10-K 1 ffb-04k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2004 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from ______ to __________. Commission File No. 0-22880 Fidelity Federal Bancorp ------------------------ (Exact name of registrant as specified in its charter) Indiana 35-1894432 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 18 North West Fourth Street, PO Box 1347, Evansville, Indiana 47706-1347 ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (812) 424-0921 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $12 Stated Value ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X --- --- The aggregate market value of voting stock held by non-affiliates of the Registrant (for purposes of such calculation, included are persons who are not directors, executive officers, or holders of more than 10% of the registrant's common stock) based on the average bid and asked prices of such stock at June 30, 2004 was approximately $4,764,327. The number of shares outstanding of the registrant's common stock as of March 11, 2005 was 772,500 shares, with a $12 stated value. DOCUMENTS INCORPORATED BY REFERENCE Documents Part of Form 10-K into which Incorporated --------- ----------------------------------------- Portions of the 2004 Annual Report to Shareholders Part II Exhibit Index is on page 32 FIDELITY FEDERAL BANCORP Index PART I Page ---- ITEM 1 - Business 4 ITEM 2 - Properties 14 ITEM 3 - Legal Proceedings 14 ITEM 4 - Submission of Matters to a Vote of Security Holders 15 PART II ITEM 5 - Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 15 ITEM 6 - Selected Financial Data 15 ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation 15 ITEM 7A - Quantitative and Qualitative Disclosures About Market Risk 15 ITEM 8 - Financial Statements and Supplementary Data 15 ITEM 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 15 ITEM 9A - Controls and Procedures 15 ITEM 9B - Other Information 16 PART III ITEM 10 - Directors and Executive Officers of the Registrant 16 ITEM 11 - Executive Compensation 18 ITEM 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 25 ITEM 13 - Certain Relationships and Related Transactions 27 ITEM 14 - Principal Accountant Fees and Services 28 PART IV ITEM 15 - Exhibits and Financial Statement Schedules 29 SIGNATURES 31 2 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This report contains certain forward-looking statements that are subject to risks and uncertainties and includes information about possible or assumed future results of operations. Many possible events or factors could affect our future financial results and performance. This could cause results or performance to differ materially from those expressed in our forward-looking statements. Words such as "expects", "anticipates", "may", "could", "intends", "projects", "believes", "estimates", and variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Investors and readers should not rely solely on or place undue reliance on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. These statements are representative only on the date hereof. Possible events or factors that could affect our future financial results and performance include the following: the dependence of our loan growth and funding on economic conditions, as well as various discretionary factors, such as decisions to sell or purchase certain loans or loan portfolios; participations of loans; retention of residential mortgage loans; and the management of a borrower. The rate of charge-offs and loan and letter of credit loss provisions can be affected by local, regional and international economic and market conditions, concentrations of borrowers, industries, products and geographic locations, the mix of the loan portfolio and management's judgments regarding the collectibility of loans. Liquidity requirements may change as a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will impact our capital and debt financing needs and the mix of funding sources. Decisions to purchase, hold or sell securities are also dependent on liquidity requirements and market volatility, as well as on and off-balance sheet positions. Factors that may impact interest rate risk include local, regional and international economic conditions, levels, mix, maturities, yields or rates of assets and liabilities, and the wholesale and retail funding sources of United Fidelity Bank ("United"). We are also exposed to the potential of losses arising from adverse changes in market rates and prices which can adversely impact the value of financial products, including securities, loans, deposits, debt and derivative financial instruments, such as futures, forwards, swaps, options, and other financial instruments with similar characteristics. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC, state regulators and the Office of Thrift Supervision, whose policies and regulations could affect our results. Other factors that may cause actual results to differ from the forward-looking statements include the following: competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies and insurance companies, as well as other entities which offer financial services, located both within and outside the United States, and through alternative delivery channels such as the Internet; interest rate, market and monetary fluctuations; inflation; market volatility; general economic conditions and economic conditions in the geographic regions and industries in which we operate; introduction and acceptance of new banking-related products, services and enhancements; fee pricing strategies; mergers and acquisitions; and our ability to manage these and other risks. 3 PART I ------ ITEM 1. BUSINESS ----------------- Termination of Registration Requirements On November 10, 2004, Fidelity announced a plan to terminate registration of its common stock. The Board of Directors unanimously approved a 1-for 30,000 reverse stock split in order to terminate the registration of its common stock with the Securities and Exchange Commission and result in the delisting of its shares on the NASDAQ. The reverse stock split was immediately followed by a 2,500-for-1 stock split. The effective dates for both the reverse and forward stock splits was February 28, 2005. On March 11, 2005, Fidelity filed Form 15 with the Securities and Exchange Commission notifying it of the completion of the reverse stock split and delisting of its shares on NASDAQ. Approximately $3.2 million will be paid out to fractional shareholders as a result of the reverse split in 2005 thus reducing shareholder's equity and cash. Additional details regarding this transaction may be found in the Schedule 13E-3 as filed with the Securities and Exchange Commission. All shares, options, warrants, and per share amounts throughout the Form 10-K and exhibits have been adjusted for the reverse and forward splits. Overview Fidelity Federal Bancorp ("Fidelity"), incorporated in 1993 under the laws of the State of Indiana, is a registered savings and loan holding company with its principal office in Evansville, Indiana. Fidelity's savings bank subsidiary, United, was organized in 1914 and is a federally-chartered stock savings bank located in Evansville, Indiana. United is primarily engaged in the business of attracting savings deposits from the general public, Federal Home Loan Bank advances and other wholesale funding savings, and investing such funds in loans served by one-to-four family residential real estate located primarily in Vanderburgh and the surrounding counties in southern Indiana. United originates consumer loans on a direct basis in its offices. United previously originated consumer loans on a indirect basis through automobile dealers for the purchase of automobiles in southern Indiana, western Kentucky, southern Illinois and southeast Missouri. During the third quarter of 2004, United terminated the origination of indirect loans to allocate resources to more traditional community bank lending activities, and reduced full-time equivalent employees by approximately six. In addition, United originates commercial loans secured by real estate in addition to nonresidential real estate, other types of consumer loans, commercial and home equity. United also invests in interest-bearing deposits in other banks, mortgage-backed securities and other investments permitted by applicable law. United conducts business from its main office in Evansville, Indiana and from four full-service branch offices. Three of United's branch offices are located in Evansville. The fourth branch office is located in Warrick County which is adjacent to Vanderburgh County. United's primary retail market area consists of the Indiana counties of Vanderburgh, Posey, Gibson and Warrick. United's subsidiary, Village Capital Corporation, has earned fees in the past by providing real estate mortgage banking services, and currently records income on a rate cap/floor agreement on a credit extension to an unrelated borrower that was completed in 1995. In 2001 United formed a new subsidiary, United Fidelity Finance, for purposes of acquiring, owning, purchasing, holding, selling, transferring, pledging and otherwise dealing with automobile loan receivables. United Fidelity Finance was utilized during 2002 to complete an automobile loan securitization transaction and held no assets as of December 31, 2004. Fidelity had consolidated total assets of $200.6 million and total shareholders' equity of $16.3 million as of December 31, 2004. 4 Fidelity's subsidiaries at December 31, 2004 are listed below:
Subsidiary Principal Office Year Organized Assets (in thousands) ---------- ---------------- -------------- --------------------- United Fidelity Bank, fsb Evansville, IN 1914 $198,086 Subsidiaries of United Fidelity Bank, fsb: Village Capital Corporation Evansville, IN 1994 $362 United Fidelity Finance Evansville, IN 2001 $0
Fidelity's home office is located at 18 North West Fourth Street, Evansville, Indiana, 47708, and its telephone number is (812) 424-0921. Personnel As of December 31, 2004, Fidelity had 51.5 full-time equivalent employees. The employees are not represented by any collective bargaining unit. Fidelity believes its relations with its employees are good. Fidelity maintains group life, hospital, surgical, dental, major medical, and long-term disability programs for full-time employees. Fidelity also participates in a defined benefit pension plan covering all eligible employees, as well as a defined contribution 401(k) plan. As of January 1, 2004, Fidelity`s defined benefit pension plan was amended to freeze the plan. As a result, the annual retirement benefit payable to a participant at age 65 will not increase after January 1, 2004. LENDING ACTIVITIES General United's lending activities include the origination of permanent loans and construction loans secured by one-to-four family homes located in United's primary market area, commercial real estate loans secured primarily by one-to-four family homes, direct automobile loans and other types of consumer loans, which include loans secured by deposit accounts, home equity lines of credit and unsecured loans. United also originates commercial loans other than those secured by real estate. United's net loan portfolio was approximately $110.8 million at December 31, 2004, and represented 55.2% of total assets. The following table presents certain information in respect of the composition of United's loan portfolio at the dates specified:
At December 31, ------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ------------------------------------------------------------------------------------------------- Percent Percent Percent Percent Percent Amount of Amount of Amount of Amount of Amount of total total total total total loans loans loans loans loans ------------------------------------------------------------------------------------------------- Real estate mortgage loans First mortgage loans Conventional $38,226 34.28% $41,754 41.27% $36,157 48.91% $43,929 41.22% $47,809 43.56% Construction 4,471 4.01 2,042 2.01 1,909 2.58 513 0.48 1,274 1.16 Commercial 16,251 14.57 9,144 9.04 5,645 7.64 6,114 5.74 6,873 6.26 Multi-family loans 594 0.53 213 0.21 3,083 4.17 3,856 3.62 4,350 3.96 Home equity loans 6,144 5.51 5,067 5.01 4,586 6.20 4,577 4.29 5,274 4.80 First mortgage real estate loans purchased 385 0.35 778 0.77 627 0.85 745 0.70 1,753 1.60 ------------------------------------------------------------------------------------------------ 66,071 59.24 58,998 58.31 52,007 70.35 59,734 56.05 67,333 61.34 Commercial loans, other than secured by real estate 4,136 3.71 3,138 3.10 2,210 2.99 1,848 1.73 2,305 2.10 Consumer loans 41,320 37.05 39,038 38.59 19,707 26.66 44,988 42.21 40,125 36.56 ------------------------------------------------------------------------------------------------ Total loans 111,527 100.00 101,174 100.00 73,924 100.00 106,570 100.00 109,763 100.00 Allowance for loan losses (756) (737) (837) (2,138) (1,921) ------- ------- ------- ------- ------- Net loans 110,771 100,437 73,087 104,432 107,842 ======= ======= ======= ======= ======= Total assets 200,558 175,390 132,290 159,659 166,466 ======= ======= ======= ======= ======= Total loans to total assets 55.6 57.7% 55.9% 66.7% 65.9% ======= ======= ======= ======= =======
5 Residential Mortgage Loans A substantial portion of United's lending activity involves the origination of loans secured by residential real estate consisting of single-family dwelling units. The residential mortgage loans included in United's portfolio are primarily conventional fixed-rate loans with a maturity of up to 30 years, which represent approximately a third of the portfolio. United also offers adjustable-rate mortgage loans, which account for the remainder of the portfolio. Currently, these loans generally have interest rates that adjust (up or down) every year. Generally, these loans provide for a maximum adjustment of 6% over the life of the loans, with a maximum adjustment of 2% during any given year. Adjustments are based upon an index established at the time the commitments are issued by United. The index used for most loans is tied to the applicable United States Treasury security index. While adjustable-rate mortgage loans assist United in maintaining a positive spread during periods of high interest rates, it is not expected that adjustments in interest rates on adjustable-rate mortgages will precisely match changes in United's cost of funds. The majority of the adjustable rate mortgages originated by United have limitations on the amount (generally 6%) and frequency of interest rate changes. During the year ended December 31, 2004, United originated $19.1 million of residential loans, of which $9.6 million were five-to-30-year fixed-rate mortgages and $9.5 million of which were adjustable-rate loans. The rates offered on United's adjustable rate residential mortgage loans are generally competitive with the rates offered by other thrift and financial institutions in United's market area and are based upon United's cost of funds and rate of return United can receive on comparable investments. Fixed-rate loans are originated only under terms and conditions, using documentation which permit their sale in the secondary market, and at rates which are generally competitive with rates offered by other financial institutions in United's market areas. During 2004, United sold most of its fixed rate mortgages in the secondary market. Substantially all of United's residential mortgages include so called "due on sale" clauses, which are provisions giving United the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage, and the loan is not repaid. Generally, United will not lend more than 80% of the appraisal value of residential property which is owner occupied unless the borrower obtains private mortgage insurance reducing the uninsured portion of the loan to 75% or less of the appraised value. If private mortgage insurance is obtained, United's policy is to lend up to 103% of the value of the property securing the loan. Construction Loans United offers residential construction loans both to owner-occupants and to persons building residential property. Construction loans are usually offered with rates of interest that remain fixed during construction. Generally, construction loans have terms ranging from six to 12 months at fixed rates over the construction period. Construction loan documents generally provide for a transition to permanent loans at the end of the construction period. Construction loans represented 4% of total loans at December 31, 2004. Commercial Real Estate Loans United also originates commercial real estate loans. Commercial real estate loans increased from $9.1 million at December 31, 2003 to $16.3 million at December 31, 2004. United resumed commercial lending activities in February of 2002 and has continued to increase the portfolio in 2003 and 2004 with loans secured primarily with one-to-four family real estate and owner-occupied commercial property. Generally, commercial real estate loans involve greater risk to United than do residential loans, but usually provide for a higher rate of interest and increased fee income than do residential loans. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income producing properties is typically dependent on the successful operation of the related project and thus may be subject to a greater extent to adverse conditions in the real estate market or in the economy in general. 6 Multifamily Loans Multifamily lending is generally considered to involve a higher degree of risk because the borrower typically depends upon income generated by the project to cover operating expenses and debt service. The profitability of a project can be affected by economic conditions, government policies and other factors beyond the control of the borrower. Multifamily loans have decreased from $3.1 million at December 31, 2002 to $594,000 at December 31, 2004. Home Equity Loans Home equity lines of credit are originated for terms of up to thirty years. Such loans are secured by a first or second mortgage on the borrower's principal residence. Home equity loans totaled $6.1 million or 5.5% of Fidelity's total loans outstanding at December 31, 2004. Commercial Loans Commercial loans totaled $4.1 million at December 31, 2004, compared to $3.1 million at December 31, 2003 and represents 3.7% of Fidelity's loan portfolio. Commercial lending entails significant risks when compared to mortgage lending. Such loans are subject to greater risk of default during periods of adverse economic conditions. Because such loans are secured by non-real estate assets, such as rolling stock, equipment, inventory and accounts receivable, the collateral may not be sufficient to ensure full payment of the loan in the event of a default. Fidelity and United attempt to minimize such risks through prudent underwriting practices. Consumer Loans United offers and makes various types of consumer loans, including automobile loans, loans made to depositors on the security of their deposit accounts, and other secured and unsecured personal loans. Consumer loans are generally made at fixed rates of interest for terms of up to seven years. Automobile loans are originated by United directly and indirectly in conjunction with automobile dealers in Indiana, Illinois, Kentucky and Missouri. As previously discussed, United terminated the origination of indirect loans in the third quarter of 2004. Consumer loans, particularly consumer loans which are unsecured or secured by rapidly depreciating assets such as automobiles, may entail greater risk than do residential mortgage loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. The cost of collecting a remaining deficiency is often disproportionate to the amount of the deficiency. In addition, consumer loan collection is dependent on the borrowers continuing financial stability and is, therefore, more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. The risk of default on consumer loans increases during periods of recession, high unemployment and other adverse economic conditions. Despite the increased risks associated with consumer lending, consumer loans typically provide a higher rate of return than real estate loans and have shorter terms to maturity, thereby increasing profitability and assisting United in managing the interest-rate sensitivity of its assets and liabilities. Competition Fidelity and United face strong direct competition for deposits, loans and other financial-related services. United competes in Indiana, Kentucky and Illinois with other thrifts, commercial banks, credit unions, stockbrokers, finance companies and insurance companies. Some of these competitors are local, while others are statewide or national. United competes for deposits principally by offering depositors a variety of deposit programs, convenient office locations and hours, and other services, and for loan originations primarily through competitive interest rates and fees, efficiency and quality of service and the variety of loan products offered. Some of the non-bank financial institutions and financial services organizations with which United competes are not subject to the same degree of regulation as that imposed on federal savings banks, thrifts, or thrift-holding companies. As a result, such competitors may have advantages over United in providing certain services. As of February 28, 2005, approximately three locally based banks (and several others with branch or loan production offices), two thrifts, (including United) and eleven credit unions operated in the Evansville, Indiana metropolitan area. Many competitors are substantially larger or have significantly greater capital resources than United. Due to recently enacted 7 legislation to allow unlimited interstate branching, Fidelity and United may experience heightened competition from existing competitors and other major financial institutions seeking to expand their regional banking presence in Indiana. SUPERVISION AND REGULATION In addition to the general provisions discussed below, Fidelity and United were subject to the provisions of the Supervisory Agreement entered into with the OTS in February 1999, until terminated in October 2004. These provisions also impacted the operations of Fidelity and United until terminated. The footnote entitled "Other Restrictions" in the audited financial statements provides further details. Regulation of the Company Fidelity is a savings and loan holding company within the meaning of the Home Owners' Loan Act of 1933 ("HOLA"). Fidelity is registered with the Office of Thrift Supervision and is subject to OTS regulations, examinations, supervision and reporting requirements. The Home Owners' Loan Act generally prohibits a savings and loan holding company, without prior approval of the OTS, from (i) acquiring control of any other savings association or savings and loan holding company; or (ii) acquiring more than 5% of the voting shares of a savings association or savings and loan holding company which is not a subsidiary. Except with the prior approval of the OTS, no director or officer of a savings and loan holding company or person owning or controlling more than 25% of such company's stock, may acquire control of any savings association, other than a subsidiary association, or any other savings and loan holding company. Fidelity operates as a unitary savings and loan holding company. There are generally no restrictions on the activities of a unitary savings and loan holding company. However, if the OTS determines that there is reasonable cause to believe that an activity of a savings and loan holding company constitutes a serious risk to the financial safety, soundness, or stability of its subsidiary savings association, the OTS may impose restrictions it considers necessary to address such risk, which may include a limitation on the payment of dividends. If the savings association subsidiary of a unitary savings and loan holding company fails to meet the Qualified Thrift Lender Test ("QTL test"), as discussed below, then the holding company would be required to register as, and become subject to the activities restrictions applicable to, bank holding companies. If Fidelity were to acquire control of another savings association it would become a multiple savings and loan holding company. In general, the activities of Fidelity and any of its subsidiaries (other than United or other subsidiary savings associations) would be subject to further restrictions. The Home Owners' Loan Act generally provides that, among other things, no multiple savings and loan holding company or subsidiary which is not a savings association may engage in any business activity other than (i) furnishing or performing management services for a subsidiary savings association, (ii) conducting an insurance agency or escrow business, (iii) holding, managing or liquidating assets owned by or acquired from a subsidiary savings association, (iv) holding or managing properties used or occupied by a subsidiary savings association, (v) acting as trustee under deeds of trust, (vi) those activities previously directly authorized by regulation as of March 5, 1987, to be engaged in by multiple savings and loan holding companies, or (vii) those activities authorized by regulation of the Board of Governors of the Federal Reserve System as permissible for bank holding companies, unless the OTS by regulation prohibits or limits such activities for savings and loan holding companies. Those activities described in (vii) above must also be approved by the OTS prior to being engaged in by a multiple savings and loan holding company. No company may acquire control of an insured savings association after May 4, 1999, unless that company either (i) engages only in the financial activities permissible for a financial holding company or (ii) is a grandfathered, unitary savings and loan holding company. Generally, any company that was a unitary savings and loan holding company on May 4, 1999 is grandfathered. Such a company may continue to operate under present law as long as (i) the company continues to control only one savings institution or its successor (excluding supervisory acquisitions) that it controlled on May 4, 1999 and (ii) each controlled institution meets the qualified thrift lender test. Fidelity is a grandfathered unitary savings and loan holding company. The OTS may also approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state. Generally, this may only occur if the state in which the association to be acquired is located specifically permits associations to be acquired by state-chartered associations or savings and loan holding companies located in the state where the acquiring entity is located or by a holding company that controls that state-chartered savings association. 8 Indiana law permits federal and state savings association holding companies with their home offices located outside of Indiana to acquire savings associations whose home offices are located in Indiana and savings and loan holding companies with their principal place of business in Indiana. Indiana savings and loan holding companies also may acquire savings associations with their home offices located outside of Indiana and savings association holding companies with their principal place of business located outside of Indiana. Savings Bank Regulation General. As a federally chartered, SAIF-insured savings association, United is subject to extensive regulation by the OTS and the FDIC. The OTS periodically examines the books and records of United and, in conjunction with the FDIC in certain situations, has examination and enforcement powers. This supervision and regulation are intended primarily for the protection of depositors and federal deposit insurance funds. Qualified Thrift Lender Requirement. In order for United to exercise the powers granted to federally-chartered savings associations, it must be a "qualified thrift lender", or a "QTL". A savings association is a QTL if its qualified thrift investments equal or exceed 65% of the savings association's portfolio assets on a monthly basis in 9 out of every 12 months. Qualified thrift investments generally consist of (i) various housing related loans and investments (such as residential construction and mortgage loans, home improvement loans, manufactured housing loans, home equity loans and mortgage-backed securities), (ii) certain obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and the Resolution Trust Corporation (for limited periods), and (iii) shares of stock issued by any Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. At December 31, 2004, the qualified thrift investment percentage test for United was 92.8%. Loans-to-One-Borrower Limitations. The Home Owners' Loan Act generally requires savings associations to comply with the loans-to-one-borrower limitations applicable to national banks. In general, national banks may make loans to one borrower in amounts up to 15% of the bank's unimpaired capital and surplus, plus an additional 10% of capital and surplus for loans secured by readily marketable collateral. At December 31, 2004, United's loan-to-one-borrower limitation was approximately $3.3 million and no loans to a single borrower exceeded that amount, except as provided herein. Under certain conditions, a savings association may make loans to one borrower for residential housing developments in amounts up to 30% of the bank's unimpaired capital and surplus provided that all loans made in reliance upon the increased lending limit do not, in the aggregate, exceed 150% of the bank's unimpaired capital and surplus. At December 31, 2004, United had made $4.2 million such loans under this higher lending limit. Commercial Real Property Loans. The Home Owners' Loan Act limits the aggregate amount of commercial real estate loans that a federal savings association may make to an amount not in excess of 400% of the savings association's capital. Consumer Loans. The Home Owners' Loan Act limits the aggregate amount of consumer loans that a federal savings association may make to an amount not in excess of 35% of the savings association's total assets. At December 31, 2004, Consumer loans represented 20.9% of United's assets. Limitation on Capital Distributions. Under OTS regulations, a savings association must file an application with the OTS for a capital distribution, including cash dividends, if (i) it is not eligible for expedited treatment of its application, (ii) the proposed capital distribution, plus all other capital distributions of the savings association during the calendar year, exceeds its net income for that year to date plus its retained net income for the preceding two years, (iii) it would not be at least adequately capitalized, as defined in the prompt corrective action regulations of the OTS, or (iv) the proposed distribution would be in violation of any applicable law, regulation, or agreement with the OTS. A savings association has no restrictions on capital distributions as long as, after the distribution, it is still classified as adequately capitalized. Although no application is required, a prior notice must be filed with the OTS if the savings association would not be well capitalized after the distribution, or if the savings association is a subsidiary of a savings and loan holding company. Insurance of Deposits. The FDIC is an independent federal agency that insures the deposits, up to $100,000 per depositor subject to aggregation rules, of banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, the Bank Insurance Fund (the "BIF") for commercial banks and state savings banks and the SAIF for savings associations such as United. The FDIC is required to maintain designated levels of reserves in each fund. 9 The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the BIF and members of the SAIF. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary depending on the risk the institution poses to its deposit insurance fund. An institution's risk level is determined based on its capital level and the FDIC's level of supervisory concern about the institution. Annual deposit insurance premiums range between $0.00 and $0.27 per $100 of deposits and are in effect, based on the assessment determined in accordance with the risk-assessment system discussed above. The Financing Corporation ("FICO") assessment to service the interest on its bond obligations is separate from the SAIF assessment. As part of the deposit insurance assessments, institutions pay a FICO assessment for debt service requirements. The FICO assessment rate is subject to change on a quarterly basis, depending on the debt service requirements. In 2004, United paid $.004 per $100 of deposits to comply with this assessment. The total deposit insurance expense paid was $55,000, $51,000 and $57,000 for 2004, 2003 and 2002, respectively. Commonly Controlled Banks and Savings Associations. Subject to certain exceptions, commonly controlled banks and savings associations must reimburse the FDIC for any losses suffered in connection with a failed bank or savings association affiliate. Institutions are commonly controlled if one is owned by another or if both are owned by the same holding company. Community Reinvestment Act. Ratings of depository institutions under the Community Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure includes both a four-tier descriptive rating using terms such as "outstanding," "satisfactory," "needs to improve," or "substantial non-compliance" and a written evaluation of each institution's performance. United received a satisfactory rating from the OTS in its most recent CRA examination. Also, the Federal Housing Finance Board has adopted regulations establishing standards of community investment and service for members of the FHLB System to meet to be eligible for long-term advances. These regulations take into account a savings association's CRA record and the member's record of lending to first-time home buyers. Brokered Deposits. Pursuant to the FDIC regulations, well-capitalized institutions are subject to no brokered deposits limitations, while adequately capitalized institutions are able to accept, renew or rollover brokered deposit only (i) with a waiver from the FDIC, and (ii) subject to certain restrictions on payment of rates. Undercapitalized institutions are not permitted to accept brokered deposits and may not solicit deposits by offering an effective yield that significantly exceeds the prevailing effective yields on insured deposits of comparable maturity in the institution's normal market area or in which such deposits are being solicited. Enforcement. The OTS has primary enforcement responsibility over savings associations and has the authority to bring enforcement action against all "institution-affiliated parties," including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Civil penalties cover a wide range of violations and actions and range up to $25,000 per day unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. In addition, regulators are provided with flexibility to impose enforcement action on an institution that fails to comply with its regulatory requirements, particularly with respect to the capital requirements. Possible enforcement action ranges from the imposition of a capital directive to receivership, conservatorship or the termination of deposit insurance. The FDIC has the authority to recommend to the OTS that enforcement action to be taken with respect to a particular savings institution. If action is not taken by the OTS, the FDIC has authority to take such action under certain circumstances. Standards for Safety and Soundness. The federal banking agencies have prescribed for all insured depository institutions safety and soundness standards in the form of guidelines, relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset quality and growth, earnings, and compensation, fees and benefits, and safekeeping customer information. If an insured depository institution fails to meet any of the standards described above, it will be required to submit to the appropriate federal banking agency a plan specifying the steps that will be taken to cure the deficiency. If an institution fails to submit an acceptable plan or fails to implement the plan, the appropriate federal banking agency will issue an order requiring the institution to take immediate steps to correct a safety and soundness deficiency. Real Estate Lending Standards. OTS regulations require savings associations to establish and maintain written internal real estate lending policies. Each association's lending policies must be consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its operations. The policies must establish loan portfolio diversification standards; establish prudent underwriting standards, including loan-to-value limits that are clear and 10 measurable; establish loan administration procedures for the association's real estate portfolio; and establish documentation, approval, and reporting requirements to monitor compliance with the association's real estate lending policies. The association's written real estate lending policies must be reviewed and approved by the association's Board of Directors at least annually. Further, each association is expected to monitor conditions in its real estate market to ensure that its lending policies continue to be appropriate for current market conditions. Prompt Corrective Regulatory Action. The Federal Deposit Insurance Act establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the banking regulators are required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of capitalization. Under the OTS prompt corrective action regulation, generally, a savings association that has a total risk-based capital of less than 8.0% or a tier 1 risk-based capital ratio or leverage ratio of less than 4.0% is considered to be undercapitalized. A savings association that has a total risk-based capital of less than 6.0%, a tier 1 risk-based capital ratio of less than 3%, or a leverage ratio that is less than 3.0% is considered to be "significantly undercapitalized" and a savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." Generally, a capital restoration plan must be filed with the OTS within 45 days of the date an association receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized". In addition, numerous mandatory supervisory actions become immediately applicable to the associations, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Capital Requirements. The OTS has adopted capital standards under which savings associations must maintain (i) "core capital" in an amount not less than 3% of total adjusted assets for a savings association with a composite rating of 1, and not less than 4% for all other savings associations, (ii) "tangible capital" in an amount not less than 1.5% of total adjusted assets, and (iii) a level of risk-based capital equal to 8.0% of risk-weighted assets. Under OTS regulations "core capital" includes common stockholders' equity, noncumulative perpetual preferred stock and related surplus, and minority interests in the equity accounts of consolidated subsidiaries, less nonqualifying intangible assets. In determining compliance with the capital standards, a savings association must deduct from capital its entire investment in and loans to any subsidiary engaged in activities not permissible for a national bank, other than subsidiaries (i) engaged in such non-permissible activities solely as agent for their customers; (ii) engaged in mortgage banking activities; or (iii) that are themselves savings associations or companies, the only investment of which is another savings association, acquired prior to May 1, 1989. Capital requirements higher than the generally applicable minimum requirement may be established for a particular savings association if the OTS determines that the association's capital was or may become inadequate in view of its particular circumstances. Individual minimum capital requirements may be appropriate where the savings association is receiving special supervisory attention, has a high degree of exposure to interest rate risk, losses resulting in capital inadequacy, poor liquidity or cash flow, or poses other safety or soundness concerns. In determining compliance with the risk-based capital requirements, a savings association must determine its interest rate risk and, if such risk exceeds a certain level, it must deduct an interest rate risk component in calculating its total capital for purposes of determining whether it meets its risk-based capital requirements. An association's interest rate risk (IRR) is measured by the decline in the net portfolio value resulting from a 200 basis point increase or decrease in market interest rates. If an association's measured IRR exposure exceeds 2%, it must then deduct an IRR component from total capital for determining its risk-based capital requirement. Savings Bank's Subsidiaries. The OTS regulations permit federal savings associations to invest in the capital stock, obligations or specified types of securities of subsidiaries known as "service corporations" and as "operating subsidiaries". Operating subsidiaries may engage in any activity in which the savings association may engage. There is no limit as to the amount of the investment in an operating subsidiary. A service corporation may engage in certain specified activities. The savings association may make loans to a service corporation and joint ventures in which a service corporation is a participant in an aggregate amount not exceeding 3% of an association's assets, provided any investment over 2% is used for specified community or inner-city development purposes. The FDIC may, after consultation with the OTS, prohibit specific activities if it determines such activities pose a serious threat to SAIF. 11 Assessments. Savings associations are required by OTS regulation to pay assessments to the OTS to fund the operations of the OTS. The general assessment is computed upon the savings association's total assets, condition, and complexity of its operations, including consolidated subsidiaries, as reported in United's latest quarterly Thrift Financial Report. United's total assessment for the year ended December 31, 2004 was $74,000. Acquisitions and Branching The Bank Holding Company Act specifically authorizes a bank holding company, upon receipt of appropriate regulatory approvals, to acquire control of any savings association or holding company thereof wherever located. Similarly, a savings and loan holding company may acquire control of a bank. Moreover, federal savings associations may acquire or be acquired by any insured depository institution. Regulations promulgated by the Federal Reserve Board restrict the branching authority of savings associations acquired by bank holding companies. The OTS has adopted regulations which permit nationwide branching to the extent permitted by federal statute. Federal statutes permit federal savings associations to branch outside of their home state if the association meets the domestic building and loan test in Section 7701(a)(19) of the Internal Revenue Code or the asset composition test of Section7701(c) of the Internal Revenue Code. Branching that would result in the formation of a multiple savings and loan holding company controlling savings associations in more than one state is permitted if the law of the state in which the savings association to be acquired is located specifically authorizes acquisitions of its state-chartered associations by state-chartered associations or their holding companies in the state where the acquiring association or holding company is located. Moreover, Indiana banks and savings associations are permitted to acquire other Indiana banks and savings associations and to establish branches throughout Indiana. Transactions with Affiliates Pursuant to the Home Owners' Loan Act, transactions engaged in by a savings association or one of its subsidiaries with affiliates of the savings association generally are subject to the affiliate transaction restrictions contained in Sections 23A and 23B of the Federal Reserve Act and Regulation W in the same manner and to the same extent as such restrictions now apply to transactions engaged in by a member bank or one of its subsidiaries with affiliates of the member bank. Section 23A of the Federal Reserve Act imposes both quantitative and qualitative restrictions on transactions engaged in by a member bank or one of its subsidiaries with an affiliate, while Section 23B of the Federal Reserve Act requires, among other things, that all transactions with affiliates be on terms substantially the same, and at least as favorable to the member bank or its subsidiary, as the terms that would apply to or would be offered in a comparable transaction with an unaffiliated party. Loans to executive officers, directors, and principal shareholders must comply with Section 22(h) of the Federal Reserve Act, which requires these loans be made on terms substantially the same as offered in comparable transactions to other persons. United was in compliance with these rules at December 31, 2004. Federal Home Loan Bank System United is a member of the Federal Home Loan Bank of Indianapolis. The Federal Home Loan Bank System consists of 12 regional Federal Home Loan Banks ("FHLBs"), each subject to supervision and regulation by the Federal Housing Finance Board (the "FHFB"). The FHLBs provide a central credit facility for members. As a member of the FHLB of Indianapolis, United is required to own shares of capital stock in the FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts, and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is greater. As of December 31, 2004, United was in compliance with this requirement. Check Clearing for the 21st Century Act. Effective October 28, 2004, the Federal Reserve adopted final amendments to Regulation CC and its commentary to implement the Check Clearing for the 21st Century Act (the "Check 21 Act"). The Check 21 Act was enacted on October 28, 2003 and became effective on October 28, 2004. To facilitate check truncation and electronic check exchange, the Check 21 Act authorizes a new negotiable instrument called a "substitute check" and provides that a properly prepared substitute check is the legal equivalent of the original check for all purposes. A substitute check is a paper reproduction of the original check that can be processed just like the 12 original check. The Check 21 Act does not require any bank to create substitute checks or to accept checks electronically. The Federal Reserve's amendments: (i) set forth the requirements of the Check 21 Act that apply to all banks, including those that choose not to create substitute checks; (ii) provide a model disclosure and model notices relating to substitute checks; and (ii) set forth bank endorsement and identification requirements for substitute checks. The amendments also clarify some existing provisions of the rule and commentary. USA Patriot Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act") is intended to strengthen the ability of U. S. Law Enforcement to combat terrorism on a variety of fronts. The potential impact of the USA Patriot Act on financial institutions is significant and wide-ranging. The USA Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires financial institutions to implement additional policies and procedures with respect to, or additional measures designed to address, any or all of the following matters, among others: money laundering, suspicious activities and currency transaction reporting; and currency crimes. Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. Among other requirements, the Sarbanes-Oxley Act established: (i) new requirements for audit committees of public companies, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the chief executive officers and chief financial officers of reporting companies; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for reporting companies regarding various matters relating to corporate governance, and (v) new and increased civil and criminal penalties for violation of the securities laws. Other Laws and Regulations Federal law extensively regulates other various aspects of the banking business such as reserve requirements. Current federal law also requires financial institutions, among other things, to make deposited funds available within specified time periods. In addition, with certain exceptions, a financial institution and a subsidiary may not extend credit, lease or sell property or furnish any services or fix or vary the consideration for the foregoing on the condition that (i) the customer must obtain or provide some additional credit, property or services from, or to, any of them, or (ii) the customer may not obtain some other credit, property or service from a competitor, except to the extent reasonable conditions are imposed to assure the soundness of credit extended. Interest and other charges collected or contracted for by United are subject to state usury laws and federal laws concerning interest rates. United's loan operations are also subject to federal laws applicable to credit transactions, such as the: o Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; o Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; o Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; o Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; o Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and o rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of United also are subject to the: o Customer Information Security Guidelines. The federal bank regulatory agencies have adopted final guidelines (the "Guidelines") for safeguarding confidential customer information. The Guidelines require each financial institution, 13 under the supervision and ongoing oversight of its Board of Directors, to create a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information; and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. o Electronic Funds Transfer Act, and Regulation E. The Electronic Funds Transfer Act, which is implemented by Regulation E, governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking service. Additional legislation and administrative actions affecting the banking industry is often considered by Congress, state legislatures and various regulatory agencies. It cannot be predicted with certainty whether such legislation or administrative action will be enacted or the extent to which the banking industry in general or Fidelity and United in particular would be affected. Effect of Governmental Monetary Policies Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies. ITEM 2. PROPERTIES ------------------- Fidelity, through United, currently operates its business from its home office in Evansville and from four additional locations in Vanderburgh and Warrick Counties, Indiana. The following table sets forth the location of Fidelity's savings bank offices, which are all owned by United, as well as certain additional information relating to these offices as of December 31, 2004. ------------------------------------------------------------------------- Office Location Year Facility Opened Net Book Value ------------------------------------------------------------------------- Home Office 1974 $800,000 18 NW Fourth Street Evansville, IN 47708 ------------------------------------------------------------------------- Eastside Branch 1997 1,544,000 700 S. Green River Rd Evansville, IN 47715 ------------------------------------------------------------------------- Northside Branch 1976 81,000 4441 First Avenue Evansville, IN 47710 ------------------------------------------------------------------------- Westside Branch 1979 69,000 4801 W. Lloyd Expressway Evansville, IN 47712 ------------------------------------------------------------------------- Bell Oaks Branch 2001 456,000 8533 Bell Oaks Drive Newburgh, IN 47630 ------------------------------------------------------------------------- ITEM 3. 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 is a party or of which any of their property is the subject. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ No matter was submitted to a vote of the Registrant's security holders during the fourth quarter of the year ended December 31, 2004. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------------------------------------------- The discussion concerning the market for the registrant's common equity and related shareholder matters and cash dividends by quarter for the current and previous year appears under the heading "Market Summary" and "Quarterly Results of Operations" included in Fidelity's 2004 Annual Report to Shareholders on page 3 and 31 respectively, and is incorporated herein by reference. As of February 28, 2005, Fidelity had 419 shareholders of record. Two shares of common stock were repurchased in 2004 as a result of fractional shares paid out to shareholders exiting Fidelity's dividend reinvestment plan. ITEM 6. SELECTED FINANCIAL DATA -------------------------------- Selected Financial Data and other data included in Fidelity's 2004 Annual Report to Shareholders on page 4 are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operation included in Fidelity's 2004 Annual Report to Shareholders on pages 5 through 31 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK --------------------------------------------------------------------- The discussion concerning quantitative and qualitative disclosures about market risk appears under the heading "Asset/Liability Management" included in Fidelity's 2004 Annual Report to Shareholders on pages 21 and 22 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------------------ Financial Statements and Supplementary Data included in Fidelity's 2004 Annual Report to Shareholders on page 31 and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES -------------------------------------------------------------------------- Not applicable. ITEM 9A. 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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), based on their evaluation of these controls and procedures as of the end of the period covered by this Form 10-K, are effective. (b) Changes in Internal Controls. There have been no changes in Fidelity's internal controls over financial reporting or in other factors that occurred during Fidelity's fourth fiscal quarter of 2004 that has materially affected, or is reasonably likely to materially affect, Fidelity's internal control over financial reporting. 15 Limitations of 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 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 Fidelity 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 is also 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, regardless of how remote; 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 may not be detected. ITEM 9B. OTHER INFORMATION --------------------------- Not Applicable PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT INFORMATION CONCERNING NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS --------------------------------------------------------------------------- The following sets forth information as to each current Director and each nominees and each executive officer. Each Director serves for a term of one year and until his successor is duly elected and qualified. Each individual's service with Fidelity began at the formation of Fidelity in 1993, unless otherwise noted. PAUL E. BECKER -------------- Mr. Becker, 46 years of age, is a Director of Fidelity and a member of the Audit Committee. He is President of Gaither Technologies STC of Evansville, which designs, installs and maintains data systems and advanced telephone systems. Mr. Becker joined the Board in 2001. BRUCE A. CORDINGLEY ------------------- Mr. Cordingley, 58 years of age, is a Director of Fidelity and served as Chairman of the Board of Directors from October 1994 until April 1998, and served as Chief Executive Officer of Fidelity from June 1995 to March 1996. He continues to serve as a Director of Fidelity and as Chairman of the Company's Executive Committee and in the other positions discussed below. Except for the period from December 27, 1999 through May 18, 2000, Mr. Cordingley has been a Director of United since 1992. Mr. Cordingley is President of Pedcor Investments, a limited liability company, located in Indianapolis, Indiana, the principal business of which is real estate-oriented investment and development. In 1997 he became President of Pedcor Bancorp, the holding company of International City Bank, N.A., Long Beach, California. He is also a Director of International City Bank, N.A. Mr. Cordingley is an attorney and was a partner in the law firm of Ice, Miller, Donadio and Ryan in Indianapolis, Indiana from 1973 to February 1992. JACK CUNNINGHAM --------------- Mr. Cunningham, 74 years of age, is a Director of Fidelity and serves as Chairman of Fidelity and United since April 1998. Mr. Cunningham serves as Secretary of Fidelity and United. He served as President of Fidelity from May 1994 through October 1994 and as President of United from May 1994 through December 1994. Mr. Cunningham again served as 16 President and CEO of United from March 1997 until January 1998. Mr. Cunningham has been a Director of United since 1985 and an officer of United since 1974. MICHAEL A. ELLIOTT ------------------ Mr. Elliott, 46 years of age, a CPA was named to the board of directors of Fidelity and United, effective January 21, 2004. Mr. Elliott also serves as Chairman of the Audit Committee. Mr. Elliott has served as Chief Financial Officer and Treasurer of Anchor Industries, Inc. since 1997. Prior to joining Anchor, Mr. Elliott was a manager with Geo. S. Olive and Co. LLC. DONALD R. NEEL -------------- Mr. Neel, 41 years of age, is a Director of Fidelity and also serves as its President and CEO. He previously served as Fidelity's Chief Financial Officer from 1993 to September 2002. Mr. Neel has served as President since October 2001 and CEO since October 2002. Mr. Neel also has served as President and Chief Executive Officer of United since July 2000. GERALD K. PEDIGO ---------------- Mr. Pedigo, 67 years of age, is a Director of Fidelity and has served as a member of the Executive Committee since his election to the Board in May 2000. He has been Chairman of Pedcor Investments, a limited liability company, since 1987. In 1997 he became he became Chairman of Pedcor Bancorp, the holding company of International City Bank, Long Beach, California. He is also a Director of International City Bank, N.A. BARRY A. SCHNAKENBURG --------------------- Mr. Schnakenburg, 57 years of age, is a Director of Fidelity and a member of the Audit Committee and has served as a Director of United since 1990. Mr. Schnakenburg has served as the President of U.S. Industries Group, Inc. for the past 11 years. U.S. Industries Group, Inc. is a building contractor located in Evansville, Indiana. PHILLIP J. STOFFREGEN --------------------- Mr. Stoffregen, 46 years of age, is a Director of Fidelity and has served as a member of the Executive Committee since his election to the Board in May 2000. Mr. Stoffregen was an associate and then a partner with the law firm Ice, Miller, Donadio and Ryan in Indianapolis from 1984 to 1992. Since 1992, Mr. Stoffregen has served as Executive Vice President of Pedcor Investments where he is responsible for development and financing matters. He also was a director of Martin Luther King Community Development Corporation from 1991 to 1997 and from 1998 to present. MARK A. ISAAC ------------- Mr. Isaac, 40 years of age, is the Vice President and Chief Financial Officer of Fidelity. He assumed the responsibilities of Chief Financial Officer in September 2002. Prior to that time, he served as the Vice President and Controller of Fidelity. He has served as Senior Vice President and Chief Financial Officer of United since July 2000 to present. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires Fidelity's directors and executive officers, and persons who own more than 10% of a registered class of Fidelity's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Fidelity common stock and other equity securities of Fidelity. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish Fidelity with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to Fidelity, to the best knowledge of Fidelity during its most recent fiscal year all officers, directors and greater than 10% beneficial owners of Fidelity timely filed all reports required by Section 16(a) of the Securities Exchange Act. The 2004 Annual Report to Shareholders, containing financial statements for the year ended December 31, 2004, and other information concerning the operations of Fidelity is enclosed herewith, but is not to be regarded as proxy soliciting material. 17 REPORT OF THE AUDIT COMMITTEE The members of the Audit Committee for 2004 include Chairman Michael A. Elliott, Paul E. Becker and Barry A. Schnakenburg. All members of our Audit Committee are independent under the definition of independence set out in the NASD listing standards. The Board of Directors has determined that Chairman Michael A. Elliott is an "audit committee financial expert" as defined in Item 401(h) of SEC Regulation S-K. The Audit Committee held five meetings during 2004. The Audit Committee, among other things, is directly responsible for the selection, oversight and compensation of our independent public accountants. It is also responsible for meeting with the independent auditors and the appropriate corporate officers to review matters relating to corporate financial reporting and accounting procedures and policies, the adequacy of financial, accounting and operating controls, and the scope of the audits of our independent auditors and our internal auditors. In addition, the Audit Committee is responsible for reviewing and reporting the results of each audit and making recommendations it may have to the board of directors with respect to financial reporting and accounting practices, policies, controls and safeguards. The Audit committee has adopted a written charter, a copy of which was included with the proxy statement for our 2003 annual meeting of shareholders. Code of Ethics Upon written request, Fidelity Federal Bancorp will provide without charge to each shareholder a copy of Fidelity's annual report on Form 10-K which is required to be filed with the Securities and Exchange Commission for the year ended December 31, 2004, and a copy of Fidelity's Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. All requests should be addressed to: John Stewart, Shareholder Relations Fidelity Federal Bancorp 18 NW Fourth Street PO Box 1347 Evansville, Indiana 47706-1347 ITEM 11. EXECUTIVE COMPENSATION -------------------------------- EXECUTIVE COMPENSATION AND OTHER INFORMATION Five-Year Total Shareholder Return The following indexed graph indicates Fidelity's total return to its shareholders on its common stock for the past five years, assuming dividend reinvestment, as compared to total return for the NASDAQ Market Index and the Peer Group Index (which is a line-of-business index prepared by an independent third party consisting of savings and loan holding companies or federally chartered savings institutions with the same SIC number as Fidelity and which have been publicly traded for at least six years). The comparison of total return on investment for each of the periods assumes that $100 was invested on January 1, 2000, in each of Fidelity, the NASDAQ Market Index, and the Peer Group Index. 18 [PREFORMANCE CHART APPEARS HERE] ------------------------------------------------------------------ 1999 2000 2001 2002 2003 2004 ------------------------------------------------------------------ Fidelity Federal 100.00 110.00 195.20 120.00 126.40 148.80 ------------------------------------------------------------------ SIC Code Index 100.00 154.96 168.65 202.72 295.72 336.19 ------------------------------------------------------------------ NASDAQ Market Index 100.00 62.85 50.10 34.95 52.55 56.97 ------------------------------------------------------------------ Compensation Committee Report Decisions on compensation of Fidelity's executives are made by the Executive Committee of the Board of Directors of Fidelity, which also serves as the Compensation Committee. All decisions of the Executive Committee relating to the compensation of Fidelity's officers are reviewed by the full Board of Directors. Set forth below is a report submitted by Messrs. Cordingley, Schnakenburg, and Stoffregen, in their capacity as the Board's Executive Committee, addressing Fidelity's compensation policies for the year ended December 31, 2004 as they affected Fidelity's executive officers. Compensation Policies Toward Executive Officers. ----------------------------------------------- The Executive Committee's executive compensation policies are designed to provide competitive levels of compensation to the executive officers and to reward officers for satisfactory individual performance and for satisfactory 19 performance of Fidelity as a whole. There are no established goals or standards relating to performance of Fidelity which have been utilized in setting compensation of individual employees. Base Salary. ----------- Each executive officer is reviewed individually by the Executive Committee, which includes an analysis of the performance of Fidelity. In addition, the review includes, among other things, an analysis of the individual's performance during the past fiscal year, focusing primarily upon the following aspects of the individual's job or characteristics of the individual exhibited during the most recent fiscal year: quality and quantity of work; supervisory skills; dependability; initiative; attendance; overall skill level; and overall value to Fidelity. Other Compensation Plans. ------------------------ At various times in the past Fidelity has adopted certain broad based employee benefit plans in which the senior executives are permitted to participate on the same terms as non-executive employees who meet applicable eligibility criteria, subject to any legal limitations on the amount that may be contributed or the benefits that may be payable under the plans. Benefits. -------- Fidelity provides medical, defined benefit, and defined contribution plans to the senior executives that are generally available to the other Fidelity employees. As of January 1, 2004 the defined benefit plan was frozen. The amount of perquisites, as determined in accordance with the rules of the SEC relating to executive compensation, did not exceed 10% of salary and bonus for year 2004. Mr. Neel's 2004 Compensation. ---------------------------- Regulations of the Securities and Exchange Commission require that the Executive Committee disclose the Committee's basis for compensation reported for any individual who served as the Chief Executive Officer during the last fiscal year. Mr. Neel's salary was determined in the same manner as discussed above for other senior executives. Mr. Neel has served as CEO of Fidelity from October 2002 to present. Current Members of the Executive Committee: Bruce A. Cordingley (Chairman) Barry A. Schnakenburg Phillip J. Stoffregen Compensation Committee Interlocks and Insider Participation During the past fiscal year, no executive officer served on the Executive Committee, which serves as the Compensation Committee. No executive officer participated in any discussion or voting with respect to his respective salary as an executive officer and was not present in the room during the discussion by the Executive Committee of his respective compensation. 20 Summary Compensation Table The following table sets forth, for the 12 months ended December 31, 2004, 2003, and 2002, the cash compensation paid by Fidelity or its subsidiaries, as well as certain other compensation paid or awarded during those years, to the Chief Executive Officer of Fidelity at any time during the year ended December 31, 2004 and any executive officers of Fidelity or United whose salary and bonus exceeded $100,000 during the year ended December 31, 2004.
-------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation -------------------------------------------------------------------------------------------------- Securities Name and Principal Other Annual Underlying All Other Position Year Salary Bonus Compensation (1) Options/SARs Compensation (2) -------------------------------------------------------------------------------------------------- Donald R. Neel, 12/31/04 $195,000 $18,500 0 833 1,792 President, CEO and Director -------------------------------------------------------------------------------------------------- 12/31/03 $184,385 0 0 0 $1,850 -------------------------------------------------------------------------------------------------- 12/31/02 $180,318 0 0 2,083 $1,804 --------------------------------------------------------------------------------------------------
(1) While officers enjoy certain perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officer's salary and bonus and are not required to be disclosed by applicable rules of the SEC. (2) Consists of contributions by Fidelity under Fidelity's Retirement Savings 401(k) Plan. 1993 Directors' Stock Option Plan The 1993 Directors' Stock Option Plan ("Directors' Plan") which provided for the grant of non-qualified stock options to individuals who are directors of Fidelity or any of its subsidiaries to acquire shares of common stock of Fidelity for a price of not less than $2 above the average of the high and low bid quotations as reported by NASDAQ for the common stock of Fidelity for the five trading days immediately preceding the date the option is granted. The plan has expired, however as of March 1, 2005 there were options for 9,895 shares outstanding. 1995 Key Employees' Stock Option Plan The Key Employees' Plan provides for the grant of incentive stock options and non-qualified stock options to acquire shares of common stock of Fidelity for a price of not less than the fair market value of the share on the date which the option is granted. A total of 19,708 shares were reserved for issuance under the Key Employees Plan. The option price per share for each incentive stock option granted to an employee must not be less than the fair market value of the share of common stock on the date the option is granted. The option price per share for an incentive stock option granted to an employee owning 10% or more of the common stock of Fidelity must not be less than 110% of the fair market value of the share on the date that the option is granted. The option price per share for non-qualified stock options will be determined by the Administrative Committee of the Key Employees' Plan, but may not be less than 100% of the fair market value of a share of common stock on the date of the grant of the option. The Key Employees' Plan expired on March 15, 2005, except outstanding options will remain in effect until they have been exercised, terminated, forfeited, or have expired. As such, options may be outstanding under the Key Employees' Plan through March 15, 2015. As of March 1, 2005 there were options for 14,244 shares outstanding. Options Grants in Last Fiscal Year The following table provides details regarding stock options granted to Mr. Neel in 2004. In addition, in accordance with the rules of the Securities and Exchange Commission, there are shown the hypothetical gains or "options spreads" that would exist for respective options. These gains are based on assumed rates of annual compound stock price appreciation of five percent (5%) and ten percent (10%) from the date the options were granted over the full option term. Gains are 21 reported net of the option exercise price, but before any effect of taxes. In assessing these values, it should be kept in mind that no matter what value is placed on a stock option on the date of grant, its ultimate value will be dependent on the market value of Fidelity's stock at a future date, and that value would depend on the efforts of such executive to foster the future success of Fidelity for the benefit of all shareholders. The amounts reflected in the table may not necessarily be achieved. The shares and exercise price have been adjusted for the reverse and forward stock splits at March 1, 2005.
--------------------------------------------------------------------------------------------------------------------- Percent of total Number of options Market Shares granted to Price on Potential Realizable Value Underlying employees Exercise or Date of at Assumed Rates of Stock Options in Fiscal Base Price Grant Expiration Price Appreciation for Name Granted Year (%) ($/Share) ($/Share) Date Option Term --------------------------------------------------------------------------------------------------------------------- 5% ($) 10% ($) --------------------------------------------------------------------------------------------------------------------- Donald R. Neel 833 44.4 18.90 18.90 1/21/14 9,905 25,101 ---------------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table The following table shows for the named executive officer the shares covered by both exercisable and non-exercisable stock options as of December 31, 2004. Mr. Neel did not exercise any options during 2004. The shares and exercise price have been adjusted for the reverse and forward stock splits at March 1, 2005.
-------------------------------------------------------------------------------------------------------------------- Number of Unexercised Stock Options Value of Unexercised In-the-Money Options 12/31/04 at 12/31/04 -------------------------------------------------------------------------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexersiable -------------------------------------------------------------------------------------------------------------------- Donald R. Neel 625 0 N/A (1) N/A -------------------------------------------------------------------------------------------------------------------- 494 0 N/A (2) N/A -------------------------------------------------------------------------------------------------------------------- 2,083 0 N/A (3) N/A -------------------------------------------------------------------------------------------------------------------- 1,250 0 $4,950 0 -------------------------------------------------------------------------------------------------------------------- 1,250 833 N/A (4) N/A -------------------------------------------------------------------------------------------------------------------- 167 666 $570 $2,280 --------------------------------------------------------------------------------------------------------------------
(1) The bid price of Fidelity's Common Stock at December 31, 2004 ($22.32 per share) was less than the exercise price ($129.72 per share). (2) The bid price of Fidelity's Common Stock at December 31, 2004 ($22.32 per share) was less than the exercise price ($34.56 per share). (3) The bid price of Fidelity's Common Stock at December 31, 2004 ($22.32 per share) was less than the exercise price ($48.00 per share). (4) The bid price of Fidelity's Common Stock at December 31, 2004 ($22.32 per share) was less than the exercise price ($38.04 per share). 22 Other Employee Benefit Plans Pension Plan ------------ Fidelity participated in a defined benefit pension plan sponsored by the Financial Institutions Retirement Fund, a non-profit, tax qualified, tax-exempt pension plan and trust in which Federal Home Loan Banks, savings and loan associations and similar institutions participate ("Pension Plan"). Effective January 1, 2004 the annual benefit provided under the Pension Plan was amended to freeze the plan. As a result the annual retirement benefit payable to a participant at age 65 will not increase after January 1, 2004. In addition, no new employees shall become a participant in the plan after January 1, 2004. All employees of Fidelity or its subsidiaries who work a minimum of 1,000 hours per year were covered by the Pension Plan and become active participants upon completion of one year of service and attainment of age 21. Participants are not required or allowed to make contributions to the Pension Plan. A participant in the Pension Plan is entitled to receive benefits based upon years of service for Fidelity or its subsidiaries and a percentage of the individual's career average annual salary, without deduction for Social Security benefits up to the date the Pension Plan was frozen. For purposes of computing benefits, "salary" includes an employee's regular base salary or wage inclusive of bonuses and overtime but is exclusive of special payments such as fees, deferred compensation, severance payments and contributions by Fidelity to the Pension Plan. Participants become fully vested in their benefits after completion of five (5) years of service. Upon attaining age sixty-five (65), participants become one hundred percent (100%) vested in their benefits provided by Fidelity under the Pension Plan, regardless of years of service. Benefits are payable at normal retirement age (age 65). The Pension Plan also contains provisions for the payment of benefits on the early retirement, late retirement or death of a participant. The regular benefit under the Pension Plan to be paid on a participant's retirement is a monthly pension for the life of a participant with minimum guaranteed benefit. The Pension Plan provides that married participants will receive the regular retirement benefit in the form of an actuarially equivalent joint and survivor annuity. Optional forms of payments are available to all participants; however, married participants must obtain written spousal consent to the distribution of benefits in a form other than a joint and survivor annuity. No contributions were made to the Pension Plan by Fidelity in 2004 or 2003. Annual Benefit at Normal Retirement
-------------------------------------------------------------------------------------------------------------------- Career Average Years of Service Salary -------------------------------------------------------------------------------------------------------------------- 10 years 15 years 20 years 25 years 30 years 35 years 40 years -------------------------------------------------------------------------------------------------------------------- $ 100,000 5,000 7,500 10,000 12,500 15,000 17,500 20,000 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- $ 125,000 6,250 9,375 12,500 15,625 18,750 21,875 25,000 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- $ 150,000 7,500 11,250 15,000 18,750 22,500 26,250 30,000 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- $ 175,000 8,750 13,125 17,500 21,875 26,250 30,625 35,000 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- $ 200,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 --------------------------------------------------------------------------------------------------------------------
The table set forth above shows estimated annual benefits payable at normal retirement to persons in specified remuneration classifications. The benefit amounts presented in the totals are annual pension amounts for the life of the participant, with a minimum guaranteed benefit of ten (10) years, for a participant at normal retirement (age 65) with the years of service set forth below with no deduction for Social Security or other offset amounts. The maximum compensation which may be taken into account for any purpose under the Pension Plan is limited by the Internal Revenue Code to $165,000 for 2004. As of December 31, 2004, Donald R. Neel had eleven years of service under the Pension Plan. 23 Retirement Savings Plan. ----------------------- In 1994 Fidelity adopted a defined contribution plan under Internal Revenue Code Section 401(k) in which substantially all employees may participate. Under this plan, employees may contribute up to 15% of pay, and contributions up to 6% are supplemented by Fidelity contributions. Fidelity contributions are made at the rate of $0.25 for each dollar contributed by the participant. Participants may elect to have all or a portion of their contributions made on a tax-deferred basis pursuant to provisions in the plan meeting the requirements of Section 401(k) of the Internal Revenue Code. Fidelity's expense for the plan was $19,000 for the year ended December 31, 2004. Compensation of Directors The Directors of Fidelity and United were compensated for their services in each capacity in the amount of $200 for each company Board served per month in the amount of $400 or $4,800 per year. The five Directors of United for the twelve months ended December 31, 2004 were also Directors of Fidelity. Executive Committee members receive an additional $100 per month for their services. The maximum compensation received by any Director for his service on the Board was $8,200 for the year ended December 31, 2004. Directors who are also salaried employees receive no director fees. Employment Contracts Mr. Neel entered into an Employment Agreement with Fidelity in May 2000. The term of the Employment Agreement is 3 years, which may be extended annually for successive 1 year periods. Mr. Neel's Employment Agreement was extended another year to May 2005. Effective May 19, 2000 Mr. Neel shall earn an annual base salary of not less than $140,000. If during the one year period following a prospective change in control, as defined in the Employment Agreement, he is terminated for any reason other than cause, disability, retirement or death, or if he resigns due to a material breach of the Employment Agreement by Fidelity, he is entitled to an amount equal to 2.99 times his average annual base salary and bonus for the previous five (5) years. In addition, Fidelity must maintain for three years following termination all employee welfare plans and programs in which he was entitled to participate prior to termination, and reimburse him for the cost of obtaining such benefits for the first 24 months following termination. If Mr. Neel is terminated for any reason other than cause, disability, retirement or death, or if he resigns due to a material breach of the Employment Agreement by Fidelity, and such termination or resignation does not follow a change in control, he is entitled to an amount equal to his base salary during the remaining term of the Employment Agreement. In addition, Fidelity must maintain for the remainder of the term of the Employment Agreement all employee welfare plans and programs in which he was entitled to participate prior to termination, and reimburse him for the cost of obtaining such benefits. No payments may be made pursuant to the Employment Agreement if the payments would, among other things, be considered by a federal or state regulatory authority having jurisdiction over Fidelity an unsafe or unsound practice. The Employment Agreements also provide a 3-year covenant not to compete and covenants regarding confidentiality. 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS ----------------------------------------------------------------------------- Beneficial Ownership The following table sets forth information regarding the beneficial ownership of Fidelity's common stock as of March 1, 2005 by the only shareholders known by Fidelity to beneficially own 5% or more of the issued and outstanding shares of common stock of Fidelity. The share information and percent of class take into consideration the reverse and forward stock splits and fractional shares cashed out at March 1, 2005. ------------------------------------------------------------------------------ Name and Address of Amount and Nature of Percent of Class Beneficial Owner Beneficial Ownership (1) ------------------------------------------------------------------------------ Bruce A. Cordingley 679,940 (2) 83.95% Gerald K. Pedigo Phillip J. Stoffregen 770 3rd Avenue Southwest Carmel, IN 46032 ------------------------------------------------------------------------------ M. Brian Davis 61,660 (3) 7.86% 7731 Newburgh Road Evansville, IN 47715 ------------------------------------------------------------------------------ (1) This information is based on Schedule 13D and 13G Reports filed by the beneficial owner with the Securities and Exchange Commission (the "SEC") pursuant to applicable provisions of the Securities Exchange Act of 1934 ("Exchange Act"), as of March 1, 2005, and any other information provided to Fidelity by the beneficial owner. It does not reflect any changes in those shareholdings which may have occurred since that date. Beneficial ownership is direct except as otherwise indicated by footnote. (2) This amount represents shares beneficially owned by Messrs. Cordingley, Pedigo and Stoffregen and Pedcor Holdings, LLC, and Pedcor Bancorp, which have filed a Schedule 13D with the Securities and Exchange Commission as a "group." Each of these individuals and entities have expressly disclaimed beneficial ownership with respect to shares of common stock covered by the Schedule 13D not owned by him or it of record. These shares consist of (i) 1,383 shares which Mr. Cordingley has the right to acquire upon exercise of stock options granted under Fidelity's 1993 Director's Stock Option Plan; 817 shares which Mr. Pedigo has the right to acquire upon exercise of stock options granted under Fidelity's 1993 Director's Stock Option Plan; and 967 shares which Mr. Stoffregen has the right to acquire pursuant to stock options granted from Fidelity's 1993 Director's Stock Option Plan. (i) 642,500 shares owned by Pedcor Financial, LLC, (of which Mr. Cordingley is the President and CEO and 32.2% owner, Mr. Pedigo is the Chairman and 32.2% owner and Mr. Stoffregen is a Executive Vice President and 32.2% owner); (ii) 32,218 shares and 2,055 shares which Pedcor Financial, LLC (formerly Pedcor Holdings, LLC) and Pedcor Bancorp, respectively, have the right to acquire upon exercise of warrants. (3) Includes 11,660 shares which Mr. Davis has the right to acquire pursuant to the exercise of stock options. 25 Security Ownership of Management The following table sets forth certain information as of March 1, 2005, with respect to the common stock of Fidelity beneficially owned by each Director of Fidelity and by all executive officers and directors as a group. The share information and percent of class take into consideration the reverse and forward stock splits and fractional shares cashed out at March 1, 2005. -------------------------------------------------------------------------------- Number of Shares Name Beneficially Owned Percent of Class (1) -------------------------------------------------------------------------------- Bruce A. Cordingley (2) 679,940 83.95% Gerald K. Pedigo (2) Phillip J. Stoffregen (2) -------------------------------------------------------------------------------- Paul E. Becker (3) 833 0.11% -------------------------------------------------------------------------------- Jack Cunningham (4) 5,306 0.68% -------------------------------------------------------------------------------- Donald R. Neel (5) 12,369 1.59% -------------------------------------------------------------------------------- Barry A. Schnakenburg (6) 5,008 0.65% -------------------------------------------------------------------------------- All Executive Officers and Directors as a Group (9) Persons) (7) (8) 704,540 85.45% -------------------------------------------------------------------------------- (1) The information contained in this column is based upon information furnished to Fidelity as of February 28, 2005, by the individuals named above. The nature of beneficial ownership for shares shown in this column represents sole voting and investment power unless otherwise noted. At March 1, 2005, Fidelity had 772,500 shares of common stock outstanding. (2) This amount represents shares beneficially owned by Messrs. Cordingley, Pedigo and Stoffregen and Pedcor Holdings, LLC, and Pedcor Bancorp, which have filed a Schedule 13D with the Securities and Exchange Commission as a "group." Each of these individuals and entities have expressly disclaimed beneficial ownership with respect to shares of common stock covered by the Schedule 13D not owned by him or it of record. These shares consist of (i) 1,383 shares which Mr. Cordingley has the right to acquire upon exercise of stock options granted under Fidelity's 1993 Director's Stock Option Plan; 817 shares which Mr. Pedigo has the right to acquire upon exercise of stock options granted under Fidelity's 1993 Director's Stock Option Plan; and 967 shares which Mr. Stoffregen has the right to acquire pursuant to stock options granted from Fidelity's 1993 Director's Stock Option Plan. This amount also includes (i) 642,500 shares owned by Pedcor Financial LLC, (of which Mr. Cordingley is the President and CEO and 32.2% owner, Mr. Pedigo is the Chairman and 32.2% owner and Mr. Stoffregen is a Executive Vice President and 32.2% owner); (ii) 32,218 shares and 2,055 shares which Pedcor Financial, LLC and Pedcor Bancorp, respectively, have the right to acquire upon exercise of warrants. (3) Includes 833 shares which Mr. Becker has the right to acquire pursuant to the exercise of stock options granted under Fidelity's 1993 Directors' Stock Option Plan. (4) Includes 2,500 shares held jointly with his spouse, Barbara Cunningham, and 2,806 shares which Mr. Cunningham has the right to acquire pursuant to the exercise of stock options granted under Fidelity's 1993 Directors' Stock Option Plan. (5) Includes 2,500 shares held in Mrs. Neel's IRA, and 2,500 shares held in Mr. Neel's IRA. Also includes 7,369 shares which Mr. Neel has the right to acquire pursuant to the exercise of the stock options granted under Fidelity's 1995 Key Employees' Stock Option Plan. (6) Includes 2,508 shares which Mr. Schnakenburg has the right to acquire through the exercise of stock options granted under Fidelity's 1993 Directors' Stock Option Plan. (7) Director Michael Elliott's shares were cashed out as a result of the reverse stock split. (8) Includes 1,083 shares which Mr. Isaac has the right to acquire pursuant to the exercise of stock options granted under the 1995 Key Employees' Stock Option Plan. 26 Equity Compensation Plan Information The following table provides information on all existing Stock Option Plans of Fidelity as of December 31, 2004. The shares and exercise price have been adjusted for the reverse and forward stock splits at March 1, 2005.
--------------------------------------------------------------------------------------------------------------------- Number of securities to be Weighted average exercise issued upon exercise of price of outstanding Number of securities outstanding options, options, warrants remaining available Plan category warrants and rights and rights for future issuance (a) (b) (c) --------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by shareholders: --------------------------------------------------------------------------------------------------------------------- Directors Plan 9,895 $75.96 0 --------------------------------------------------------------------------------------------------------------------- 1995 Key Employee Plan 14,244 41.28 5,431 --------------------------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders: N/A N/A N/A --------------------------------------------------------------------------------------------------------------------- Total 24,139 $55.44 5,431 ---------------------------------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- Certain Transactions and Other Matters Between Management and Fidelity Directors and executive officers of Fidelity and United and their associates are customers of, and have had transactions with, Fidelity and United in the ordinary course of business. Comparable transactions may be expected to take place in the future. Directors of Fidelity may not obtain extensions of credit from Fidelity or United. Loans made to non-director officers were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with other persons. These loans did not involve more than the normal risk of collectibility or present other unfavorable features. During the fourth quarter of 2003, Fidelity entered into a $1.0 million unsecured term loan note with Pedcor Bancorp which matured on June 30, 2004. Fidelity paid off this note in March 2004. Messrs. Pedigo and Cordingley are directors of Pedcor Bancorp. In addition, Mr. Pedigo is the chairman of the board of directors of Pedcor Bancorp and owns 42.5% of its issued and outstanding stock, Mr. Cordingley is the president and chief executive officer of Pedcor Bancorp and owns 42.5% of its issued and outstanding stock, and Mr. Stoffregen is the executive vice president of Pedcor Bancorp and owns 14.0% of its issued and outstanding stock. This transaction was previously approved by the Conflicts Committee of Fidelity in 2003 (neither Mr. Pedigo, Mr. Cordingley, nor Mr. Stoffregen serve on this committee). 27 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES ----------------------------------------------- FEES TO INDEPENDENT AUDITOR FOR FISCAL YEARS 2004 AND 2003 The following table sets forth the aggregate fees billed by BDK, LLP for audit services rendered in connection with the consolidated financial statements and reports for fiscal year 2004 and fiscal year 2003 and for other services rendered during fiscal year 2004 and fiscal year 2003 on behalf of Fidelity and its subsidiaries, as well as all out-of-pocket costs incurred in connection with these services, which have been billed to the Company: Fiscal 2004 Fiscal 2003 Audit Fees $57,583 $61,125 Audit Related Fees 22,093 9,761 Tax Fees 14,472 25,708 All Other Fees 7,742 9,913 ------------- ------------ Total Fees $101,890 $106,507 ============= ============ Audit fees consist of fees billed for professional services rendered for (i) the audit of Fidelity's consolidated financial statements, (ii) the review of interim condensed consolidated financial statements included in quarterly reports, (iii) the services that are normally provided by BKD in connection with the statutory and regulatory filings or engagements, and (iv) the attest services, except those not required by statute or regulation. Audit related fees consist of fees for assurance and related services rendered by BKD that are reasonably related to the audit of Fidelity's consolidated financial statements but are not reported under the category "Audit Fees". Tax fees consist of fees billed to Fidelity for professional services rendered for tax compliance, preparation and other tax services. Tax compliance and preparation fees consists of fees billed for professional services related to federal and state tax compliance, assistance with tax audits and appeals and assistance related to the impact of mergers, acquisitions and divestitures on tax return preparation. Other tax services consist of fees billed for other miscellaneous tax consulting and planning and for preparation of income tax returns. All other fees consist of fees for all other services other than those reported above. All of the fees and services described above under "audit fees", "audit-related fees" and "all other fees" were pre-approved by the Audit Committee. The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The Audit Committee has adopted a policy for pre-approval of services provided by the independent auditors. Under the policy, pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may also pre-approve particular services on a case-by-case basis. For each proposed service, the independent auditor is required to provide detailed back-up documentation at the time of approval. The Audit Committee may delegate pre-approval authority to one or more of its members. Such a member must report any decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has considered whether, and determined that, the provision of the services covered for the fees billed under "All Other Fees" is compatible with maintaining the principal accountant's independence. 28 PART IV ------- ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ---------------------------------------------------- (a) (1) The following consolidated financial statements are incorporated by reference in Item 8: Page Numbers in Annual Report ------------- Independent Auditor's Report on Consolidated Financial Statements 32 Consolidated Balance Sheet December 31, 2004 and 2003 33 Consolidated Statement of Income- For the years ended December 31, 2004, 2003 and 2002 34-36 Consolidated Statement of Changes in Shareholders' Equity - For the years ended December 31, 2004, 2003 and 2002 37 Consolidated Statement of Cash Flows - For the years ended December 31, 2004, 2003 and 2002 38-39 Notes to consolidated Financial Statements 40-69 (2) See response to Item 15(a)(1). All other financial statement schedules have been omitted because they are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. (3) List of Exhibits Exhibit Number Description -------------- ----------- 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 of Fidelity, filed as exhibit 4.1 with Fidelity's Registration Statement on Form S-3 (file no. 333-53668), are incorporated herein by reference. 3(i)(c) Articles of Amendment of the Articles of Incorporation of Fidelity 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 herein 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. 10(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. 10(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. 13 2004 Annual Report to Shareholders (Except for the pages and information expressly incorporated by reference in this Form 10-K, The Annual Report to Shareholders is provided 29 solely for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this Form 10-K) 21 Subsidiaries of Fidelity Federal Bancorp 31(a) Rule 13a-14(a) Certification for Annual Report on Form 10-K by Principal Executive Officer 31(b) Rule 13a-14(a) Certification for Annual Report on Form 10-K by Principal Financial Officer 32(a) Section 1350 Certification of Principal Executive Officer (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) 32(b) Section 1350 Certification of Principal Financial Officer (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) (b) Exhibits The response to this portion of Item 15 is submitted as a separate section of this report. (c) Financial Statement Schedules The response to this portion of Item 15 is submitted as a separate section of this report. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 29 day of March, 2005. FIDELITY FEDERAL BANCORP (Registrant) By /S/ DONALD R. NEEL --------------------------------- Donald R. Neel President and CEO (Principal Executive Officer) By /S/ MARK A. ISAAC --------------------------------- Mark A. Isaac, Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 29, 2005, by the following persons on behalf of the registrant and in the capacities indicated. By /S/ JACK CUNNINGHAM --------------------------------- Jack Cunningham, Chairman By /S/ BRUCE A. CORDINGLEY --------------------------------- Bruce A. Cordingley, Director By /S/ PAUL E. BECKER --------------------------------- Paul E. Becker, Director By /S/ MICHAEL A. ELLIOTT --------------------------------- Michael A. Elliott, Director By /S/ DONALD R. NEEL --------------------------------- Donald R. Neel, Director By /S/ GERALD K. PEDIGO --------------------------------- Gerald K. Pedigo, Director By /S/ BARRY A. SCHNAKENBURG --------------------------------- Barry A. Schnakenburg, Director By /S/ PHILLIP J. STOFFREGEN --------------------------------- Phillip J. Stoffregen, Director 31 INDEX TO EXHIBITS ----------------- Page Exhibit Number Exhibit -------------------------------------------------------------------------------- 3(i)(c) Articles of Amendment of the Articles of Incorporation of Fidelity 13 2004 Annual Report to Shareholders 21 Subsidiaries of Fidelity Federal Bancorp 31(a) Rule 13a-14(a) Certification for Annual Report on Form 10-K by Principal Executive Officer 31(b) Rule 13a-14(a) Certification for Annual Report on Form 10-K by Principal Financial Officer 32(a) Section 1350 Certification of Principal Executive Officer (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) 32(b) Section Certification of Principal Financial Officer (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) 32