10-Q 1 ffb-901q.txt 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 Quarter Ended September 30, 2001 FIDELITY FEDERAL BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) Indiana 0-22880 35-1894432 ---------------------------- ---------- ------------- (State of other jurisdiction Commission (IRS Employer of Incorporation of File No. Identification No.) Organization) 18 NW Fourth Street Evansville, Indiana 47708 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (812) 424-0921 -------------------------------------------------- Registrant's telephone number, including area code Indicate by checkmark 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 and (2) has been subject to such filing requirements for the past 90 days. YES NO X --- --- As of October 31, 2001, there were 5,607,658 shares of the Registrant's common stock, $1 stated value, issued and outstanding. FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Index Page PART I - FINANCIAL INFORMATION ITEM 1--Financial Statements: Condensed Consolidated Balance Sheet................................ 3 Condensed Consolidated Statement of Income.......................... 4 Condensed Consolidated Statement of Stockholders' Equity............ 5 Condensed Consolidated Statement of Cash Flows...................... 6 Notes to Condensed Consolidated Financial Statements................ 7 ITEM 2--Management's Discussion and Analysis of Results of Operations and Financial Condition............................................. 10-20 ITEM 3--Quantitative and Qualitative Disclosures about Market Risk... 20 PART II - OTHER INFORMATION............................................ 22 SIGNATURES............................................................. 23 2 Item 1 - Financial Statements Part I - Financial Information Fidelity Federal Bancorp and Subsidiaries Condensed Consolidated Balance Sheet (In thousands) (Unaudited)
September 30, December 31, 2001 2000 ------------- ------------- Assets Cash and due from banks $ 1,531 $ 1,926 Interest-bearing demand deposits 20,269 14,718 --------- --------- Cash and cash equivalents 21,800 16,644 Investment securities available for sale 17,786 21,001 Loans, net of allowance for loan losses of $2,085 and $1,921 107,998 107,842 Premises and equipment 5,862 5,847 Federal Home Loan Bank of Indianapolis stock 2,620 2,620 Deferred income tax receivable 7,209 7,245 Interest receivable and other assets 4,964 5,267 --------- --------- Total assets $ 168,239 $ 166,466 ========= ========= Liabilities Deposits Non-interest bearing $ 4,935 $ 4,291 Interest bearing 118,637 122,653 --------- --------- Total deposits 123,572 126,944 Short-term borrowings 4,500 Long-term debt 25,573 23,842 Advances by borrowers for taxes and insurance 266 362 Valuation allowance for letters of credit 938 5,153 Other liabilities 2,445 1,390 --------- --------- Total liabilities 157,294 157,691 --------- --------- Stockholders' Equity Preferred stock, no par or stated value Authorized and unissued--15,000,000 shares Common stock, $1 stated value Authorized--15,000,000 shares Issued and outstanding--5,607,658 shares 5,607 4,607 Additional paid-in capital 14,184 13,674 Stock warrants 11 11 Retained earnings (8,834) (8,981) Accumulated other comprehensive loss (23) (536) --------- --------- Total stockholders' equity 10,945 8,775 --------- --------- Total liabilities and stockholders' equity $ 168,239 $ 166,466 ========= =========
See notes to condensed consolidated financial statements. 3 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statement of Income (In Thousands, Except Share Data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---------------------------- ---------------------------- Interest Income Loans receivable $ 2,347 $ 2,385 $ 7,244 $ 6,987 Investment securities--taxable 290 373 954 1,158 Deposits with financial institutions 93 179 458 633 Other dividend income 49 61 151 217 ----------- ----------- ----------- ----------- Total interest income 2,779 2,998 8,807 8,995 ----------- ----------- ----------- ----------- Interest Expense Deposits 1,589 1,609 5,158 4,726 Short-term borrowings 0 1 2 3 Long-term debt 517 522 1,525 1,496 ----------- ----------- ----------- ----------- Total interest expense 2,106 2,132 6,685 6,225 ----------- ----------- ----------- ----------- Net Interest Income 673 866 2,122 2,770 Provision for loan losses 800 375 1,147 550 ----------- ----------- ----------- ----------- Net Interest Income (Loss) After Provision for Loan Losses (127) 491 975 2,220 ----------- ----------- ----------- ----------- Other Income Service charges on deposit accounts 95 79 268 219 Net gains on loan sales 101 18 255 30 Letter of credit fees 125 134 381 400 Agent fee income 464 86 1,059 133 Other income 129 127 562 473 ----------- ----------- ----------- ----------- Total non-interest income 914 444 2,525 1,255 ----------- ----------- ----------- ----------- Other Expenses Salaries and employee benefits 904 1,205 2,363 2,749 Net occupancy 101 107 286 291 Equipment 71 65 199 197 Data processing 92 86 271 252 Deposit insurance 63 60 185 185 Legal and professional 53 261 137 492 Advertising 87 64 228 148 Partnership equity and amortization expense 80 92 225 279 Letter of credit valuation provision (825) (1,172) Amortization of intangible assets 52 52 157 87 Other expense 428 633 1,107 1,296 ----------- ----------- ----------- ----------- Total non-interest expense 1,106 2,625 3,986 5,976 ----------- ----------- ----------- ----------- Loss Before Income Tax (319) (1,690) (486) (2,501) Income tax benefit (203) (765) (437) (1,275) ----------- ----------- ----------- ----------- Loss Before Extraordinary Item (116) (925) (49) (1,226) Gain on extraordinary item, net of tax 196 0 196 0 ----------- ----------- ----------- ----------- Net Income (Loss) $ 80 $ (925) $ 147 $ (1,226) =========== =========== =========== =========== Basic Earnings (Loss) Per Share 0.01 (0.20) 0.03 (0.32) Diluted Earnings (Loss) Per Share 0.01 (0.20) 0.03 (0.32) Average Common and Common Equivalent shares outstanding 5,607,658 4,607,659 4,948,317 3,872,332
See notes to condensed consolidated financial statements 4 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statement of Changes in Stockholders' Equity (In Thousands, Except Share Data) (Unaudited)
Nine Months Ended September 30, 2001 2000 ------------------------ ------------------------ Beginning Balance $8,775 $5,427 Comprehensive income: Net income (loss) 147 (1,226) Other comprehensive income - net of tax Unrealized gain on securities 513 74 ------------ ---------- Comprehensive income 660 (1,152) Issuance of stock 1,510 4,266 ------------ ------------ Balance, September 30 $10,945 $8,541 ============ ============
See notes to condensed consolidated financial statements. 5 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended September 30, 2001 2000 ------------------------------------------------------------------------------------------- Operating Activities Net income (loss) $ 147 $ (1,226) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Provision for loan losses 1,147 550 Letter of credit valuation provision (1,172) Gain on extraordinary item, net of tax (196) Gain on sale of land (134) Depreciation and amortization 303 315 Valuation allowance--affordable housing investments 44 55 Loans originated for sale (19,115) (4,011) Proceeds from sale of loans 19,148 3,992 Changes in Interest payable and other liabilities 720 498 Interest receivable and other assets 275 (1,415) ---------------------- Net cash provided (used) by operating activities 1,167 (1,242) ---------------------- Investing Activities Proceeds from maturities of securities available for sale 4,023 2,824 Net change in loans (1,336) (11,775) Proceeds from redemption of FHLB Stock 1,300 Purchase of premises and equipment (378) (48) Proceeds from sales of premises and equipment 100 105 Funding on outstanding letters of credit (3,043) ---------------------- Net cash used by investing activities (634) (7,594) ---------------------- Financing Activities Net change in Noninterest-bearing, interest-bearing demand and savings deposits 5,802 2,883 Certificates of deposit (9,174) (10,972) Short-term borrowings 4,500 Proceeds of long-term debt 7,470 2,000 Repayment of long-term debt (5,389) (814) Net change in advances by borrowers for taxes and insurance (96) 138 Sale of stock 1,510 3,000 ---------------------- Net cash provided (used) by financing activities 4,623 (3,765) ---------------------- Net Change in Cash and Cash Equivalents $ 5,156 $(12,601) Cash and Cash Equivalents, Beginning of Period 16,644 30,914 ---------------------- Cash and Cash Equivalents, End of Period $ 21,800 $ 18,313 ====================== Additional Cash Flows Information Interest paid $ 5,367 $ 5,324 Income tax paid (refunded) 727 Stock issued in exchange for partnership operating cash flow deficit guarantees and management services 1,265
See notes to condensed consolidated financial statements. 6 Fidelity Federal Bancorp and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) o Accounting Policies The significant accounting policies followed by Fidelity Federal Bancorp ("Fidelity") and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are necessary for a fair presentation of the results for the periods reported, consist only of normal recurring adjustments, and have been included in the accompanying unaudited condensed consolidated financial statements. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of those expected for the remainder of the year. The condensed consolidated balance sheet at December 31, 2000 has been derived from the audited financial statements. o Stockholders' Equity and Capital Infusion In September 2001, Fidelity filed a registration statement for a stockholder rights offering with the Securities and Exchange Commission. A total of 650,000 shares were registered in this filing. For every 4.6 shares of Fidelity held on the record date, shareholders could subscribe to purchase one share of Fidelity at $2.50. All shareholders have the right to oversubscribe for shares not purchased by other shareholders based on their pro-rated ownership in Fidelity. The rights offering will expire on November 27, 2001. Fidelity expects to raise approximately $1.6 million if all 650,000 shares are sold. In January 2001, the Company filed a registration statement for a stockholder rights offering with the Securities and Exchange Commission. A total of 1,000,000 shares were registered in this filing. For every 4.6 shares of Fidelity held on the record date, shareholders could subscribe to purchase one share of Fidelity at $1.55. All shareholders had the right to oversubscribe for shares not purchased by other shareholders based on their pro-rated ownership in Fidelity. The rights offering was oversubscribed and completed in June 2001. Fidelity raised $1.5 million, net of costs associated with the offering. The shares purchased by shareholders with these funds were issued in July 2001. In 2000, Fidelity and its stockholders agreed to sell 1,460,000 shares of its common stock to Pedcor Holdings, LLC, a limited liability company (Pedcor). The consideration paid by Pedcor included $3,000,000 in cash ($3.00 per share), a five-year guarantee to United Fidelity Bank ("United") in an aggregate amount up to $1,500,000 against any negative cash flow from operations of certain specified affordable housing properties in United's portfolio, and an agreement to provide certain management services for the specified properties for ten years at no fee to United or Fidelity. Pedcor, as a result of this transaction, has the ability to exercise an option to purchase up to $5 million of additional stock for a period of three years from the closing date. All purchases completed within one year of the execution of the Agreement must be executed at $3.00 per share. Thereafter, Pedcor may purchase shares from Fidelity at fair market value through May 2003. In addition, three Pedcor principals were named to Fidelity's Board of Directors. Intangible assets totaling $1.3 million were recorded as a result of this transaction. These assets are being amortized over periods ranging from five to ten years depending on their estimated lives. The net unamortized balance of these intangible assets at September 30, 2001 was $969,000 and is included in other assets. o Cash Dividend Fidelity's dividend policy is to pay cash or distribute stock dividends when its Board of Directors deems it to be appropriate, taking into account Fidelity's financial condition and results of operations, economic and market conditions, industry standards, and other factors, including regulatory capital requirements of its savings bank subsidiary. Fidelity is not subject to any regulatory restrictions on payments to its stockholders. Fidelity's primary source of income is dividends from United Fidelity Bank ("United"). 7 United has entered into a Supervisory Agreement ("Agreement") with the Office of Thrift Supervision ("OTS"). One of the provisions of the Agreement restricts the payments of dividends from United to Fidelity without prior written OTS approval. Fidelity is uncertain when it will pay dividends in the future and the amount of such dividends, if any. o Company Subsidiaries Fidelity's savings bank subsidiary, United Fidelity Bank, fsb ("United"), was organized in 1914, is a federally-chartered stock savings bank located in Evansville, Indiana, and is regulated by the Office of Thrift Supervision ("OTS"). Fidelity, through United, is engaged in the business of obtaining funds in the form of savings deposits and other borrowings and investing such funds in consumer, commercial, and mortgage loans, and in investment and money market securities. Village Affordable Housing Corporation, the other subsidiary of Fidelity, was formed during the third quarter of fiscal 1998 for the purpose of owning interests in real estate housing, and acquired certain real estate from United and its subsidiaries to assist in United's divestiture efforts of surplus real estate in the first quarter of 2001. United's subsidiaries, Village Housing Corporation and Village Management Corporation (the "Affordable Housing Group"), and Village Capital Corporation have been involved in various aspects of financing, owning, developing, and managing affordable housing projects. Currently, they are involved only in the business of owning affordable housing properties. In May 2000, Pedcor Management Corporation, an affiliate of Pedcor Holdings, LLC, began providing management and certain accounting services for the properties previously managed by Village Management Corporation. Village Management completed this transition by the end of June 2000 and is currently inactive. Village Capital Corporation has earned fees by providing real estate mortgage banking services, but has not provided any new mortgage banking services for the past two years. Another subsidiary of United, Village Insurance Corporation, receives fee income for credit life and accident health insurance sales. o Other Restrictions United entered into a Supervisory Agreement with the OTS on February 3, 1999 which is in effect until terminated, modified or suspended by the OTS. Under the terms of the Agreement, United developed and submitted to the OTS for approval a strategic plan which includes, at a minimum, capital targets; specific strategies; the completion of quarterly projections for a three-year period; concentration limits for all assets; a plan for reducing United's concentrations of high risk assets; review of infrastructure, staffing and expertise with respect to each area of United's operations; and capital planning. Management has expended significant time and effort ensuring that United continues to operate in compliance with the Supervisory Agreement. While the Supervisory Agreement remains in place, it is likely that total commercial and multifamily loans outstanding will continue to decline, and management efforts in this area will continue to be concentrated on compliance, rather than business development. This will likely continue to impact the financial condition and the operating results of United and Fidelity until the Agreement is terminated, modified, or suspended. The restrictions regarding certain activities in the Supervisory Agreement have had a significant impact on United's net interest margin, net interest income, and net income, as a result of United's inability to participate in new commercial lending. The supervisory agreement currently requires United to: o reduce its level of classified assets to core capital and allowance for loan and lease losses to 50% or less; o refrain from making any commercial loans without OTS approval; o refrain from engaging in any "sub prime" lending activity; o not increase the size of the consumer loan portfolio in excess of 30% of United's assets; o refrain from paying dividends without OTS approval; o adopt a strategic plan including: 8 oo capital targets, which United set at 8.12% for tangible, leverage and core capital ratios and 13.75% for total risk-based capital; oo establishment of concentration limits for all assets; and oo development of a plan to reduce its concentration of high risk assets. o refrain from making additional investments in equity securities or real estate for development without OTS approval; o develop a plan to divest real estate held for development; o develop a plan to reduce employee turnover and obtain OTS approval before hiring any additional or replacing any directors or senior executive officers; o develop a conflicts of interest policy and refrain from engaging in any transaction with or distribution of funds to Fidelity or its subsidiaries or selling any assets to an affiliate without OTS approval; o develop a plan to increase liquidity and manage liquidity and cash flow; o refrain from increasing the level of executive compensation in excess of the greater of $5,000 or the annual cost of living without OTS approval; o not increase its assets in excess of net interest credited on its deposit liabilities without OTS approval; o not engage in new activities not included in its strategic plan without OTS approval; o maintain a fully-staffed and functioning internal audit and internal loan review process; o adopt a policy to administer the general partnerships held by the subsidiaries of United; and o adopt a policy to administer its mortgage brokerage activities. United currently is in compliance with all provisions of the supervisory agreement at September 30, 2001, except for the targeted capital levels set forth in United's strategic plan. These target levels were established for the period ending December 31, 2001 and United expects to achieve these levels at that time. o Reclassification Certain amounts in the 2000 consolidated financial statements have been made to conform to the 2001 presentation. o Segment Information Fidelity operates principally in two industries, banking and real estate activities. Through United, Fidelity offers traditional banking products, such as checking, savings and certificates of deposit, as well as mortgage, commercial and consumer loans. Through the Affordable Housing Group, Fidelity was previously involved in various aspects of developing, building, renting and managing affordable housing units. In May 2000, a stock purchase agreement was approved by the shareholders, which calls for Pedcor to provide management services to the affordable housing properties at no fee to the properties or Fidelity. The Affordable Housing Group's remaining activities consist of holding a general partner interest in various properties and recognizing income or loss under the equity method of accounting. Banking revenue consists primarily of interest and fee income, while the real estate activities income or loss is generated through the percentage of ownership in various partnerships. All revenue is earned in the United States. 9 Operating profit is total revenue less operating expenses. In computing operating profit, income taxes have been deducted.
2001 --------------------------------------------------------------------------- Real Estate As of and for the Development Nine Months Ended September 30 Banking and Management Eliminations Total ------------------------------------------------------------------------------------------------------------------- Interest income $ 8,807 $ 5 $ (5) $ 8,807 Other income 2,471 54 2,525 Interest expense 6,685 5 (5) 6,685 Other expense 3,903 83 3,986 Provision for loan losses 1,147 1,147 Loss before tax (457) (29) (486) Income tax benefit (352) (85) (437) Income (loss) before extraordinary item (105) 56 (49) Gain on extraordinary item, net of tax 196 196 Net income 91 56 147 Total assets 169,024 2,696 (3,481) 168,239 Capital expenditures 378 378 Depreciation and amortization 299 4 303
2000 ------------------------------------------------------------------------ Real Estate As of and for the Development Nine Months Ended September 30 Banking and Management Eliminations Total --------------------------------------------------------------------------------------------------------------- Interest income $ 8,995 $ 6 $ (6) $ 8,995 Other income 1,125 147 (17) 1,255 Interest expense 6,225 6 (6) 6,225 Other expense 5,577 416 (17) 5,976 Provision for loan losses 550 550 Loss before tax (2,232) (269) (2,501) Income tax benefit (1,095) (180) (1,275) Total assets 169,005 2,933 (3,584) 168,354 Capital expenditures 48 48 Depreciation and amortization 309 6 315
Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition Special Note Regarding Forward-Looking Statements Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as Fidelity "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe Fidelity's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and Fidelity undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 10 o Results of Operations Net income for the three months ended September 30, 2001 was $80,000, compared to a net loss of $925,000 for the same period last year. Basic and diluted net income per share was $.01 per share for the three months ended September 30, 2001, compared to a net loss of $0.20 per share in 2000. Net income for the nine months ended September 30, 2001 was $147,000 compared to a net loss of $1,226,000 for the nine months ended September 30, 2000. Basic and diluted net income per share was $0.03 per share for the nine months ended September 30, 2001, compared to a net loss of $0.32 per share in 2000. The net interest margin has been negatively impacted by the 350 basis point reduction in the federal funds rate during the first nine months by the Federal Reserve Board (FRB) and the placement of one non-residential real estate loan on non-accrual status during the third quarter of 2001. The impact was magnified by Fidelity's significant holdings of short-term investments. Rates on liabilities have began to decline in the second half of 2001 due to the maturities and repricing of liabilities during a lower interest rate environment. Non-interest income for the nine months ended September 30, 2001, increased $1,270,000 over the nine months ended September 30, 2000 primarily due to an increase in agent fee income generated through consumer lending activities. Non-interest expense decreased $2.0 million to $4.0 million due primarily to a decrease in the letter of credit valuation provision of $1.2 million, a decrease in legal and professional expense of $355,000 and a decrease in salaries and benefits of $386,000. During the third quarter an extraordinary gain was recognized, net of tax, of $196,000 that reflects the early redemption of outstanding senior subordinated notes at a discount from their face value. Net Interest Income Net interest income, Fidelity's largest component of income, represents the difference between interest and fees earned on loans, investments and other interest-earning assets, and interest paid on interest-bearing liabilities. For the quarter ended September 30, 2001 net interest income decreased $193,000 from the quarter ended September 30, 2000. Net interest income for the nine months ended September 30, 2001 decreased $648,000 from the same period last year. The net interest margin decreased for the nine month period to 1.94% from 2.51% a year ago. The margin has been negatively impacted by the 350 basis point reduction in federal funds rate during the year by the FRB and the classification of a $3.1 million non-residential real estate loan as non-accrual during the third quarter of 2001. Average multifamily, commercial, commercial real estate and mortgage loans decreased $6.3 million. These decreases were offset by a $11.0 million increase in average consumer loans, resulting in an increase of consumer loan interest income of $858,000. Average interest bearing liabilities increased $5.3 million from September 30, 2000 to $148.9 million at September 30, 2001. Total average interest bearing deposits increased $2.6 million. The increase resulted in a $460,000 increase in interest expense over the nine months ending September 30, 2000. The average rate on total deposits increased to 5.42% at September 30, 2001 from 5.06% at September 30, 2000 primarily due to the maturity of lower costing deposits being replaced with higher costing deposits in the fourth quarter of 2000. As a result of the reduction in market interest rates in 2001, United has continued to reduce interest rates on deposit products as local market conditions allowed, which was at a pace slower than that on loans. Provision for Loan Losses and Letter of Credit Valuation Provision Fidelity makes provisions for loan losses in amounts estimated to be sufficient to maintain the allowance for loan losses at a level considered necessary by management to absorb losses in the loan portfolios. The provision for loan losses for the nine months ending September 30, 2001 was $1,147,000 compared to $550,000 in the prior year, an increase of $597,000. During the first two quarters of 2001, Fidelity successfully assisted seven partnerships in which Fidelity or United had outstanding classified letters of credit, in obtaining new financing. This refinancing resulted in the bond holders backed by United and Fidelity's letters of credit to be paid in full by a combination of FHA financing obtained by the partnerships and a total paid by Fidelity and United of $2.8 million. The $2.8 million funded by Fidelity and United 11 consisted of previously reserved for amounts within the valuation allowance for letters of credit. Fidelity refinanced one additional letter of credit during the third quarter through a commercial bank to be paid in full by a combination of financing obtained by the partnership and a total paid by Fidelity of $235,000, which consisted of previously reserved amounts. As a result of this refinancing activity, total classified letters of credit have been reduced from $11.8 million at December 31, 2000 to $350,000 at September 30, 2001. The ratio of allowance for loan losses to non-performing loans was 53.3% at September 30, 2001 compared to 201.7% at September 30, 2000. The increase in non-performing loans from the previous quarter was primarily the result of a non-residential real estate loan totaling $3.1 million that was moved to non-accrual status during the third quarter. Specific loss reserves are assigned to certain credits. The reserves are determined by management's evaluation of those credits. The results of internal loan reviews, OTS evaluations and recent events assist Fidelity in making that evaluation. The independent support for the allowance for loan losses and valuation allowance for letters of credit includes documentation that supports the amount of recorded reserves for these credits. Fidelity computes general reserves for the commercial, commercial mortgage, residential mortgage, and consumer loan and letter of credit portfolios by utilizing historical information and information currently available about the loans within those portfolios that provides information as to the likelihood of loss. The potential effect of current economic conditions is also considered with respect to establishing general reserve amounts. Non-interest income Non-interest income for the quarter ended September 30, 2001, was $914,000 compared to $444,000 for the same period in 2000, an increase of $470,000. Non-interest income for the nine months ended September 30, 2001, was $2,525,000 compared to $1,255,000 for the same period in 2000, a 101.2% increase. Service charges on deposit accounts increased $49,000 for the nine months ended September 30, 2001 compared to the prior fiscal year due to an increase in the number of deposit accounts, higher activity fees and new fee sources combined with improved monitoring of fee waivers. Net gains on the sale of real estate loans increased $225,000 over the prior year due to an increase in mortgage loan activity, in particular loan refinancings, because of lower market interest rates. United participates in an arrangement in which automobile loans are originated on behalf of another organization. Agent fee income, which represents earned fees from these transactions for the nine months ended September 30, 2001 were $1,059,000 compared to $133,000 last year. United fully resumed its consumer lending activities in late 1999 and has continued to increase its network of automobile dealers during 2000 and 2001. The continued expansion and penetration of its automobile dealer network has been instrumental in the increase in agent fees over the prior year. Other income includes gains on sales of land of $134,000. A reduction in management fees of $88,000 partially offset the total increase in fee income. The stock purchase agreement approved by the shareholders in May 2000 calls for Pedcor to provide management services to the affordable housing properties at no fee to the property or Fidelity. Therefore, no management fees were collected for the nine months ended September 30, 2001 compared to the same period last year. Non-Interest Expense Non-interest expense decreased $1,519,000 for the quarter ended September 30, 2001, compared to the quarter ended September 30, 2000. Salaries and employee benefits decreased $386,000 for the nine months ended September 30, 2001, primarily due to Fidelity recognizing $527,000 in the salary expense in the prior year in conjunction with the announcement that Fidelity and former President and CEO M. Brian Davis could not come to resolution on an existing employment contract modification and that Davis would cease to serve in those roles. During the nine months ended September 30, 2001 the valuation allowance for letters of credit was reduced by $1,172,000 to reflect a reduction in loss exposure achieved as a result of the previously discussed refinancing activities completed during 2001. Fidelity records its percentage share of losses for its investments in various affordable housing properties under the equity method of accounting. These losses were $225,000 and $279,000 for the nine months ended September 30, 2001 and September 30, 2000, respectively. These writedowns are partially offset by tax credits received and recorded as reductions of income tax expense. Fidelity continues to monitor these partnerships very closely and take 12 steps to assist these partnerships in increasing their cash flows. The results of refinancing efforts, a lower interest rate environment, and a change in the property manager last year have started to positively impact the performance of these partnerships. Fidelity is in varying stages of completing refinancing on additional affordable housing developments, which should be completed during the first quarter of 2002. Legal and professional fees decreased $355,000 for the nine months ended September 30, 2001 due to workout activities with respect to various classified assets in 2000. Advertising increased $80,000 from the prior year primarily due to increased promotional activities with respect to the consumer lending and mortgage areas, as well as the opening of a new branch in Warrick County, Indiana during the first quarter. Amortization of intangible assets resulted in expense of $157,000 for the nine months ended September 30, 2001 compared to $87,000 for the nine months ended September 30, 2000. Other operating expense decreased $189,000 from the prior year primarily due to the recognition of $100,000 in interest expense paid to the Internal Revenue Service (IRS) in the previous year in connection with an exam completed in 2001. Income Tax Benefit The income tax benefit was $437,000 for the nine months ending September 30, 2001 compared to $1,275,000 in the same period last year, primarily due to a reduction of the before tax loss. Included in the tax benefit of $437,000 for the nine months ending September 30, 2001 are tax credits of $239,000. These credits are received from Fidelity's investment in affordable housing properties and are a component of the overall return on these investments. Consideration of the need for a valuation allowance for the deferred tax asset was made at September 30, 2001 after projecting the reversal of the deferred items. These analyses were based on projected operating income in future years, action plans developed and partially implemented included in Fidelity's business plan and cost reductions. These analyses showed that it was more likely than not that all carryforwards would be utilized within the carryforward periods (federal and state) and therefore no valuation allowance was recorded. The analyses assume that Fidelity will execute approximately 75% of the initiatives included within its current business plan and then achieve 5 to 10% growth in annual earnings thereafter. The conservative level of earnings contemplated by these analyses, if achieved, will constitute for the majority of the carryforward periods, earnings levels that are below other thrift holding companies included within Fidelity's peer group. At September 30, 2001, Fidelity's operating results were slightly ahead of those contemplated by the business plan. The analyses used to help consider the need for a valuation allowance for the deferred tax asset are subject to certain risks and uncertainties that could impact the final determination regarding the amount of the valuation allowance. These risks include the failure to implement the business plan targets for increased revenues, cost reductions, the potential loss of key employees, ability to maintain projected interest rate margins, and the potential disruption of activities in key income-producing areas. o Financial Condition Total assets at September 30, 2001 increased $1.7 million to $168.2 million from $166.5 million in December 2000. Average assets for the nine months ended September 30, 2001 increased by $2.6 million from $163.9 million at December 31, 2000 to $166.5 million at September 30, 2001. The increase in total assets is primarily due to an increase in consumer loans offset by loan payoffs, refinancing and payments received on commercial, multifamily and fixed 1-4 family mortgage loans and proceeds from maturities of investments securities. Average interest-bearing liabilities increased $5.2 million due to an increase in a high-balance money market product bearing a higher interest rate than United's traditional money market accounts. These increases were partially offset by the reduction of the valuation allowance for letters of credit previously discussed. 13 Loans The following table shows the composition of Fidelity's loan portfolio as of September 30, 2001 and December 31, 2000:
September 30, December 31, 2001 2000 ------------------------------------------------------------------------------------------- Real estate mortgage loans First mortgage loans Conventional $ 43,513 $ 47,809 Construction 151 1,274 Commercial 6,610 6,873 Multi-family loans 3,874 4,350 Home equity loans 4,612 5,274 First mortgage real estate loans purchased 1,223 1,753 ------------------------------------ 59,983 67,333 Commercial loans, other than secured by real estate 1,753 2,305 Consumer loans 48,347 40,125 ------------------------------------ Total loans 110,083 109,763 Allowance for loan losses (2,085) (1,921) ------------------------------------ Net loans $107,998 $107,842 ==================================== Total loans to total assets 65.4% 65.9% ====================================
Fidelity sells a portion of its current production of 1-4 family loans, recording the gain or loss and using the proceeds to fund new loan originations. Commercial real estate loans and commercial loans have continued to declined based on regulatory limitations. The focus of United's commercial lending department has been to assist in the acquisition of outside financing for certain loans or letters of credit, develop action plans to monitor the portfolio, and minimize potential losses relating to its remaining classified commercial credits and its letter of credit exposure. The increase in loans is primarily due to an increase in consumer loans of $8.2 million from December 31, 2000 to $48.3 million at September 30, 2001. The level of growth achieved in the consumer loan portfolio during 2001 is not expected to continue at the same level for the remainder of 2001. Originations activity could continue to increase as a result of the origination of automobile loans on behalf of a non-affiliated organization. Fidelity's loan portfolio contains no loans to foreign governments, foreign enterprises, foreign operations of domestic companies or highly leveraged transactions, nor any concentration to borrowers engaged in the same or similar industries that exceed ten percent of total loans. Non-Performing Loans Fidelity discontinues the accrual of interest income on loans when, in the opinion of management, there is reasonable doubt as to the timely collectibility of interest or principal. When a loan reaches a ninety day or more past due status, the asset is generally repossessed or sold, if applicable, or the foreclosure process is initiated and the loan is re-classified to other real estate owned to be sold. A loan could be placed in a nonaccrual status sooner than ninety days, if management knows the customer has abandoned the collateral and has no intention of repaying the loan. At this point, management discontinues the accrual of interest and Fidelity would initiate the repossession or foreclosure process. Typically, when a loan reaches nonaccrual status, the accrued interest is reversed from income, unless strong evidence exists that the value of the collateral would support the collection of interest in a foreclosure situation. Nonaccrual loans are returned to an accrual status when, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the timely payment of principal and interest. 14 The following table provides information on Fidelity's non-performing loans as of September 30, 2001 and December 31, 2000:
September 30, December 31, 2001 2000 ------------------------------------------------------------------------------------------- (Dollars in Thousands) Non-accrual loans Commercial $3,397 $472 Multi-family 148 ------- ----- Total non-accrual loans 3,397 620 Restructured Consumer 188 115 Commercial 54 119 ------- ----- Total restructured loans 242 234 90 days or more past due and accruing Mortgage 155 Consumer 120 10 ------- ----- Total 90 days or more past due and accruing 275 10 ------- ----- Total non-performing loans $3,914 $864 ======= ===== Ratio of non-performing loans to total loans 3.56% 0.79%
Non-performing loans increased to 3.56% of total loans at September 30, 2001, as compared to .79% of total loans at December 31, 2000. Commercial non-accrual loans increased $2.9 million over December 31, 2000 due primarily to a non-residential loan totaling $3.1 million that management ceased the accrual of interest income during the third quarter. Multi-family affordable housing loans, for which specific and general reserves have been computed, are currently performing with respect to debt service and are therefore not included in the above "non-performing loans" totals. The ability of the multi-family loans to remain performing is in part due to general partner or other advances made by Fidelity to support cash flow deficits incurred by the affordable housing projects. There is no assurance that general partner advances will not be necessary in the future to support further cash flow deficits, or that Fidelity will not have to extend funds in order to protect its collateral position with respect to the loans. The amount of additional advances should be reduced in future periods due to the operating deficit guarantees provided by Pedcor, the management of the affordable housing portfolio by Pedcor, and because of completed refinancing efforts. Analysis of Allowance for Loan Losses and Valuation Allowance for Letters of Credit Fidelity establishes its provision for loan losses and evaluates the adequacy of the allowance for loan losses based on management's evaluation of the performance of its loan and letter of credit portfolio. Such evaluation, which includes a review of all loans and letters of credit for which full collectibility may not be reasonably assured, considers among other matters, the present value of capitalized cash flows, the estimated fair value of the underlying collateral, economic conditions, historical loss experience, the composition of the portfolios and other factors that warrant recognition in providing for an adequate loan loss allowance and letter of credit valuation allowance. This evaluation is performed on a quarterly basis and is designed to ensure that all relevant matters affecting collectibility will consistently be identified in a detailed review and that the outcome of the review will be considered in a disciplined manner by management in determining the necessary allowances and related provisions. The amounts actually reported in each period will vary with the outcome of this detailed review. 15 Classified Assets and Letters of Credit (in thousands) September 30, December 31, 2001 2000 --------------------------- Classified assets $7,376 $8,754 Classified letters of credit 350 11,773 ------ ------ Total classified assets/letters of credit $7,726 $20,527 ====== ======= Classified assets and letters of credit were 58.6% and 129.5% of Fidelity's capital and reserves at September 30, 2001 and December 31, 2000, respectively. Classified assets and letters of credit were 27.6% and 69.9% of United's capital and reserves at September 30, 2001 and December 31, 2000, respectively. In addition to the classified assets and letters of credit, there were non-classified assets and letters of credit totaling $10.3 million compared to $18.6 million at December 31, 2000 for which management was closely monitoring the borrowers' abilities to comply with payment terms. The reduction in classified assets is a result of refinancing activity and improvements in various commercial and multifamily loans and letters of credit. These refinancing activities are discussed under the heading, "Provision for Loan Losses and Letter of Credit Valuation Provisions" and relieved Fidelity of its off balance sheet liabilities related to the credits that were refinanced. Impaired loans are those that management believes will not perform under the original loan terms. At September 30, 2001 and December 31, 2000, Fidelity had impaired loans totaling $6.9 million compared to $3.7 million at December 31, 2000. The increase is primarily due to one non-residential real estate loan totaling $3.1 million that management ceased the accrual of interest income. The allowance for loan losses on such impaired loans totaled $1.3 million and $384,000, which are included in Fidelity's allowance for loan losses at September 30, 2001 and December 31, 2000, respectively. In addition, using similar guidelines for impaired loans, impaired letters of credit at September 30, 2001 total $350,000, versus $11.8 million at December 31, 2000. The valuation allowance on such impaired letters of credit totaled $35,000 at September 30, 2001 compared to $5.2 million at December 31, 2000. Impaired loans do not include large groups of homogeneous loans that are collectively evaluated for impairment, such as, residential mortgage and consumer installment loans. 16 The following table sets forth loan charge-offs and recoveries by the type of loan and an analysis of the allowance for loan losses at September 30, 2001 and December 31, 2000:
Nine months ended Year ended September 30, December 31, 2001 2000 ------------------------------------------------------------------------------------------ ( dollars in thousands) Allowance for loan losses at beginning of period $ 1,921 $ 2,021 ---------------------------------- Loan charge offs Real estate mortgage 80 Home equity 1 Multi-family 822 683 Commercial 337 12 Consumer 334 391 ---------------------------------- Total loan charge offs 1,494 1,166 ---------------------------------- Loan recoveries Real estate mortgage 7 Home equity 1 Multi-family 462 317 Commercial 20 Consumer 41 59 ---------------------------------- Total loan recoveries 511 396 ---------------------------------- Net charge offs 983 770 Provision for loan losses 1,147 670 ---------------------------------- Allowance for loan losses at end of period $ 2,085 $ 1,921 ================================== Ratio of net charge offs to average loans outstanding during period (annualized) 1.17% .72% ================================== Ratio of provision for loan losses to average loans outstanding during period (annualized) 1.37% .63% ================================== Ratio of allowance for loan losses to total loans outstanding at period end 1.89% 1.75% ================================== Average amount of loans Outstanding for the period $111,850 $106,599 ================================== Amount of loans outstanding at end of period $110,083 $109,763 ==================================
Multi-family letters of credit, an off-balance sheet item, carry the same risk characteristics as conventional loans and totaled $30.5 million at September 30, 2001 and $43.8 million at December 31, 2000. Specific allocations for letters of credit totaled 3.1% of outstanding letters of credit at September 30, 2001 compared to 11.8% at December 31, 2000. Management considers the allowance for loan losses and valuation allowance for letters of credit adequate to meet losses inherent in the loan and letter of credit portfolios as of September 30, 2001. 17 Investment Securities At September 30, 2001, the investment portfolio represented 10.6% of Fidelity's assets, compared to 12.6% at December 31, 2000. The following table sets forth the components of United's available-for-sale investment portfolio as of September 30, 2001 and December 31, 2000:
September 30, December 31, 2001 2000 ------------------------------------------------------------------------------------------------------- (dollars in thousands) Federal Home Loan Mortgage Corporation mortgage-backed securities $ 666 $ 805 Federal National Mortgage Association mortgage-backed securities 482 1,095 Government National Mortgage Association Mortgage-backed securities 16,638 19,101 -------------------------------- Total securities available for sale $17,786 $21,001 ================================
The decrease in balance is the result of maturities and paydowns received during the nine months. Inherent in mortgage-backed securities is prepayment risk. Prepayment rates generally can be expected to increase during periods of lower interest rates in which we are currently experiencing as some of the underlying mortgages are refinanced at lower rates. Conversely, the average lives of these securities generally are extended as interest rates increase. Funding Sources Deposits Fidelity attracts both short-term and long-term deposits from the retail market by offering a wide assortment of accounts with different terms and different interest rates. These deposit alternatives include checking accounts, regular savings accounts, money market deposit accounts, fixed rate certificates with varying maturities, variable interest rate certificates, negotiable rate jumbo certificates ($99,000 or more), and variable rate IRA certificates. The average rate on total deposits has increased 27 basis points since December 31, 2000 to 5.42% at September 30, 2001. The average rate on total deposits has begun to decline in the last half of 2001 due to the lower interest rate environment in 2001. Borrowings United recently accessed $3.0 million in long-term advances and $3.5 million in short-term advances from the Federal Home Loan Bank to replace higher interest bearing maturing deposits. The maturity of $1.5 million in junior subordinated notes and the early extinguishment of $1.0 million in senior subordinated notes offset a portion of the increase in borrowings during the third quarter of 2001. In the following table, all notes, except for the Federal Home Loan Bank advances, are debt of the Parent Company, and total $12.9 million. 18 The following table summarizes Fidelity's long-term debt as of September 30, 2001 and December 31, 2000.
September 30, December 31, (dollars in thousands) 2001 2000 ------------------------------------------------------------------------------------------------- Note payable, 9.45% adjusted annually, payable $8 per month, including interest, due September 2010, secured by specific multi-family mortgages $ 980 975 Note payable, 9.42% adjusted annually, payable $13 per month, including interest, due September 2010, secured by specific multi-family mortgages 1,497 1,494 Note payable, 10.50%, interest paid quarterly, due June 2003, secured by United stock 1,500 1,500 Junior subordinated notes, 9.125%, interest paid semi-annually, due April 2001, unsecured 1,476 Junior subordinated notes, 9.25%, interest paid semi-annually, due January 2002, unsecured 1,494 1,494 Junior subordinated notes, 12.00%, interest paid semi-annually, due April 2004, unsecured 124 Note payable, 7.00%, interest paid monthly, due September 2002, secured by guarantors 1,325 Senior subordinated notes, 10.00%, interest paid semi-annually, due June 2005, unsecured 6,000 7,000 Federal Home Loan Bank advances, due at various dates through 2010 (weighted average rates of 5.51 and 6.72% at September 30, 2001 and December 31, 2000) 12,645 9,903 Other 8 ---------------------------- Total long-term debt $25,573 $23,842 ============================
In February 2001, Fidelity established a $1.5 million line of credit with another financial institution that may be called upon at anytime prior to its expiration in September 2002. At September 30, 2001, Fidelity has $1.3 million outstanding on the line of credit. Fidelity also had short-term borrowings of $4.5 million, which consisted of the $3.5 million in short-term advances mentioned above and $1.0 million in federal funds purchased at September 30, 2001. Capital Resources Fidelity's stockholders' equity increased $2.1 million to $10.9 million at September 30, 2001, compared to $8.8 million at December 31, 2000. The change in stockholders' equity was accounted for by net income of $147,000, a decrease in the net unrealized loss on securities available for sale of $513,000 and $1.5 million from the recently completed rights offering in June 2001. A total of 1,000,000 shares at $1.55 were issued upon the completion of the rights offering. Stockholders equity increased $1.5 million, net of expenses associated with the offering.
Required for To be well Actual adequate capital Capitalized Amount Ratio Amount Percent Amount Percent As of September 30, 2001 Total risk-based capital (to risk-weighted assets) $17,179 13.9% $9,869 8.0% $12,336 10.0% Tier 1 capital (to risk-weighted assets) 12,751 10.3 4,934 4.0 7,402 6.0 Core capital (to adjusted total assets) 12,751 8.0 6,347 4.0 7,934 5.0 Core capital (to adjusted tangible assets) 12,751 8.0 3,174 2.0 N/A Tangible capital (to adjusted total assets) 12,751 8.0 2,380 1.5 N/A As of December 31, 2000 Total risk-based capital (to risk-weighted assets) $17,830 13.8% $10,337 8.0% $12,921 10.0% Tier 1 capital (to risk-weighted assets) 13,327 10.3 5,168 4.0 7,753 6.0 Core capital (to adjusted total assets) 13,327 8.4 6,333 4.0 7,916 5.0 Core capital (to adjusted tangible assets) 13,327 8.4 3,166 2.0 N/A Tangible capital (to adjusted total assets) 13,327 8.4 2,375 1.5 N/A
19 The capital category assigned to an entity can also be affected by qualitative judgements made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios. Total capital for United consists of Tier I capital plus the allowance for loan losses. Minimum capital levels are 4% for the leverage ratio, which is defined as Tier I capital as a percentage of total assets less goodwill and other identifiable intangible assets; 4% for Tier I to risk-weighted assets; and 8% for total capital to risk-weighted assets. United's capital ratios exceed each of these levels as well as required levels to achieve "well capitalized" status. Book value per share, including unrealized losses on investment securities, increased to $1.95 at September 30, 2001, compared to $1.90 at December 31, 2000. Liquidity Fidelity's principal source of income and funds is dividends from United. Fidelity is not subject to any regulatory restrictions on the payment of dividends to its stockholders. However, United is restricted from paying any dividends to Fidelity without prior approval of the OTS. The Stock Purchase Agreement approved by shareholders in May 2000 added an additional $3.0 million in cash for Fidelity. In addition, for three years following the approval of the stock purchase agreement, Pedcor is entitled under the terms of the Stock Purchase Agreement to purchase additional shares from Fidelity in an aggregate amount up to $5.0 million. Fidelity obtained a $1.5 million line of credit in the first quarter of 2001 and can draw on this line until its expiration in September 2002. At September 30, 2001, $1.3 million was outstanding on the line of credit. Fidelity's liquidity position may be further improved by the potential issuance of additional stock to Pedcor, additional debt or equity financing, or dividends from United (with OTS approval), to the holding company. In Fidelity's recently completed common stock rights offering it received subscriptions for all 1,000,000 shares associated with the offering at a $1.55 per share. Fidelity went effective with another rights offering in September 2001. Approximately 650,000 shares are being offered at $2.50 per share in order to raise $1.6 million. Proceeds of at least $715,000 based on director and affiliate participation is expected. The offer expires on November 27, 2001. Fidelity believes that the above action will meet its future liquidity needs. The holding company has issued letters of credit that back tax-exempt bond financing for two remaining Section 42 multifamily housing developments. The bonds are periodically re-marketed to current or potential bondholders. Beginning in December 2001 through September 2002, approximately $2.1 million in bonds are due to be re-marketed. In the event that some of the bonds cannot successfully be re-marketed, Fidelity will be required to fund the difference. The amount of cash that would be required could be in excess of the amount Fidelity is anticipated to maintain. As such, alternative strategies for re-financing this debt such as utilizing the Federal Housing Administration 223(f) program are being sought. Fidelity has had prior success in refinancing Section 42 multifamily housing debt utilizing this program, however, there is no assurance that this effort will be successful. The primary sources of funds for operations are principal and interest payments on loans, deposits from customers, and sales and maturities of investment securities. In addition, United is authorized to borrow money from the FHLB and other sources as needed. United has also decreased its utilization of agency-acquired certificates of deposit as total loans have decreased and the need for these types of funds has also decreased. Item 3 - Asset/Liability Management--Quantitative and Qualitative Disclosures about Market Risk Fidelity is subject to interest rate risk to the degree that its interest bearing liabilities, primarily deposits with short and medium term maturities, mature or reprice at different rates than its interest-earning assets. Although having liabilities that mature or reprice less frequently will be beneficial in times of rising interest rates, such an asset/liability structure will result in lower net income during periods of declining interest rates, unless off-set by other factors. The OTS utilizes a model, the "Office of Thrift Supervision Net Portfolio Value" ("NPV") model, which uses a net market value methodology to measure the interest rate risk exposure of savings associations. Under this model, an institution's "normal" level of interest rate risk in the event of an assumed change in interest rates is a decrease in the institution's NPV in an amount not exceeding 2% of the present value of its assets. Savings associations with over $300 million in assets or less than 12% risk-based capital ratio are required to file the OTS Schedule CMR. Data from Schedule CMR is used by the OTS to calculate 20 changes in NPV (and the related "normal" level of interest rate risk) based upon certain interest rate changes. Associations which do not meet either of the filing requirements are not required to file OTS Schedule CMR, but may do so voluntarily. United voluntarily submits a CMR quarterly to the OTS. Under the regulation, associations which must file are required to take a deduction (the interest rate risk capital component) from their total capital available to calculate their risk based capital requirement if their interest rate exposure is greater than "normal". The amount of that deduction is one-half of the difference between (a) the institution's actual calculated exposure to a 200 basis point interest rate increase or decrease (whichever results in the greater pro forma decrease in NPV) and (b) its "normal" level of exposure which is 2% of the present value of its assets. The data for September 30, 2001 is not required to be filed with the OTS until 45 days after quarter end, which coincides with the 10-Q filing. Management monitors its interest rate sensitivity during the quarter and will request the OTS to run scenarios on the NPV model to determine the change in interest rate sensitivity for management in an effort to assist management on various decision making regarding products, maturities, repricing, etc. United has recently developed an internal model to assist in interest rate risk management. The model will continue to be developed to as closely mirror the OTS's NPV model as possible. Although United has not yet submitted its CMR to the OTS for September 30, 2001, management anticipates there has been no material change from the information disclosed in Fidelity's annual report to shareholders at December 31, 2000. 21 PART II -- OTHER INFORMATION ITEM 1 Legal Proceedings: ------------------ There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Registrant's business, to which the Registrant or its subsidiaries are a party of or which any of their property is the subject. ITEM 2 Changes in Securities and Use of Proceeds: ------------------------------------------ Not applicable. ITEM 3 Defaults Upon Senior Securities: -------------------------------- Not applicable. ITEM 4 Submission of Matters to a Vote of Security Holders: ---------------------------------------------------- Not applicable. ITEM 5 Other Information: ------------------ None ITEM 6 Exhibits and Reports on Form 8-K: --------------------------------- None 22 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 FEDERAL BANCORP Date: NOVEMBER 14, 2001 By: /s/ BRUCE A. CORDINGLEY ----------------- ------------------------ Bruce A. Cordingley Executive Committee Chairman (Acting Principal Executive Officer) By: /s/ DONALD R. NEEL ----------------------- Donald R. Neel, President and CFO (Principal Financial Officer) 23