
all provisions of this statement is encouraged. BancShares adopted this
Statement on January 1, 2001, with no material effect on its consolidated
financial statements.
In September 2000, FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a replacement
of FASB Statement No. 125." SFAS No. 140 supersedes and replaces the guidance
in FASB Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. Statement No. 140 revises the
standards for accounting for securization and other transfers of financial
assets and collateral and requires certain disclosures, but carries over most of
the provisions of Statement No. 125 without reconsideration. Statement No. 140
also is effective for transfers of financial assets occurring after March 31,
2001; it is applied prospectively. Statement No. 140 also is effective for
recognition and reclassification of collateral and for disclosures relating to
securization transactions and collateral in financial statements for fiscal
years ended after December 15, 2000. BancShares adopted the required provisions
of SFAS No. 140 on April 1, 2001 and December 31, 2000, respectively. The
adoption of SFAS No. 140 had no impact on BancShares consolidated financial
statements.
On July 20, 2001, The Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations"; and Statement No. 142, "Goodwill
and Other Intangible Assets". These statements are effective September 1, 2001.
At this time, Bancshares has not determined what effect that the adoption of
SFAS No. 141 and 142 will have on the consolidated financial statements.
Management is not aware of any other trends, events, uncertainties, or current
recommendations by regulatory authorities that will have or that are reasonably
likely to have a material effect on BancShares' liquidity, capital resources or
other operations.
Forward-Looking Statements
This discussion may contain statements that could be deemed forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act, which statements are
inherently subject to risks and uncertainties. Forward-looking statements are
statements that include projections, predictions, expectations or beliefs about
future events or results or otherwise are not statements of historical fact.
Such statements are often characterized by the use of the qualifying words (and
their derivatives) such as "expect," "believe," "estimate," "plan," "project,"
"anticipate," or other statements concerning opinions or judgments of BancShares
and its management about future events. Factors that could influence the
accuracy of such forward-looking statements include, but are not limited to, the
financial success or changing strategies of BancShares' customers, actions of
government regulators, the level of market interest rates, and general economic
conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
This information is included in Item 2 in the text of BancShares' Management
Discussion and Analysis of Financial Condition and Results of Operations (under
the caption "Liquidity, Market Risk and Interest Sensitivity") and is
incorporated herein by reference.
17
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
3.1 BancShares' Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 of BancShares' Registration Statement No. 333-
62225 filed with the SEC on August 26, 1998)
3.2 BancShares' By-laws (incorporated herein by reference to Exhibit 3.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
4.1 Initial Trust Agreement of FIDBANK Capital Trust I, as amended
(incorporated herein by reference to Exhibit 4.1 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
4.2 Certificate of Trust of FIDBANK Capital Trust I (incorporated herein by
reference to Exhibit 4.2 of BancShares' Registration Statement No. 333-
62225 filed with the SEC on August 26, 1998)
4.3 Form of Amended and Restated Trust Agreement of FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.3 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.4 Form of Capital Security Certificate for FIDBANK Capital Trust I
(incorporated herein by reference to Exhibit 4.4 of BancShares'
Amendment No. 3 to Registration Statement No. 333-62225 filed with the
SEC on May 25, 1999)
4.5 Form of Guarantee Agreement (incorporated herein by reference to Exhibit
4.5 of BancShares' Amendment No. 3 to Registration Statement No. 333-
62225 filed with the SEC on May 25, 1999)
4.6 Form of Junior Subordinated Indenture between BancShares and Bankers
Trust Company, as Debenture Trustee (incorporated herein by reference to
Exhibit 4.6 of BancShares' Amendment No. 3 to Registration Statement No.
333-62225 filed with the SEC on May 25, 1999)
4.7 Form of Junior Subordinated Debenture (incorporated herein by reference
to Exhibit 4.7 of BancShares' Amendment No. 3 to Registration Statement
No. 333-62225 filed with the SEC on May 25, 1999)
*10.1 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Billy T. Woodard and The Fidelity Bank
(incorporated by reference to Exhibit 10.1 of BancShares' Registration
Statement No. 333-62225 filed with the SEC on August 26, 1998)
*10.2 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.2 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.3 Employee Death Benefit and Post-Retirement Noncompetition and
Consultation Agreement between Haywood A. Lane, Jr., and The Fidelity
Bank (incorporated by reference to Exhibit 10.3 of BancShares'
Registration Statement No. 333-62225 filed with the SEC on August 26,
1998)
*10.4 First Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
and The Fidelity Bank (incorporated by reference to Exhibit 10.4 of
BancShares' Registration Statement No. 333-62225 filed with the SEC on
August 26, 1998)
*10.5 Agreement for Banking Support Services (incorporated by reference to
Exhibit 10.5 of BancShares' Amendment No. 2 to Registration Statement
No. 333-62225 filed with the SEC on April 23, 1999)
*10.6 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Billy T. Woodard and
The Fidelity Bank (incorporated by reference to Exhibit 10.6 of
BancShares' Amendment No. 2 to Registration Statement No. 333-62225
filed with the SEC on April 23, 1999)
*10.7 Second Amendment to Employee Death Benefit and Post-Retirement
Noncompetition and Consultation Agreement between Haywood A. Lane, Jr.,
and The Fidelity Bank (incorporated by reference to Exhibit 10.7 of
BancShares' Amendment No. 2 to Registration Statement No. 333-62225
filed with the SEC on April 23, 1999)
__________
* Denotes a management contract or compensatory contract or arrangement.
__________
(a) No reports on Form 8-K were filed during the quarter ended June 30, 2001.
18
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 BANCSHARES (N.C.), INC.
Dated: August 14, 2001 By:/s/ Mary A. Woodard
------------------------------------------
Mary A. Woodard
Chief Financial Officer and Treasurer
19