-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WfZTGx6C+qKry6yW/pRztZ+h1IdD8Vqbi4B3Bgq2DeyE8oueHBC9j13/okSv6Kzf UawxuGrrHAPsaBuY+ZIaOA== 0000926274-03-000260.txt : 20030514 0000926274-03-000260.hdr.sgml : 20030514 20030514171942 ACCESSION NUMBER: 0000926274-03-000260 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY FEDERAL BANCORP CENTRAL INDEX KEY: 0000910492 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351894432 STATE OF INCORPORATION: IN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22880 FILM NUMBER: 03700196 BUSINESS ADDRESS: STREET 1: 700 S GREEN RIVER ROAD STREET 2: SUITE 2000 CITY: EVANSVILLE STATE: IN ZIP: 47715 BUSINESS PHONE: 8124692100 MAIL ADDRESS: STREET 1: 18 NW FOURTH ST STREET 2: PO BOX 1347 CITY: EVANSVILLE STATE: IN ZIP: 47706-1347 10-Q 1 ffb-303q.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 March 31, 2003 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 X NO --- --- Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO X --- --- As of April 25, 2003, there were 9,618,660 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 Sheets................................. 3 Condensed Consolidated Statements of Income........................... 4 Condensed Consolidated Statements of Changes in Stockholders' Equity.. 5 Condensed Consolidated Statements 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............................................... 11-16 ITEM 3--Quantitative and Qualitative Disclosures about Market Risk...... 17 ITEM 4--Controls and Procedures......................................... 18 PART II - OTHER INFORMATION............................................... 19 SIGNATURES................................................................ 21 CERTIFICATIONS............................................................ 22-23 Index to Exhibits......................................................... 24 2 Item 1 - Financial Statements Part I - Financial Information Fidelity Federal Bancorp And Subsidiaries Condensed Consolidated Balance Sheets (In thousands except share data)
March 31, December 31, 2003 2002 --------- --------- (Unaudited) Assets Cash and due from banks $ 1,269 $ 1,454 Interest-bearing demand deposits 14,883 2,369 --------- --------- Cash and cash equivalents 16,152 3,823 Investment securities available for sale 34,815 34,912 Loans, net of allowance for loan losses of $729 and $837 70,091 73,087 Premises and equipment 4,845 4,935 Federal Home Loan Bank of Indianapolis stock 2,674 2,674 Deferred income tax receivable 5,686 5,615 Foreclosed assets held for sale, net of allowance of $100 2,127 2,145 Interest receivable and other assets 5,695 5,099 --------- --------- Total assets $ 142,085 $ 132,290 ========= ========= Liabilities Deposits Non-interest bearing $ 8,832 $ 3,209 Interest bearing 104,244 103,582 --------- --------- Total deposits 113,076 106,791 Long-term debt 16,579 13,586 Valuation allowance for letters of credit 449 445 Other liabilities 2,385 1,880 --------- --------- Total liabilities 132,489 122,702 --------- --------- Commitments and Contingencies -- -- Stockholders' Equity Preferred stock, no par or stated value Authorized and unissued--5,000,000 shares Common stock, $1 stated value Authorized--15,000,000 shares Issued and outstanding--6,840,883 and 6,740,883 shares 6,841 6,741 Additional paid-in capital 15,413 15,359 Stock warrants 261 261 Accumulated deficit (13,098) (13,152) Accumulated other comprehensive income 179 379 --------- --------- Total stockholders' equity 9,596 9,588 --------- --------- Total liabilities and stockholders' equity $ 142,085 $ 132,290 ========= =========
See notes to condensed consolidated financial statements. 3 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statements of Income (In Thousands, Except Share Data) (Unaudited)
Three Months Ended March 31, 2003 2002 ----------- ----------- Interest Income Loans receivable $ 1,177 $ 2,174 Investment securities--taxable 325 310 Loans held for sale 39 -- Deposits with financial institutions 22 49 Other dividend income 39 40 ----------- ----------- Total interest income 1,602 2,573 ----------- ----------- Interest Expense Deposits 889 1,133 Short-term borrowings 14 Long-term debt 269 455 ----------- ----------- Total interest expense 1,158 1,602 ----------- ----------- Net Interest Income 444 971 Provision for loan losses (104) -- ----------- ----------- Net Interest Income After Provision for Loan Losses 548 971 ----------- ----------- Other Income Service charges on deposit accounts 106 86 Net gains on loan sales 258 519 Net gains on investment sales 320 -- Letter of credit fees 121 125 Gain on disposition of rate swap -- 72 Servicing fees on loans sold 64 37 Securitization income 60 -- Fees recaptured on automobile loans 83 5 Other income 206 86 ----------- ----------- Total non-interest income 1,218 930 ----------- ----------- Other Expenses Salaries and employee benefits 880 937 Occupancy 91 95 Equipment 99 87 Data processing 100 80 Deposit insurance 14 15 Legal and professional 51 62 Advertising 45 41 Promotions 55 49 Printing, postage, and office supplies 56 77 Insurance 62 41 Loss on investment in partnerships 20 36 Correspondent bank charges 34 33 Amortization of intangible assets -- 52 Other 254 281 ----------- ----------- Total non-interest expense 1,761 1,886 ----------- ----------- Income (Loss) Before Income Tax 5 15 Income tax expense (benefit) (50) (71) ----------- ----------- Net Income (Loss) $ 55 $ 86 =========== =========== Basic Earnings (Loss) per Share $ 0.01 $ 0.01 Diluted Earnings (Loss) per Share $ 0.01 $ 0.01 Average Common and Common Equivalent shares outstanding 6,834,216 6,023,131
See notes to condensed consolidated financial statements 4 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders' Equity (In Thousands, Except Share Data)
Three Months Ended March 31, -------------------------------------------- 2003 2002 -------- -------- Beginning Balance $ 9,588 $ 11,895 Comprehensive income (loss) Net income 55 86 Other comprehensive income - net of tax (200) (150) -------- -------- Comprehensive income (loss) (145) (64) Issuance of stock 153 162 Issuance of stock warrants 250 -------- -------- Balances, March 31 (unaudited) $ 9,596 $ 12,243 ======== ========
See notes to condensed consolidated financial statements. 5 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Three Months Ended March 31, -------------------- 2003 2002 -------- -------- Operating Activities Net income $ 55 $ 86 Adjustments to reconcile net income to net cash provided (used) by operating activities Provision for loan losses (104) -- Net gain on sales of securities available for sale (320) Depreciation and amortization 110 154 Valuation allowance--affordable housing investments -- 14 Loans originated for sale (25,558) (5,622) Proceeds from sale of loans 25,623 5,623 Changes in Interest payable and other liabilities 509 568 Interest receivable and other assets (518) (319) Other (54) 8 -------- -------- Net cash provided (used) by operating activities (257) 512 -------- -------- Investing Activities Purchases of securities available for sale (15,757) (10,209) Proceeds from sales of securities available for sale 12,098 -- Proceeds from maturities of securities available for sale 3,795 1,298 Net change in loans 3,039 2,336 Purchase of premises and equipment (20) (37) Funding on outstanding letters of credit -- (234) -------- -------- Net cash provided (used) by investing activities 3,155 (6,846) -------- -------- Financing Activities Net change in Noninterest-bearing, interest-bearing demand and savings deposits 4,724 (923) Certificates of deposit 1,561 (5,612) Short-term borrowings -- 11,000 Proceeds of long-term debt 3,000 1,777 Repayment of long-term debt (7) (1,497) Issuance of stock 153 162 Issuance of stock warrants -- 250 -------- -------- Net cash provided by financing activities 9,431 5,157 -------- -------- Net Change in Cash and Cash Equivalents 12,329 (1,177) Cash and Cash Equivalents, Beginning of Period 3,823 16,316 -------- -------- Cash and Cash Equivalents, End of Period $ 16,152 $ 15,139 ======== ======== Additional Cash Flows Information Interest paid $ 640 $ 1,533 Income tax paid (refunded) -- -- Real Estate acquired in settlement of loans -- 1,910
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 three months ended March 31, 2003 are not necessarily indicative of those expected for the remainder of the year. The condensed consolidated balance sheet at December 31, 2002 has been derived from the audited financial statements. Certain information and note disclosures normally included in the company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company's Form 10-K annual report for 2002 filed with the Securities and Exchange Commission. 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 its savings bank subsidiary, 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. o Stockholders' Equity In April 2003, Fidelity issued 2.8 million shares of common stock for $4.0 million in cash through the exercise of an option held by Pedcor Holdings and affiliates. See "Subsequent Event" footnote for additional details. During the third quarter of 2002, Pedcor Investments, LLC ("Investments") exercised a portion of their option that was granted under the stock purchase agreement in May 2000 and purchased $259,000 in common stock resulting in 137,765 shares being issued. Investments and its affiliates have a remaining option to purchase up to $4.5 million of Fidelity common stock at the current fair market value, which expires in May 2003. In July 2002, Fidelity filed a registration statement for a stockholder rights offering with the Securities and Exchange Commission. A total of 750,000 shares were registered in this filing. For every 8.1 shares of Fidelity held on the record date, shareholders could subscribe to purchase one share of Fidelity at $2.00. The rights offering was completed in September 2002. Fidelity raised $770,000, net of costs associated with the offering. The shares purchased by shareholders with these funds were issued in September 2002. In December 2001, Fidelity filed a registration statement for a debt and equity rights offering with the Securities and Exchange Commission. Subscription rights were distributed to persons who owned common stock as of the close of business on December 19, 2001 to purchase $1.5 million of 9.00% unsecured junior subordinated notes due February 28, 2009 and 500,000 warrants representing the right to purchase shares of common stock at $3.00 per share, less the purchase price of $0.50 per warrant. The offering was completed on February 28, 2002. Fidelity issued approximately $1.0 million in 9% notes and all of the 500,000 warrants, raising an additional $250,000. 7 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. United has entered into a Supervisory Agreement ("Agreement") with the Office of Thrift Supervision ("OTS"). One of the provisions of the Agreement requires prior approval from OTS for payments of dividends from United to Fidelity. Fidelity is uncertain when it will pay dividends in the future and the amount of such dividends, if any. o Other Restrictions The Agreement with the OTS is in effect until terminated, modified or suspended by the OTS. The agreement was entered into in February 1999. The agreement as written has been modified by mutual agreement to eliminate certain restrictions. Under the terms of the Agreement, United developed and submitted to the OTS for approval a strategic plan which included, 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. The Agreement indicated that United must, among other things, have taken other specified actions within specified time frames. These actions include the development of and adherence to a written plan for the reduction of classified and criticized assets to specified levels; maintenance of sufficient allowances for loan and lease losses; quarterly reporting to the OTS relating to classified assets and workout plans; restriction of its growth in total assets to an amount not in excess of an amount equal to the net interest credited on deposit liabilities without prior OTS approval; limiting growth of its consumer loan portfolio to an amount not in excess of 30 percent of its total assets; development of a written plan to divest all real estate held for development; adoption of policies and procedures designed to avoid potential conflicts of interest; development of policies and procedures to increase liquidity; adoption of a policy with respect to its mortgage brokerage activity, which would address its operation and methods for risk management; and maintenance of fully staffed and functioning internal audit and independent loan review processes. At March 31, 2003, United is also prohibited from taking certain actions without prior approval, including but not limited to: engaging in "sub prime" consumer lending activities; making capital distributions, including dividends to Fidelity; making any additional equity investments; real estate development without specific approval of the OTS; acquiring any additional real estate for future development; selling any asset to an affiliated party without prior written approval of the OTS; and engaging in any new activities not included in the strategic plan. United is also required to obtain OTS approval prior to adding or replacing any director or senior executive officer. United is also prohibited, without prior OTS approval, from entering into any contract with any executive officer or director which would require a golden-parachute payment and from increasing any executive benefit package in an amount in excess of the annual cost of living. United also developed a plan to reduce employee turnover, build an experienced staff, and provide for management succession. Previously, United was to refrain from commercial lending. However, United received OTS approval in the first quarter of 2002 to resume commercial lending on a limited basis in accordance with its business plan. Management of United has taken, or has refrained from taking, as applicable, the actions requested by the OTS. United believes it is in compliance with the provisions of the Agreement at March 31, 2003. 8 o Earnings per share Earnings per share (EPS) were computed as follows:
Three Months Ended March 31, 2003 ------------------------------------------- Weighted- Per Share Income Average Shares Amount ------------------------------------------- Net income $ 55 ========= Basic earnings per share Income (loss) available to common stockholders $ 55 6,834,216 $ 0.01 ======= Effect of dilutive securities Stock options -- -- --------- --------- Diluted earnings per share Income (loss) available to common stockholders and assumed conversions $ 55 6,834,216 $ 0.01 ========= ========= =======
Three Months Ended March 31, 2002 --------------------------------------------- Weighted- Per Share Income Average Shares Amount --------------------------------------------- Net income $ 86 ========= Basic earnings per share Income available to common stockholders $ 86 6,012,810 $ 0.01 ======= Effect of dilutive securities Stock options -- 10,321 --------- --------- Diluted earnings per share Income available to common stockholders and assumed conversions $ 86 6,023,131 $ 0.01 ========= ========= =======
Options to purchase 326,996 shares of common stock at prices ranging from $1.53 to $11.81 per share as well as stock warrants representing the right to purchase 527,753 share of common stock at prices ranging from $3.00 to $8.93 per share were outstanding at March 31, 2003, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. As discussed in the subsequent event footnote below, Fidelity issued 2,777,777 shares of common stock in April 2003 to Pedcor Holdings and affiliates. The price of these shares was $1.44 per share. The shares were not included in the calculation of basic or diluted earnings per share for the three months ended March 31, 2003. o Subsequent Event In April 2003, Fidelity issued 2,777,777 shares of common stock for $4.0 million in cash through the exercise of an option held by Pedcor Holdings and affiliates ("Pedcor"). The exercise price per share was $1.44, and was determined under a formula included in the shareholder-approved stock purchase agreement effective May 19, 2000, which resulted in Pedcor's acquisition of 1.46 million shares. The proceeds of the option exercise will be used to reduce Fidelity's long-term debt outstanding. Under the agreement, Pedcor continues to have the option to exercise up to approximately $388,000 in Fidelity common stock until May 19, 2003. 9 Pedcor Holdings is a member of a group of companies which is controlled by Bruce A. Cordingley, Gerald K. Pedigo, and Phillip J. Stoffregen, directors of Fidelity Federal. Following the option exercise, the Pedcor group owns approximately 65% of Fidelity's issued and outstanding stock. o Automobile Loan Securitization United completed an automobile loan securitization transaction in 2002. A summary of the components of managed loans, which represents both owned and securitized loans, follows. The automobile loans presented represent the managed portfolio of indirect prime automobile loans. Loans Past Principal Due Over As of March 31, 2003 Balance 30 Days - ------------------------------------------------------------------------------- Total managed automobile loans $ 77,174 $201 Less: Automobile loans securitized (36,555) (87) Automobile loans serviced (24,130) (41) ------------------------------ Total automobile loans held in portfolio $ 16,505 $ 73 ============================== United estimates the fair value of the retained interest at the date of the transfer and during the period of the transaction based on a discounted cash flow analysis. United receives annual servicing fees based on the loan balances outstanding, the rights to future cash flows arising after investors in the securitization trust have received their contractual return and after certain administrative costs of operating the trust. These cash flows are estimated over the life of the loans using prepayment, default and interest rate assumptions that market participants would use for financial instruments subject to similar levels of prepayment, credit and interest rate risk. A summary of the fair values of the interest-only strips and servicing assets retained, key economic assumptions used to arrive at the fair values, and the sensitivity of the March 31, 2003 fair values to immediate 10% and 20% adverse changes in those assumptions follows. Actual credit losses experienced through year-end 2002 and thus far in 2003 on the pool of automobile loans securitized have been consistent with initial projections. As such, the expected static pool loss assumption would perform consistently with that disclosed in the sensitivity analysis. The sensitivities are hypothetical. Changes in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might either magnify or counteract the sensitivities.
Weighted- Monthly Expected Average Prepayment Cumulative Annual Weighted- Fair Life Speed Credit Discount Average Value (in months) (% ABS) Losses Rate Coupon -------------------------------------------------------------------- Interest-only strip As of the date of securitization $ 2,707 39 1.50% 1.50% 15.0% 9.09% As of March 31, 2003 2,107 28 1.87 1.50 15.0 8.67 Decline in fair value of 10% adverse change $ 60 $ 24 $ 43 Decline in fair value of 20% adverse change 117 48 85 Servicing asset As of the date of securitization 362 39 1.50% 1.50% 15.0% As of March 31, 2003 * 244 28 1.87 1.50 15.0 Decline in fair value of 10% adverse change $ 17 $ 0 $ 5 Decline in fair value of 20% adverse change 33 0 10
* Carrying value of the servicing asset approximated fair value at March 31, 2003. 10 o Stock Option Stock options and Fidelity's stock-based incentive compensation plans are discussed more fully in the notes to Fidelity's December 31, 2002 audited financial statements contained in Fidelity's annual report. Fidelity accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price that was equal to or greater than the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if Fidelity had applied the fair value provisions of FASB statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. Three Months Ended March 31 2003 2002 - -------------------------------------------------------------------------------- Net income as reported $ 55 $ 86 Less: Total stock-based compensation cost determined under the fair value based method, net of income taxes (8) (6) ----------------- Pro forma net income $ 47 $ 80 ================= Basic earnings per share - as reported $0.01 $0.01 Basic earnings per share - pro forma $0.01 $0.01 Diluted earnings per share - as reported $0.01 $0.01 Diluted earnings per share - pro forma $0.01 $0.01 o Reclassifications Reclassifications of certain amounts from the condensed consolidated income statements for the three-month period ended March 31, 2002 have been made to conform to the presentation of the three-month period ended March 31, 2003. These reclassifications had no effect on net income. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Fidelity Federal. The information contained in this section should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report. Portions of this Management's Discussion and Analysis, as well as the notes to the consolidated financial statements contain certain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), which reflect management's current beliefs and expectations and are intended to benefit the reader. These forward-looking statements are inherently subject to various risks and uncertainties which may cause actual results to differ materially from expected results. Such risks and uncertainties include, but are not limited to, economic conditions, generally and in the market areas of the Company, increased competition in the financial services industry, actions by the Federal Reserve Board, changes in interest rates and governmental regulation and legislation. Comparison of Financial Condition at March 31, 2003 and December 31, 2002 Total assets at March 31, 2003 were $142.1 million, an increase of $9.8 million from $132.3 million at December 31, 2002. The increase in total assets was primarily attributable to an $12.5 million increase in interest-bearing demand deposits resulting from the sale of $8.5 million in consumer loans at the end of the quarter and net deposit inflows. Investment securities decreased $97,000 to $34.8 million at March 31, 2003. United's investment portfolio consists entirely of mortgage related securities and classified as "available for sale". Approximately $12.0 million of securities were sold during the first quarter of 2003 due to continued rapid prepayments in connection with the low market rate environment, but replaced with approximately $15.8 million in similar mortgage-backed securities. 11 Net loans decreased $3.0 million to $70.1 million at March 31, 2003. The decline is primarily associated with a $1.8 million decrease in fixed rate 1-4 family loans. Fidelity continues to sell its current production, and use the proceeds to fund future originations. The remainder of the decline is the result of consumer loan sales completed during the first quarter of 2003. The allowances for loan losses decreased to $729,000 at March 31, 2003, from $837,000 at December 31, 2002. The decline was due to a $104,000 credit to the provision for loan losses and $4,000 in net charge-offs. The allowance for loan losses represented 1.03% of total loans at March 31, 2003, a decrease from 1.13% at December 31, 2002. Relative to non-performing assets, the allowance for loan losses was 21.1% at March 31, 2003, compared to 27.4% at December 31, 2002. The following table sets forth an analysis of the allowance for loan losses for the three months ended March 31, 2003 and the year ended December 31, 2002:
Three months ended Year ended March 31, December 31, 2003 2002 --------------- --------------- (dollars in thousands) Allowance for loan losses at beginning of period $ 837 $2,138 Provision for losses (104) (360) Loans charged off (51) (1,954) Recoveries on loans 47 1,013 --------------- --------------- Allowance for loan losses at end of period $ 729 $ 837 =============== ===============
Total deposits increased $6.3 million to $113.1 million at March 31, 2003, from $106.8 million at December 31, 2002. Approximately $5.6 million of the increase was associated with an increase in non-interest bearing commercial accounts and the remaining increase was in certificates of deposit. The balance of non-interest bearing deposit accounts has historically fluctuated, and the increase is expected to be temporary. Long-term debt increased $3.0 million to $16.6 million at March 31, 2003 due to new FHLB advances of $3.0 million received during the first quarter of 2003. Excluding Federal Home Loan Bank advances, all remaining debt is owed by the parent company which totals $10.6 million at both March 31, 2003 and December 31, 2002. Total stockholders' equity increased $8,000 to $9.6 million at March 31, 2003. The increase was attributable to net income of $55,000 and the issuance of stock totaling $153,000 from the exercise of a stock option under the shareholder approved stock purchase agreement, which was partially offset by a $200,000 decrease in the net unrealized gain on investment securities available for sale. Non-Performing Assets Non-performing assets increased $399,000 from December 31, 2002 to $3.5 million or 2.4% of total assets at March 31, 2003. The increase is primarily due to one large residential loan being placed in non-accrual status while awaiting foreclosure. 12 The following table provides information on Fidelity's non-performing assets as of March 31, 2003 and December 31, 2002: March 31, December 31, 2003 2002 - ---------------------------------------------------------------------------- (Dollars in Thousands) Non-accrual loans Consumer $ 96 $ 131 Commercial 388 388 Real estate mortgage 754 356 ------ ------ Total non-accrual loans 1,238 875 Restructured Consumer 43 39 Commercial 51 -- ------ ------ Total restructured loans 94 39 90 days or more past due and accruing Mortgage -- 1 Consumer -- -- Commercial -- -- ------ ------ Total 90 days or more past due and accruing -- 1 Other real estate owned and repossessed assets 2,127 2,145 ------ ------ Total other non-performing assets Total non-performing assets $3,459 $3,060 ====== ====== Ratio of non-performing assets to total assets 2.43% 2.31% ====== ====== Other Real Estate Owned Other real estate owned totaled $2.1 million at March 31, 2003, which is consists of residential and non-residential properties. United is actively seeking disposition of the properties. Classified Assets Classified assets totaled $6.4 million at March 31, 2003 compared to $6.1 million at December 31, 2002. Total classified assets were 59.3% and 55.4% of Fidelity's capital and reserves at March 31, 2003 and December 31, 2002, respectively. In addition to the classified assets and letters of credit, there are other assets and letters of credit totaling $6.8 million at March 31, 2003, compared to $11.9 million at December 31, 2002, for which management was closely monitoring the borrower's abilities to comply with payment terms. Capital Resources United is subject to various regulatory capital requirements administered by the federal banking agencies and is assigned to a capital category. The assigned category is largely determined by three ratios that are calculated according to the regulations: total risk adjusted capital, Tier I capital, and Tier I leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios. There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. At March 31, 2003 and December 31, 2002, United is categorized as well capitalized and met all subject capital adequacy requirements. 13
United's Capital Ratios Required for To be well Actual Adequate capital Capitalized Amount Ratio Amount Percent Amount Percent As of March 31, 2003 Total risk-based capital (to risk-weighted assets) $11,159 12.8% $6,962 8.0% $8,703 10.0% Tier 1 capital (to risk-weighted assets) 8,998 10.3 3,481 4.0 5,222 6.0 Core capital (to adjusted total assets) 11,105 8.3 5,367 4.0 6,708 5.0 Core capital (to adjusted tangible assets) 11,105 8.3 2,683 2.0 N/A N/A Tangible capital (to adjusted total assets) 10,676 8.0 2,006 1.5 N/A N/A As of December 31, 2002 Total risk-based capital (to risk-weighted assets) $11,107 12.5% $9,497 8.0% $11,871 10.0% Tier 1 capital (to risk-weighted assets) 8,823 10.0 4,748 4.0 7,122 6.0 Core capital (to adjusted total assets) 10,929 8.8 5,998 4.0 7,497 5.0 Core capital (to adjusted tangible assets) 10,929 8.8 2,999 2.0 N/A N/A Tangible capital (to adjusted total assets) 10,520 8.5 2,249 1.5 N/A N/A
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 under the terms of the Supervisory Agreement. The Stock Purchase Agreement approved by Fidelity's shareholders in May 2000 provides that, for three years following the approval of the stock purchase agreement, Pedcor is entitled to purchase additional shares at market value from Fidelity in an aggregate amount up to $5.0 million. Approximately $4.4 million remained available under this option at March 31, 2003. As discussed in the "Subsequent Event" footnote, Pedcor Holdings and affiliates acquired 2,777,777 shares of common stock for $4.0 million in cash in April 2003 therefore leaving approximately $388,000 in unexercised options. 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 2003. At March 31, 2003, no amount 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. Fidelity believes that the above actions will assist it in meeting its future liquidity needs. o Comparison of Operating Results for the Three Months Ended March 31, 2003 and 2002 General. Net income for the quarter ended March 31, 2003 was $55,000 compared to $86,000 for the quarter ended March 31, 2002. Net interest income decreased, while non-interest income increased and non-interest expense decreased. 14 Net Interest Income The following table summarizes Fidelity's average interest-earning assets and average interest-bearing liabilities with the accompanying average rates for the first three months of 2003 and 2002:
Three Months Ended March 31, (dollars in thousands) --------------------- 2003 2002 --------- --------- Interest-earning assets $ 116,127 $ 138,350 Interest-bearing liabilities 119,140 139,525 --------- --------- Net interest-earning assets or (interest-bearing liabilities) $ (3,013) $ (1,175) ========= ========= Average yield on: Interest-earning assets 5.59% 7.54% Interest-bearing liabilities 3.94 4.66 --------- --------- Net interest spread 1.65% 2.88% ========= ========= Net interest margin 1.55% 2.85% ========= =========
Net interest income for the first three months of 2003 was $444,000 compared to $971,000 earned during the first three months of 2002. Total interest income decreased $971,000 to $1.6 million for the quarter ended March 31, 2003 from $2.6 million for the same quarter in 2002. During the first quarter of 2002, an additional $156,000 in interest income was recognized on previously charged off loans compared to none in 2003. The remaining decrease in interest income was primarily attributable to a decrease in average consumer loans of $25.9 million resulting in the completion of the securitization transaction in the third quarter of 2002. The decrease in average balances in combination of partially replacing these assets at lower yields resulted in a decrease in consumer loan interest income of $665,000. Interest expense decreased $444,000 due to a combination of a decrease of $76,000 and $170,000 due to a decrease in certificate of deposits volume and rate, respectively. The primary remaining decrease is associated with the decrease in volume and rate of FHLB advances. The following table sets forth the details of the rate and volume change for the first three months of 2003 compared to the same period in 2002. Three Months Ended March 31, 2003 vs 2002 Increase (Decrease) Due to change in --------------------------- Volume Rate Total ------ ---- ----- Interest Income: Loans and mortgage-backed securities $(502) $(440) $(942) Other interest-earning assets (16) (13) (29) ----- ----- ----- Total interest-earning assets (518) (453) (971) Interest Expense: Deposits (76) (170) (246) FHLB advances and other borrowings (185) (13) (198) ----- ----- ----- Total interest-bearing liabilities (261) (183) (444) ----- ----- ----- Change in net interest income $(257) $(270) $(527) ===== ===== ===== Provision for Loan Losses and Letters of Credit Valuation Provision The provision for loan losses for the three months ended March 31, 2003 was a credit of $104,000 compared to zero for the three months ended March 31, 2002. Additional loan loss provisions were made during the current quarter based on loan growth, delinquency and charge-off trends. However, these provisions were offset by the reversal of $179,000 in consumer loan allowances as a result of excess reserves created from consumer loan sales completed during the quarter. 15 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. Specific reserves are assigned to certain credits. The reserves are determined by management's evaluation of those credits, which include evaluations of borrower's ability to repay outstanding debt, as well as the value of supporting collateral. The results of internal loan reviews, previous regulatory reviews, and past events assist Fidelity in making that evaluation. The independent support for the allowance for loan losses and letter of credit valuation reserve includes documentation that supports the amount of recorded reserves for these credits. General reserves for loans and letters of credit not specifically reserved are also determined. Fidelity computes general reserves for the commercial, commercial mortgage, residential mortgage and consumer loan 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 three months ended March 31, 2003 was $1.2 million compared to $930,000 for the same period in 2002, an increase of $288,000. Net gains on loan sales decreased $261,000 from the prior year's quarter due to a decrease in volume of automobile loans sold. A $320,000 gain on the sale of available for sale investments was recognized in the most recent quarter compared to zero in the same quarter in 2002. Increased prepayment speeds, remaining premiums and pricing made it advantageous to sell the securities as opposed to holding them. Although the entire investment portfolio is available for sale, Fidelity believes the sale of investment securities are considered non-recurring in nature. A $72,000 gain on the sale of an interest rate swap was recognized in 2002 compared to zero in 2003. Income of $60,000 was recognized on the retained interests in securitized assets. An increase in early payoffs on automobile loans due to the historically low interest rate environment resulted in the recapture of $83,000 in fees previously paid to automobile dealerships compared to $5,000 for the same period in 2002. Included in other income were non-recurring items which Fidelity received during the first quarter of 2003 totaling approximately $125,000 from Fidelity's active participation in affordable housing activities, which ended late last year. Non-interest expense Non-interest expense decreased $125,000 to $1.8 million for the quarter ended March 31, 2003 compared to $1.9 million for the same period in 2002. Salaries and employee benefits decreased $57,000 from the first three months of 2002 due to efficiencies created. Data processing expense increased $20,000 over the prior year due to increased volume of mortgage and consumer loans serviced when compared to the same period in 2002. Printing, postage and office supplies decreased $21,000 from the prior year due to various improvements made in the purchasing and printing process. Professional liability insurance expense increased $21,000 over the prior year due to rate increases for insurance resulting from terrorism and corporate governance issues that have occurred over the past year. Intangible asset amortization was $52,000 for the first three months of 2002 compared to zero in 2003 due to the change in the estimated lives of these assets in the third quarter of 2002. Income tax benefit The income tax benefit was $50,000 for the three months ending March 31, 2003 compared to a $71,000 benefit in the same period last year. Included in this benefit are tax credits of $50,000. These credits are received from Fidelity's remaining investments in limited partnership interests 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 March 31, 2003 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 not all carryforwards would be utilized within the carryforward periods (federal and state) and a valuation allowance would be necessary. The analyses assume that Fidelity will execute approximately 50% of the initiatives included within its current business plan and then achieve 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. Due to capital gains generated as a result of the sale of two Company subsidiaries, and a 16 level of projected profitability for 2002 being less than originally anticipated, Fidelity established a valuation allowance of $500,000 at December 31, 2002. Fidelity considers the current valuation allowance adequate at March 31, 2003 based upon the results of the above analysis and assumptions, but cannot assure that future income will be enough to support the current level of deferred taxes. The assumptions 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. Critical Accounting Policies Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. A loan is considered impaired when, based on current information and events, it is probable that Fidelity or any of its wholly owned subsidiaries will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, United does not separately identify individual consumer and residential loans for impairment disclosures. Recently Issued Accounting Guidance In November 2002, the FASB issued Interpretation No. 45, (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this Interpretation are effective for periods ending after December 15, 2002. Adoption of the requirements of FIN 45 did not have a material effect on Fidelity's Consolidated Financial Statements. 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. 17 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 changes in NPV (and the related "normal" level of interest rate risk) based upon certain interest rate changes (discussed below). 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 March 31, 2003 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 with its decision making regarding the maturities and pricing of its products. Although United has not yet submitted its CMR to the OTS for March 31, 2003, management anticipates there has been no material change from the information disclosed in Fidelity's annual report to shareholders at December 31, 2002. Item 4 - Controls and Procedures a. Evaluation of Disclosure Controls and Procedures. Fidelity's principal executive officer and principal financial officer have concluded that Fidelity's disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of a date within ninety (90) days prior to the filing date of this Form 10-Q, are effective. b. Changes in Internal Controls. There have been no significant changes in Fidelity's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation thereof, including any corrective actions with regard to significant deficiencies and material weaknesses. c. Limitations on the Effectiveness of Controls. Fidelity's management, including its principal executive officer and principal financial officer, does not expect that Fidelity's disclosure controls and procedures and other internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. d. CEO and CFO Certifications. Appearing immediately following the Signatures section of this report there are Certifications of Fidelity's principal executive officer and principal financial officer. The Certifications are required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This Item of this report which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. 18 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: ------------------------------------------ On December 3, 2002, Fidelity sold 133,460 shares of common stock at a price of $1.70 per share, or approximately $226,882 in aggregate, to certain accredited investors. Fidelity had reasonable grounds to believe that the investors were accredited investors, capable of evaluating merits and risks of this investment, and who acquired the shares for investment purposes. The transactions were private in nature, and the shares were issued in reliance upon Section 4(2) and /or Rule 506 promulgated under the Securities Act of 1933, as amended. On April 1, 2003, Fidelity issued an aggregate of 2,777,777 shares of common stock at the exercise price of $1.44 per share, or approximately $4,000,000 in aggregate, to Pedcor Holdings, LLC and Pedcor Bancorp as a result of their exercise of a stock option. Fidelity had reasonable grounds to believe that the investors were accredited investors, capable of evaluating merits and risks of this investment, and who acquired the shares for investment purposes. The transactions were private in nature, and the shares were issued in reliance upon Section 4(2) of the Securities Act of 1933, as amended. Bruce A. Cordingley, Gerald K. Pedigo and Phillip J. Stoffregen, directors of Fidelity, are executive officers of Pedcor Holdings, LLC and Pedcor Bancorp. 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: --------------------------------- Exhibit Number Description -------------- ----------- a. 3(i) (a) Articles of Incorporation of Fidelity, filed as exhibit 3(a) to Fidelity's 1995 Annual Report on Form 10-K, are incorporated herein by reference 3(i) (b) Articles of Amendment of the Articles of Incorporation, filed as exhibit 4.1 with Fidelity's Registration Statement on Form S-3 (file no. 333-53668), are incorporated by reference 3(ii) By-Laws of Fidelity, filed as exhibit 4.2 with Fidelity's Registration Statement on Form S-3 (file no. 333-53668), are incorporated by reference 10 (a) The 1993 Director's Stock Option Plan, filed as exhibit 10(d) to Fidelity's 1995 Annual Report on Form 10-K, is incorporated herein by reference. (b) The 1995 Key Employee's Stock Option Plan, filed as exhibit 10(c) to Fidelity's 1996 Annual Report on Form 10-K, is incorporated herein by reference. (c) Employment agreement between Fidelity and Donald R. Neel, filed as exhibit 10(d) to Fidelity's 2000 Annual Report on Form 10-K, is incorporated herein by reference b. A form 8-K was filed on April 23, 2003 On April 22, 2003, Fidelity issued a press release in connection with Fidelity's first quarter 2003 earnings release. 19 A form 8-K was filed on April 7, 2003 On April 4, 2003, Fidelity issued a press release reporting that it had issued 2,777,777 shares of common stock for $4.0 million in cash through the exercise of an option held by Pedcor Holdings and affiliates. A form 8-K was filed on February 20, 2003 On February 20, 2003, Fidelity issued a press release in connection with Fidelity Federal's quarterly earnings release and completion of the sale of its affordable housing subsidiaries and related assets. 99.1 Regulation FD Disclosure - Chief Executive Officer 99.2 Regulation FD Disclosure - Chief Financial Officer 20 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: May 14, 2003 By: /s/ DONALD R. NEEL - ------------------ ----------------------------- Donald R. Neel President and CEO By: /s/ MARK A. ISAAC ----------------------------- Mark A. Isaac Vice President and CFO (Principal Financial Officer) 21 CERTIFICATIONS I, Donald R. Neel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fidelity Federal Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Donald R. Neel ----------------------------- Donald R. Neel President and CEO (principal executive officer) 22 I, Mark A. Isaac, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fidelity Federal Bancorp; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect the internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Mark A. Isaac ----------------------------- Mark A. Isaac Vice President and CFO (principal financial officer) 23 Index to Exhibits Page Exhibit Number Exhibit - ------------------------------------------------------------------------------- 99.1 Regulation FD Disclosure - Chief Executive Officer 99.2 Regulation FD Disclosure - Chief Financial Officer 24 EX-99.1 3 ex99-1.txt Exhibit 99.1 On May 14, 2003, Fidelity Federal Bancorp (the "Registrant") filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the period ended March 31, 2003. The certification by the Registrant's Chief Executive Officer required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, accompanied such Quarterly report. EX-99.2 4 ex99-2.txt Exhibit 99.2 On May 14, 2003, Fidelity Federal Bancorp (the "Registrant") filed with the Securities and Exchange Commission its Quarterly Report on Form 10-Q for the period ended March 31, 2003. The certification by the Registrant's Chief Financial Officer required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, accompanied such Quarterly report. -----END PRIVACY-ENHANCED MESSAGE-----