-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G4edGF6mcj8MOF12VkLlD/x45DokjMbM2vOPOEDzTpDJvi1tR2W7Vy+1HmI9L2xR WTm28ylxcP45S08M/tYGyA== 0000926274-98-000032.txt : 19980218 0000926274-98-000032.hdr.sgml : 19980218 ACCESSION NUMBER: 0000926274-98-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY FEDERAL BANCORP CENTRAL INDEX KEY: 0000910492 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 351894432 STATE OF INCORPORATION: IN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22880 FILM NUMBER: 98537078 BUSINESS ADDRESS: STREET 1: 18 N W FOURTH ST STREET 2: P O BOX 1347 CITY: EVANSVILLE STATE: IN ZIP: 47706-1347 BUSINESS PHONE: 8124240921 MAIL ADDRESS: STREET 1: 18 NW FOURTH ST STREET 2: PO BOX 1347 CITY: EVANSVILLE STATE: IN ZIP: 47706-1347 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended December 31, 1997 FIDELITY FEDERAL BANCORP ------------------------------------------------------ (Exact name of registrant as specified in its charter) Indiana 0-22880 35-1894432 - ---------------------------- ---------- ------------------- (State of other jurisdiction Commission (IRS Employer of Incorporation of File No. Identification No.) Organization) 700 S. Green River Road, Suite 2000 Evansville, Indiana 47715 ----------------------------------------------------- (Address of principal executive offices) (Zip Code) (812) 469-2100 -------------------------------------------------- Registrant's telephone number, including area code Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- As of January 6, 1998, there were 3,127,312 shares of the Registrant's common stock, $1 stated value, issued and outstanding. Exhibit Index is on page 21. FIDELITY FEDERAL BANCORP AND SUBSIDIARIES Index Page PART I - FINANCIAL INFORMATION ITEM 1--Financial Statements: Consolidated balance sheet . . . . . . . . . . . . . . . . . . . 3 Consolidated statement of income . . . . . . . . . . . . . . . . 4 Consolidated statement of changes in stockholders' equity . . . . 5 Consolidated statement of cash flows . . . . . . . . . . . . . . 6 Notes to consolidated financial statements . . . . . . . . . . . 7 ITEM 2--Management's Discussion and Analysis of Results of Operation and Financial Condition Results of Operations . . . . . . . . . . . . . . . . . . . . . . 10 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . 13 Capital Resources and Capital Requirements . . . . . . . . . . . 17 Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ITEM 1 - FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
FIDELITY FEDERAL BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT FOR SHARE DATA) (UNAUDITED) December 31, June 30, 1997 1997 ______________________________________________________________________________ ASSETS Cash and due from banks $ 1,687 $ 1,746 Short-term interest-bearing deposits 2,892 1,759 Federal funds sold 8,000 --------- --------- Total cash and cash equivalents 12,579 3,505 Interest-bearing deposits 6 6 Securities available for sale 8,886 13,790 Loans 177,490 204,964 Allowance for loan losses (1,794) (1,781) --------- --------- Net loans 175,696 203,183 Premises and equipment 6,197 6,340 Federal Home Loan Bank of Indianapolis stock, at cost 3,920 3,920 Other assets 8,537 9,257 --------- --------- Total assets $ 215,821 $ 240,001 ========= ========= LIABILITIES Deposits Non-interest bearing $ 5,805 $ 4,714 Interest-bearing 155,906 177,073 --------- --------- Total deposits 161,711 181,787 Short-term Borrowings 2,560 5,191 Federal Home Loan Bank advances and other long-term debt 33,682 38,089 Advances by borrowers for taxes and insurance 460 674 Other liabilities 1,706 1,324 --------- --------- Total liabilities 200,119 227,065 STOCKHOLDERS' EQUITY Preferred stock, no par or stated value Authorized and unissued - 5,000,000 shares Common stock, $1 stated value Authorized - 5,000,000 shares Issued Outstanding - 3,127,712 and 2,487,385 shares 3,128 2,487 Capital surplus 10,804 8,708 Stock warrants 11 264 Retained earnings, substantially restricted 1,800 1,508 Net unrealized losses on securities available for sale (41) (31) --------- --------- Total stockholders' equity 15,702 12,936 --------- --------- Total liabilities and stockholders' equity $ 215,821 $ 240,001 ========= =========
See notes to consolidated financial statements. NOTE: The consolidated balance sheet at June 30, 1997 has been derived from the audited financial statements. FIDELITY FEDERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT FOR SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ------------------ ----------------- INTEREST INCOME Loans $4,081 $4,732 $8,608 $9,487 Securities available for sale 167 280 375 566 Federal funds sold 41 2 70 19 Interest-bearing deposits 86 46 127 63 Other interest and dividend income 78 77 160 154 ------ ------ ------ ------ Total interest income 4,453 5,137 9,340 10,289 ------ ------ ------ ------ INTEREST EXPENSE Deposits 2,352 2,585 4,885 5,057 Federal Home Loan Bank advances 321 544 681 1,197 Federal funds purchased 9 49 Other interest expense 384 372 775 781 ------ ------ ------ ------ Total interest expense 3,057 3,510 6,341 7,084 ------ ------ ------ ------ NET INTEREST INCOME 1,396 1,627 2,999 3,205 Provision for loan losses 90 5 225 855 ------ ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,306 1,622 2,774 2,350 ------ ------ ------ ------ NON-INTEREST INCOME Fee income-real estate development and management 75 93 182 171 Service charges on deposit accounts 126 77 241 146 Gain on sale of Real estate loans 48 68 110 145 Investments 74 74 Letter of credit fees 183 170 377 324 Agent fees 165 84 384 179 Real estate mortgage banking fees 461 463 Loan participation fees 197 197 Other income 106 284 259 417 ------ ------ ------ ------ Total non-interest income 974 1,237 1,824 1,845 ------ ------ ------ ------ NON-INTEREST EXPENSE Salaries and employee benefits 888 1,148 1,727 2,270 Net occupancy expense 109 120 222 232 Equipment expense 89 95 177 179 Data processing expense 100 80 189 153 Deposit insurance expense 45 107 60 1,258 Legal and professional fees 61 62 131 184 Other expense 405 543 840 1,161 ------ ------ ------ ------ Total non-interest expense 1,697 2,155 3,346 5,437 ------ ------ ------ ------ INCOME BEFORE INCOME TAX 583 704 1,252 (1,242) Income tax expense 175 189 335 (513) ------ ------ ------ ------ NET INCOME $ 408 $ 515 $ 917 (729) ====== ====== ====== ====== PER SHARE: Basic net income $0.13 $0.21 0.33 (0.29) Diluted net income 0.13 0.19 0.32 (0.27) AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 3,128,730 2,692,865 2,879,671 2,710,652
See notes to consolidated financial statements. 4 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ----------------- ----------------- BEGINNING BALANCES $14,381 $12,546 $12,936 $14,295 Net income 408 515 917 (729) Net change in unrealized gain (loss) on securities available for sale (64) 85 (10) 108 Cash dividends (324) (498) (624) (997) Purchase of common stock (10) (69) (10) (102) Exercise of stock warrants 1,311 26 2,493 28 Exercise of stock options 2 ------- ------- ------- ------- BALANCES, DECEMBER 31 $15,702 $12,605 $15,702 $12,605 ======= ======= ======= =======
See notes to consolidated condensed financial statements. 5 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1997 1996 --------------------- OPERATING ACTIVITIES Net income $ 917 $ (729) Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 225 855 Investment securities gains (74) Net (Gain) Loss on sale of premises and equipment (1) 5 Depreciation 228 189 Investment securities amortization (accretion), net 19 5 Amortization of net loan origination fees and points (33) (3) Changes in: Interest receivable and other assets 720 (499) Interest payable and other liabilities 285 1,135 -------- -------- Net cash provided by operating activities 2,286 958 -------- -------- INVESTING ACTIVITIES Purchases of investment securities available for sale (2,015) Proceeds from maturities of investment securities available for sale 1,590 2,470 Proceeds from sale of investment securities available for sale 3,379 Net changes in loans 27,295 5,288 Purchases of premises and equipment (83) (1,013) Proceeds from sale of premises and equipment 3 -------- -------- Net cash provided by investing activities 32,181 4,733 -------- -------- FINANCING ACTIVITIES Net change in: Noninterest-bearing, NOW, savings and money market deposits (20,052) 335 Certificates of deposit (24) 6,196 Proceeds from short-term borrowings 2,203 7,683 Repayment of short-term borrowings (4,854) (6,107) Proceeds from FHLB advances and other long-term borrowings 7,600 Repayment of FHLB advances other long-term borrowings (4,387) (17,108) Net change in advances by borrowers for taxes and insurance (214) (142) Purchase of common stock (10) (102) Cash dividends (549) (998) Proceeds from exercise of stock warrants 2,493 2 Proceeds from exercise of stock options 28 -------- -------- Net cash used by financing activities (25,394) (2,613) -------- -------- Change in Cash and Cash Equivalents 9,073 3,078 Cash and Cash Equivalents, beginning of year 3,506 10,213 -------- -------- Cash and Cash Equivalents, end of year $12,579 $13,291 ======== ======== Additional Cash Flows and Supplementary information Cash paid for income taxes, net of refunds $ 425 $ 470 Cash paid for interest 6,401 7,159
See notes to consolidated financial statements. 6 FIDELITY FEDERAL BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ACCOUNTING POLICIES The significant accounting policies followed by Fidelity Federal Bancorp (the "Company") and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are necessary for a fair presentation of the results for the periods reported, consist only of normal recurring adjustments, and have been included in the accompanying unaudited consolidated condensed financial statements. The results of operations for the six months ended December 31, 1997 are not necessarily indicative of those expected for the remainder of the year. NET INCOME PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings Per Share." This statement simplifies the computation of earnings per share and requires dual presentation of basic and diluted earnings per share on the face of the income statement. This statement is effective for financial statements issued for periods ending after December 15, 1997, with earlier application not permitted. Basic and diluted earnings per share have been computed based on the weighted average common and common equivalent shares outstanding during the periods. Common stock options and warrants are considered to be common equivalent shares to the extent they are dilutive. The Company adopted FAS 128 for the period ending December 31, 1997. All prior periods earnings per share have been restated for FAS 128.
FOR THE SIX MONTHS FOR THE SIX MONTHS ENDED 12/31/97 ENDED 12/31/96 Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount --------------------------------------- --------------------------------------- BASIC EPS Income available to common stockholders $916,661 2,787,879 $ 0.33 $(729,250) 2,493,296 $ (0.29) EFFECT OF DILUTIVE SECURITIES Options 25,293 33,035 Warrants 66,499 184,321 DILUTED EPS Income available to common stockholders plus assumed conversions $916,661 2,879,671 $ 0.32 $(729,250) 2,710,652 $ (0.27)
Options to purchase 55,113 shares of common stock at an average price of $10.42 were outstanding during the first half of fiscal 1998 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Options to purchase 32,340 shares of common stock at an average price of $10.91 were outstanding during the first half of fiscal 1997 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. STOCKHOLDERS' EQUITY On September 22, 1997, the Company filed a Schedule 13E4 with the Securities and Exchange Commission regarding a warrant tender offer to holders of its 1994 and 1995 warrants. The offer and withdrawal rights expired at 5:00 pm, Central Standard Time, on October 31, 1997. The Board of Directors of the Company had decreased the exercise price, upon the terms and subject to the conditions set forth in the Letter of Transmittal, to $3.70 for the 1994 Warrants and $4.04 for the 1995 Warrants. The Company raised approximately $2.5 million in additional capital. In connection with the Company's second debt and equity rights offering completed January 31, 1995, the Company has reserved 346,500 shares of its common stock for issuance upon exercise of 1,500 outstanding warrants. Each warrant represents the right to purchase 231 shares of common stock. The warrants were valued at $100 per warrant, carry an exercise price of $8.93 per share, and expire on January 31, 2005. At December 31, 1997, a total of 210,441 of the shares originally reserved had been issued and 9,471 remained reserved and unissued. In connection with the Company's first debt and equity rights offering completed on April 30, 1994, the Company has reserved 415,500 shares of its common stock for issuance upon exercise of 1,500 outstanding warrants. Each warrant represents the right to purchase 277 shares of common stock. The warrants were valued at $100 per warrant, carry an exercise price of $6.22 per share, and expire on April 30, 2004. At December 31, 1997, a total of 186,144 of the shares originally reserved had been issued and 18,282 remained reserved and unissued. CASH DIVIDEND On December 4, 1997, the Board of Directors declared a dividend of $0.10 per share payable on January 5, 1998 to stockholders of record on December 10, 1997. 7 COMPANY SUBSIDIARIES United Fidelity Bank, fsb ("Savings Bank") and Village Securities Corporation are two subsidiaries of the Company. The Savings Bank is a federally chartered savings bank, and is regulated by the Office of Thrift Supervision. Village Securities Corporation began operations July 1, 1997, by providing customers with discount brokerage services for stocks and bonds. The Savings Bank's subsidiaries, Village Housing Corporation, Village Management Corporation and Village Community Development Corporation, (the "Affordable Housing Group") are involved in various aspects of financing, owning, developing, building, renting and managing affordable housing projects. The Company has found that it may be advantageous for the Affordable Housing Group to finance, develop, build, rent and manage many types of housing, including IRS Section 42 housing, condominiums, market- rate multifamily housing, and others. Another subsidiary of the Savings Bank, Village Insurance Corporation, is engaged in the business of selling various insurance products. The Company reevaluated its business plan in fiscal 1997. As a result, Village Community Development Corporation has reduced its activities significantly. Village Capital Corporation (formerly known as Fidelity Federal Capital Corporation) continues to receive consulting fees for its services in assisting unaffiliated borrowers obtain financing. Village Housing Corporation and Village Management Corporation remain fully operational. NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board has issued Statement No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income and its components. In addition, the Financial Accounting Standards Board has issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for disclosing information about operating segments in interim and annual financial statements. The statement is effective for fiscal years beginning after December 15, 1997. The Company will comply with the new disclosure requirements beginning in fiscal 1999. The application of the new rules will not have a material impact on the Company's financial condition or results of operations. SEGMENT INFORMATION The Company operates principally in two industries, banking and real estate development and management. The Savings Bank offers traditional banking products, such as checking, savings, and certificates of deposit, as well as mortgage, consumer, and commercial loans. Through the Affordable Housing Group, the Company is involved in various aspects of financing, owning, developing, building, renting and managing affordable housing projects. Operating profit is total revenue less operating expenses. In computing operating profit, income taxes have been deducted. Identified assets are principally those used in each segment. Real estate development and management activities conducted by the Company are not asset intensive. The assets in this segment primarily include cash received in the form of fees and land to be used for future developments. 8
Presented below is condensed financial information relating to the Company's business segments: (IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1997 1996 ----------------------- ------------------------ REVENUE: Banking $ 5,235 $ 6,183 $ 10,750 $ 11,806 Real estate development and management 192 191 414 328 -------- -------- -------- -------- Total consolidated $ 5,427 $ 6,374 $ 11,164 $ 12,134 ======== ======== ======== ======== OPERATING PROFIT: Banking $ 446 $ 455 980 (335) Real estate development and management (38) 60 (63) (394) -------- -------- -------- -------- Total consolidated $ 408 $ 515 $ 917 $ (729) ======== ======== ======== ======== IDENTIFIABLE ASSETS: Banking $203,929 $247,601 $203,929 $247,601 Real estate development and management 11,892 12,570 11,892 12,570 -------- -------- -------- -------- Total consolidated $215,821 $260,171 $215,821 $260,171 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION: Banking $ 107 $ 87 $ 218 $ 158 Real estate development and management 5 17 10 31 -------- -------- -------- -------- Total consolidated $ 112 $ 104 $ 228 $ 189 ======== ======== ======== ======== CAPITAL EXPENDITURES: Banking $ 15 $ 584 $ 81 $ 947 Real estate development and management 2 60 2 61 -------- -------- -------- -------- Total consolidated $ 17 $ 644 $ 83 $ 1,008 ======== ======== ======== ========
9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND Financial Condition SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain matters discussed in this Quarterly Report on Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this report. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. RESULTS OF OPERATIONS The net income for the three months ended December 31, 1997 was $408,000, compared to $515,000 for the same period last year. Basic and diluted net income per share was $.13 per share for the three months ended December 31, 1997, compared to $0.21 and $0.19 per share, respectively in 1996. Net income for the six months ended was $917,000 compared to a net loss of $729,000 for the same period last year. Basic and diluted net income per share for the six months ended December 31, 1997 was $0.33 and $0.32 per share compared to a net loss per share of $(0.29) and $(0.27) respectively, for the same period last year. Last year's net loss was impacted by the federal legislation resolving the FDIC insurance funding issue signed by President Clinton in September, 1996, requiring thrifts to pay a one-time assessment of approximately $.66 per $100 of deposits within 60 days of September 30, 1996. As a result, the Company recorded a charge of $1.0 million during the first quarter of fiscal 1997. The legislation provisions include a reduction of the ongoing insurance premiums thrifts pay from $.23 - $.31 per $100 of deposits to approximately $.06 per $100, as well as the ultimate merger of the funds by the year 2000. In anticipation of this and as a result of continued consolidation and standardization of the bank and thrift industries, the Company, in an ongoing effort to more closely resemble a commercial banking operation, set aside $850,000 in loan loss allowances during the first quarter of fiscal 1997. The Company continues developing its agent relationship in the indirect auto lending markets, resulting in an $205,000 increase in agent fees for the six months ended December 31, 1997, compared to the six months ended December 31, 1996. The Company announced on January 21, 1997 an expense reduction plan calling for approximately $1 million in after tax savings. The plan calls for the Company to work towards achieving optimum efficiency within its banking and real estate management, development, and financing units by eliminating duplicative and less profitable activities. The Company's long term plan originally called for rapid internal growth to approximately $500 million in assets. Management mobilized for the ambitious goal by appropriately staffing the Company to meet the increased demands of a larger organization. Recently, management determined that a more conservative growth plan would allow the Company to grow profitably without straining its capital resources. As such, it was determined that some infrastructure that had been developed would not be required in the short run. On April 25, 1997 the Company announced the completion of the cost reduction program. The Company completed the cost reduction program ahead of schedule and is anticipating an annual savings of approximately $2.0 million on a pretax basis. Excluding the $1.0 million insurance premium paid last year, non-interest expense decreased $1.1 million for the six months ended December 31, 1997 compared to the same period last year. NET INTEREST INCOME. Net interest income, the Company's largest component of income, represents the difference between interest and fees earned on loans, investments and other interest earning assets, and interest paid on interest bearing liabilities. It also measures how effectively management has balanced and allocated the Company's interest rate-sensitive assets and liabilities. Net interest income for the three months ended December 31, 1997, was $1.4 million compared to $1.6 million for the three month period ending December 31, 1996, a decrease of $231,000. A decrease in loans outstanding during the second quarter was the primary reason for the decline. Net interest income for the six months ended December 31, 1997 was $3.0 million compare to $3.2 million a year ago, a decrease of $206,000. This is primarily due to a decrease in year-to-date average earning assets of $25.5 million to $217.0 million at December 31, 1997. The Company's balance sheet has decreased $44.4 million since December 31, 1996 to $215.8 million at December 31, 1997. The net interest margin is a percentage computed by dividing net interest income on a fully taxable equivalent basis ("FTE") by average earning assets and represents a measure of basic earnings on interest bearing assets held by the Company. The Company's annualized net interest margin for the quarter decreased from 2.69% at December 31, 1996, to 2.63% at 10 December 31, 1997. The decrease in the margin was caused in part, by a decrease in multifamily construction and commercial real estate loans, which typically bear yields that are significantly higher than traditional single family loans. The Company has several large multifamily loans in its portfolio. When these loans pay off from time to time, the impact on the Company's asset size and margin can be significant. In the first half of the Company's fiscal year, approximately $20 million in these loans paid off. However, the average yield on all interest earning assets increased 12 basis points to 8.55% at December 31, 1997, compared to 8.43% at December 31, 1996. The average yield on interest bearing liabilities remained the same at 5.80% for the current and previous year. An ongoing objective of the Company's asset/liability management policy is to match rate-adjustable assets and liabilities at similar maturity horizons to minimize wide fluctuations in net interest income. Management utilizes the Office of Thrift Supervision Net Portfolio Valve ("NPV") model. This model analyzes the NPV and changes in the NPV under several different interest rate scenarios. The NPV model utilizes several measures of interest rate risk (IRR): the IRR Exposure Measure, the Interest Rate Sensitivity Measuring the Base-Case Net Present Value Capital Ratio and the Percentage Change in NPV. Results of the NPV model indicate that the Company's rate sensitivity measure based on a 200 basis points rate shock would be 80 basis points at December 31, 1997, which ranks it among the least sensitive in the thrift industry. Interest income for the quarter ended December 31, 1997, was $4.5 million compared to $5.1 million for the quarter ended December 31, 1996, a decrease of $684,000. These decreases are primarily due to a decrease in earning assets compared to the prior year. Interest expense for the quarter ended December 31, 1997, decreased $453,000 over the corresponding period in 1996. This is the result of paying off FHLB advances and allowing agent acquired funds mature or rollover at the prevailing rate. The Company is continuing to monitor the net interest margin which continues to be an area of increased concentration this year. NON-INTEREST INCOME. Non-interest income for the quarter ended December 31, 1997, was $974,000 compared to $1.2 million for the same period in 1996, a decrease of $263,000.
NON-INTEREST INCOME - -------------------------------------------------------------------------------------- (IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, INCREASE 1997 1996 (DECREASE) ------ ------ ---------- Net income from real estate development and management $ 182 $ 171 $ 11 Letter of credit fees 377 324 53 Service charges on deposit accounts 241 146 95 Gain on sale of loans 110 145 (35) Gain on sale of investments 74 74 Loan servicing rights net of amortization 30 48 (18) Real estate mortgage banking fees 463 (463) Agent fee income 384 179 205 Loan participation fees 197 197 Servicing fees on loans sold 62 89 (27) Other loan fees 13 84 (71) Other 154 196 (42) ------ ------ ------- Total non-interest income $1,824 $1,845 $ (21) ====== ====== =======
Non-interest income for the six months ended December 31, 1997, decreased by $21,000 as compared to the six months ended December 31, 1996. The Company's fee income from real estate development and management was up slightly from $171,000 last year to $182,000 for the first six months of fiscal 1998. These fees, which are transaction-based, are volatile in nature. There is no assurance that individual transactions, once initiated, will be completed. While the Company may continue to participate in development activities, it has shifted its primary focus to financing multifamily real estate for non-affiliated borrowers. The Company has not exited the development industry, but has significantly reduced its activities. The Company intends to remain active in financing multifamily transactions. The Affordable Housing Group has encountered increased competition in the financing and development of multifamily housing. The IRS Section 42 tax credit program has been used by the Company to develop affordable housing for individuals with low to moderate incomes. The Company has provided financing for other developers which began utilizing the program, due to increased competition in this area. As a result, the Company has noted a significant reduction in the amount of fees it has been able to collect on individual transactions. The Company recognized $463,000 in real estate mortgage banking fees for fiscal 1997 compared to zero in fiscal 1998. As mentioned above, the increase in competition plus a decrease in multifamily transactions has reduced fee income. The Company has replaced some of these fees with consulting fees of $92,000 earned for packaging 11 multifamily deals for non-affiliated borrowers. These fees are included in the category net income from real estate development and management. The Company did recognize $377,000 in multifamily loan letter of credit fees compared to $324,000 in fiscal 1997. Service charges on deposit accounts increased $95,000 over the prior fiscal year due to the continued growth in the deposit base. Agent fee income increased $205,000 over December 31, 1996, as a result of the Company's origination of auto loans as agent for another financial institution. Net gain on sale of loans decreased $35,000 as the volume of loans has decreased. This was offset by $74,000 in securities gains compared to zero last year. Loan servicing rights also decreased $18,000 from prior year due to a decrease in the volume of loans. The Company arranged a participation for a large multifamily loan customer and collected $197,000 in loan participation fees. The Company sold approximately $48 million in loan servicing rights last year, as a result, servicing fees on loan sold decreased $27,000 from the prior year, along with a reduction in servicing rights amortization, noted below. Other loan fees decreased $71,000 from the prior year due to large prepayment penalties fees on multifamily loans in the prior year. Other income decreased $42,000 from the prior year due to a recovery of $48,000 on a lawsuit settlement in the prior year. PROVISION FOR LOAN LOSSES. The provision for loan losses for the current quarter increased $85,000 compared to the quarter ended December 31, 1996. The provision for loan losses for the six months ended was $225,000 compared to $855,000 in the prior year, a decrease of $630,000. As a result of the continued consolidation and standardization of the bank and thrift institutions, the Company, in an ongoing effort to more closely resemble a commercial banking operation, set aside $850,000 in loan loss allowance during the first quarter of fiscal 1997. The increase in the provision in the previous year did not result from the identification of any particular problem credit or credits, but does reflect the diversity in the Company's loan portfolio. NON-INTEREST EXPENSE. Non-interest expense for the quarter ended December 31, 1997, was $1.7 million compared to $2.2 million for the same period in 1996, a decrease of $458,000, or 21.3%. The Company continues to work hard on controlling costs.
NON-INTEREST EXPENSE - -------------------------------------------------------------------------- (IN THOUSANDS) SIX MONTHS ENDED DECEMBER 31, INCREASE 1997 1996 (DECREASE) ---- ---- ---------- Salaries and employee benefits $1,727 $2,270 $ (543) Legal and professional 131 184 (53) Occupancy expense 222 232 (10) Equipment expense 177 179 (2) Deposit insurance 60 1,258 (1,198) Data processing expense 189 153 36 Advertising 103 127 (24) Printing and supplies 49 108 (59) Travel and lodging 25 30 (5) Telephone 38 56 (18) Postage 35 51 (16) Abandoned projects 145 (145) Loss on investment 51 115 (64) Other operating expense 539 529 10 ------ ------ -------- Total non-interest expense $3,346 $5,437 $(2,091) ====== ====== ========
Salaries and employee benefits decreased $543,000 for the six months ended December 31, 1997, compared to the same period last year. The Company completed a cost reduction in the fourth quarter of fiscal 1997, resulting in a significant reduction in staff. The Company should realize the full impact of the cost reduction during fiscal 1998. Legal and professional fees decreased $53,000 from the prior year due to the legal costs associated with the affordable housing segment, which has decreased from the prior year. Occupancy and equipment expense decreased by $12,000 compared to the prior year as management continues to closely monitor these expenses. Deposit insurance decreased $1,198,000 from the prior year, due primarily to the one-time special SAIF assessment imposed on thrifts in September 1996. Data processing expense increased $36,000 due primarily to the increase in the Company's retail deposit base and increased volumes in other areas. Advertising expense decreased $24,000 from the prior year primarily due to a decrease in media spending this year. Printing and supplies decreased $59,000 from the prior year due to the cost reduction program and increased cost control measures. Travel and lodging decreased $5,000 from prior year due to the decreased activities in 12 the Company's affordable housing segment. Telephone and postage decreased $18,000 and $16,000, respectively, also a result of fewer employees. The Company's housing subsidiaries continue to search for new sites to develop and/or finance, but sometimes expenses are incurred on potential sites that do not materialize and are expensed as abandoned projects. Abandoned projects expense was $145,000 in the previous year compared to zero in the current year. The Company has written down the investment in various developments by $51,000 compared to $115,000 in the prior year. These writedowns are offset by tax credits received for the investments in these developments. Other operating expense increased only $10,000 over the prior year due to a $14,000 increase in indirect consumer credit reports as a result of increased volume over prior year and a $14,000 writeoff of leasehold improvements due to the relocation of the Indianapolis, IN offices to Evansville, IN. These increases were offset by decreases in other miscellaneous expenses. INCOME TAX EXPENSE. Income tax expense increased $848,000 for the six months ended December 31, 1997, compared to the same period in 1996, due to the taxable net loss in the previous year compared to the current year's taxable net income. YEAR 2000. The Company has an ongoing program to ensure that its operational and financial systems will not be adversely affected by year 2000 software failures. While the Company believes it is taking all appropriate steps to assure year 2000 compliance, it is dependent on vendor compliance to some extent. The Company is requiring its systems and software vendors to represent that the services and products provided are, or will be, year 2000 compliant, and has planned a program of testing compliance. The Company estimates that the cost to redevelop, replace or repair its technology will not be material. FINANCIAL CONDITION Total assets decreased by $24.2 million from June 30, 1997, to approximately $215.8 million at December 31, 1997. The decrease is primarily the result of payoffs received on certain multifamily loans. The Company continues to sell current production of fixed 1-4 family mortgages, and also pass through consumer loans to another institution that meet certain criteria, and receive payments and payoffs in the normal course of business. LOANS. The following table shows the composition of the Company's loan portfolio as of December 31, 1997 and June 30, 1997.
LOANS OUTSTANDING - ------------------------------------------------------------------------------- (IN THOUSANDS) DECEMBER 31, JUNE 30, 1997 1997 ------------ -------- Real estate mortgage loans First mortgage loans Conventional $ 84,597 $ 94,293 Construction 16,339 32,577 Commercial 24,348 26,668 Multifamily loans 8,482 9,602 First mortgage real estate loans purchased 3,052 3,184 Commercial loans - other than secured by real estate 11,409 12,522 Consumer and home equity loans 29,263 26,118 -------- -------- Total loans 177,490 204,964 ======== ======== Total assets $215,821 $240,001 ======== ======== Total loans to total assets 82.2% 85.4% ======== ========
Total loans decreased by $27.5 million or 13.4% to $177.5 million at December 31, 1997, compared to June 30, 1997. The largest component of the decrease is in the construction real estate area, which was primarily three multifamily construction loans. The Company continues to sell new single family loan production, recognize the gain or loss on the sale, and use the proceeds to fund more single family loan production. The Savings Bank is continually offering new and competitive first mortgage and multifamily loan products. The Company's construction loan category, which includes approximately $14.8 million in commercial and multi-family loans and $1.5 million in 1-4 family real estate loans, has decreased since June 30, 1997, due to several large payoffs on multifamily and commercial real estate loans, which could 13 negatively impact the interest rate margin if the decrease becomes a trend. Commercial real estate loans and multifamily loans also decreased $2.3 million and $1.1 million, respectively, due to paydowns and payoffs. Consumer and home equity loans increased $3.1 million due to the Company's retention of a portion of indirect automobile loan originations. NON-PERFORMING LOANS. The Company discontinues the accrual of interest income on loans when, in the opinion of management, there is reasonable doubt as to the timely collectibility of interest or principal. Non-accrual loans are returned to an accrual status when, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the timely payment of principal and interest. Management believes that loans now current where there are reasonable doubts as to the ability of the borrower to comply with the present loan repayment terms are immaterial. The Company adopted SFAS Nos. 114 and 118, Accounting by Creditors for Impairment of a Loan and Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures on July 1, 1995. The adoption of SFAS Nos. 114 and 118 did not have a material impact on the Company's financial position or results of operations. The Company has not experienced any impaired loans since the adoption of SFAS Nos. 114 and 118. NON-PERFORMING LOANS - --------------------------------------------------------------- (IN THOUSANDS) DECEMBER 31, JUNE 30, 1997 1997 ------------ -------- Nonaccrual loans $599 $256 Restructured 90 days or more past due 101 29 ---- ---- Total $700 $285 ==== ==== Percent of total loans 0.39% 0.14% ===== ===== The ratio increased from 0.14% at June 30, 1997, to 0.59% at December 31, 1997 as non-performing loans increased $415,000. The nonaccrual loan total is entirely made up of five mortgage loans, while the 90 days past due total consists of consumer loans only. Management is not aware of any loans that have not been disclosed that represent or result from trends or uncertainties which may have a material impact on the Company's future operating results, liquidity or capital resources. ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The Company establishes its provision for loan losses and evaluates the adequacy of its allowance for loan losses based on management's evaluation of its loan portfolio and changes in loan activity. Such evaluation, which includes a review of all loans for which full collectiblity may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience, the composition of the loan portfolio and other factors that warrant recognition in providing for an adequate loan loss allowance. This evaluation is performed on a monthly basis and is designed to ensure that all relevant matters affecting loan collectibility will consistently be identified in a detailed loan review and that the outcome of the review will be considered in a disciplined manner by management in determining the necessary allowance and the provision for loan losses. The amounts actually reported in each period will vary with the outcome of this detailed review. 14 The following table sets forth an analysis of the allowance for loan losses for the six months ended December 31, 1997, and the year ended June 30, 1997. Allowance for Loan Losses (in thousands) DECEMBER 31, JUNE 30, 1997 1997 ------------------------- Allowance for loan losses: Balances, beginning of year $1,781 $1,059 Provision for losses 225 975 Loans charged off (221) (267) Recoveries on loans 9 14 ------ ------ Balances, end of quarter $1,794 $1,781 ====== ====== As of December 31, 1997, net loan charge-offs were $212,000, or 0.22% (annualized) of average loans for the period, compared to $253,000 or 0.07% of average loans as of June 30, 1997. The provision for loan losses decreased $750,000 for the six months ended December 31, 1997 compared to the previous year as the Company set aside $850,000 in loan loss allowance in the first quarter of fiscal 1997 in an ongoing effort to more closely resemble commercial banking allowance levels, compared to a more normalized provision in the current fiscal year. The allowance for loan losses to total loans outstanding increased from .87% at June 30, 1997 to 1.01% at December 31, 1997. The Company still has a number of large multifamily loans, both completed and in construction in its portfolio. These credits are currently performing, but present a higher amount of risk than other loans due to their size in relationship to the Company's net worth and loan loss allowances. The loans are primarily outside the Company's geographic market. Management considers the allowance for loan losses adequate to meet losses inherent in the loan portfolio as of December 31, 1997. INVESTMENT SECURITIES. The Savings Bank's investment policy is annually reviewed by its Board of Directors and any significant changes to the policy must be approved by the Board. The Board has an asset/liability management committee which is responsible for keeping the investment policy current. As of December 31, 1997, the investment portfolio represented 4.1% of the Company's assets compared to 5.7% at June 30, 1997, and is managed in a manner designed to meet the Board's investment policy objectives. The Savings Bank sold $3.4 million in securities during the second quarter resulting in net gains of $74,000. The remaining decrease is the monthly payments of principal and interest on the Savings Bank's mortgage-backed securities. The primary objectives, in order of priority, are to further the safety and soundness of the Company, to provide the liquidity necessary to meet day to day funding needs, cyclical and long-term changes in the mix of our assets and liabilities, and to provide for diversification of risk and management of interest rate and economic risk. At December 31, 1997, the entire investment portfolio was classified as available for sale, in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investment in Debt and Equity Securities". The net unrealized loss at December 31, 1997 was $41,000, which was comprised of gross gains of $2,000, gross losses of $73,000, and a tax benefit of $30,000. The increase of $10,000 over June 30, 1997 was caused by market interest rate changes during the period. Although the entire portfolio is available for sale, management has not identified individual investments for sale in future periods. The following table sets forth the components of the Savings Bank's securities available for sale as of the dates indicated. DECEMBER 31, JUNE 30, 1997 1997 ------------ -------- (IN THOUSANDS) Securities available for sale: U.S. Treasury securities $ 1,002 $ 1,000 Federal agencies securities 2,984 2,944 Federal Home Loan Mortgage Corporation mortgage-backed securities 1,077 3,003 Federal National Mortgage Association mortgage-backed securities 1,172 1,562 Government National Mortgage Association mortgage-backed securities 2,597 4,223 Municipal revenue bonds 1,058 Other securities available for sale 54 -------- -------- Total securities available for sale $ 8,886 $ 13,790 ======== ======== 15 FUNDING SOURCES DEPOSITS. The Savings Bank attracts both short-term and long-term deposits from the retail market by offering a wide assortment of accounts with different terms and different interest rates. These deposit alternatives include checking accounts, regular savings accounts, money market deposit accounts, fixed rate certificates with varying maturities, variable interest rate certificates, negotiable rate jumbo certificates ($100,000 or more), and variable rate IRA certificates. Average deposits decreased by $6.2 million during the first six months of fiscal 1998. Most of the decreases were due to certificates of deposit acquired through agents, which decreased $18.3 million to $52.0 million at December 31, 1997. This decrease was offset by the Company's savings bank subsidiary promoting selected retail certificates of deposit, which have increased $12.1 million since June 30, 1997 in an effort to increase its core deposit base. Demand accounts and money market accounts decreased $722,000 and $811,000, respectively, offset by an increase in a premium rate NOW accounts product of $1.7 million. The Company's savings bank subsidiary continues to actively market this premium rate NOW account product. The following table sets forth the average balances of and the average rate paid on deposits by deposit category for the six months ended December 31, 1997 and for the year ended June 30, 1997.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 1997 JUNE 30, 1997 ----------------- -------------- AVERAGE AVERAGE BALANCE RATE BALANCE RATE ------- ---- ------- ---- (DOLLARS IN THOUSANDS) Average Deposits Demand $ 4,963 $ 5,685 Now accounts 22,311 4.31% 20,585 4.22% Money market accounts 3,079 2.71 3,890 2.72 Savings accounts 4,666 2.51 4,792 2.90 Certificates of deposit 90,461 5.79 78,408 5.68 Agent-acquired certificates of deposit 52,011 6.30 70,346 6.31 --------- --------- Total $ 177,491 5.44% $ 183,706 5.45% ========= =========
FEDERAL HOME LOAN BANK ADVANCES AND OTHER LONG-TERM DEBT. The following table summarizes the Company's borrowings as of December 31, 1997, and June 30, 1997.
DECEMBER 31, JUNE 30, 1997 1996 ------------ -------- (IN THOUSANDS) Note payable, 7.70% adjusted annually, payable $16,443 per month, including interest, due April 1, 2009, secured by specific multifamily mortgages $ 2,223 $ 2,234 Note payable, 8.75% adjusted annually, payable $8,018 per month, including interest, due September 14, 2010, secured by specific multifamily mortgages 1,003 1,006 Note payable, 8.75% adjusted annually, payable $12,190 per month, including interest, due September 22, 2010, secured by specific multifamily mortgages 1,536 1,542 Junior subordinated notes, 9 1/8%, interest paid semi-annually, due April 30, 2001, unsecured 1,476 1,476 Junior subordinated notes, 9 1/4% interest paid semi-annually, due January 31, 2002 unsecured 1,494 1,494 Senior subordinated notes, 10%, interest paid semi-annually, due June 1, 2005, unsecured 7,000 7,000 Federal Home Loan Bank advances 18,950 23,337 ------- ------- Total $33,682 $38,089 ======= =======
Borrowings decreased $4.4 million to $33.7 million at December 31, 1997. Borrowings have been reduced during fiscal 1998 primarily due to large payoffs received in loans and the continued sales of current 1-4 family loan production. This allows the Company to use the proceeds to fund new loan originations and ease the need for additional borrowings in the 16 future. The decrease is due primarily to the maturity of FHLB advances. The Company, thus far, has been in a position to allow FHLB advance levels to decline. CAPITAL RESOURCES AND CAPITAL REQUIREMENTS The ratio of stockholders' equity to total assets for the Savings Bank, was 8.74% at December 31, 1997, compared to 6.93% at June 30, 1997. The dividends paid and declared on common stock, and an increase in the unrealized loss on available for sale investment decreased the ratio, while net income for the period, and an infusion of capital from the Savings Bank's parent company increased the ratio. The Company's book value per share at December 31, 1997 was $5.02, compared to $5.20 at June 30, 1997. The OTS has adopted capital standards under which savings associations must maintain (i) "core capital" in an amount not less than 3% of total assets, (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. The capital standards established by the OTS for savings associations must generally be no less stringent than those applicable to national banks. 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 intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights. 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 insured depository institution, acquired prior to May 1, 1989. In determining total risk-weighted assets for purposes of the risk based requirement, (i) each off-balance sheet asset must be converted to its on-balance sheet credit equivalent amount by multiplying the face amount of each such item by a credit conversion factor ranging from 0% to 100% (depending upon the nature of the asset), (ii) the credit equivalent amount of each off-balance sheet asset and the book value of each on-balance sheet asset must be multiplied by a risk factor ranging from 0% to 100% (again depending upon the nature of the asset), and (iii) the resulting amounts are added together and constitute total risk-weighted assets. Total capital, for purposes of the risk-based capital requirement, equals the sum of core capital plus supplementary capital (which, as defined, includes, among other items, perpetual preferred stock not counted as core capital, limited life preferred stock, subordinated debt, and general loan and lease loss allowances up to 1.25% of risk-weighted assets) less certain deductions including the savings association's interest-rate risk component. The amount of supplementary capital that may be counted towards satisfaction of the total capital requirement may not exceed 100% of core capital. At December 31, 1997, actual and required minimum levels of regulatory capital for the Savings Bank were as follows: (Dollars in Thousands) Required Amount Percent Amount Percent Excess ---------------------------------------------- Core $18,399 8.74% $ 6,318 3.0% $12,081 Tangible $18,399 8.74% $ 3,159 1.5% $15,240 Risk-based $24,954 13.16% $17,085 8.0% $ 7,869 Pursuant to HOLA of 1933, as amended, the OTS is required to issue capital standards that are no less stringent than those applicable to national banks. In April 1991, the OTS proposed to amend its capital regulations to reflect amendments made by the OCC to the leverage ratio capital requirement for national banks. The proposal would establish a core capital leverage ratio (core capital to adjusted total assets) of 3% for savings associations rated composite 1 under the OTS MACRO rating system. For all other savings associations, the minimum core capital leverage ratio would be 3% plus at least an additional 100 to 200 basis points. Under the proposal, the OTS may impose higher regulations for individual savings associations. The OTS has not adopted this regulation in final form. The prompt corrective action regulation adopted by the OTS provides that a savings association that has a leverage capital ratio of less than 4% will be considered "undercapitalized" and may be subject to certain restrictions. At December 31, 1997 the Savings Bank had a core capital leverage ratio (as defined in the proposal) of 8.74%. 17 The OTS adopted a final regulation adding an interest-rate risk component to its risk-based capital rule. A savings association's interest-rate risk is generally defined as the change that occurs to its net portfolio value as a result of a hypothetical two hundred basis point increase or decrease in market interest rates. A "normal level" of interest-rate risk is defined as any decline in net portfolio value of up to 2% of the institution's assets. If the 2% threshold is exceeded, a savings association will be required to deduct from its capital, for purposes of determining whether the institution meets its risk-based capital requirements, an amount equal to one-half of the difference between the measured risk and 2% of assets. Capital requirements higher than the generally applicable minimum requirement may be established for a particular savings association if the OTS determines that the institution'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, or poses other safety or soundness concerns. LIQUIDITY Liquidity for a savings bank represents its ability to accommodate growth in loan demand and/or reduction in deposits. The Savings Bank liquidity ratio was 11.87% on December 31, 1997, up from 5.57% on June 30, 1997. On November 24, 1997, the OTS adopted a new liquidity ratio which lowered liquidity requirements for savings associations from 5 to 4 percent of the association's liquidity base. The liquidity base has been reduced by modifying the definition of net withdrawable accounts to exclude, at the association's option, accounts with maturities exceeding one year. Another change removes the requirement that certain obligation must mature in five years or less in order to qualify as a liquid asset. Finally, the rule added certain short-term mortgage-related securities and short- term first lien residential mortgage loans to the list of assets includable as regulatory liquidity. Management believes that this level of liquidity is sufficient to meet any anticipated requirements for the Bank's operations. 18 PART II -- OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS: ------------------ There are no material pending legal proceedings, other than ordinary routine litigation incidental to the Registrant's business, to which the Registrant or its subsidiaries are a party of or which any of their property is the subject. ITEM 2 CHANGES IN SECURITIES: ---------------------- Not applicable. ITEM 3 DEFAULTS UPON SENIOR SECURITIES: -------------------------------- Not applicable. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: ---------------------------------------------------- None ITEM 5 OTHER INFORMATION: ------------------ None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K: --------------------------------- a. The following exhibit is submitted herewith: 27 Financial Data Schedule Reports on Form 8-K b. No reports were filed 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIDELITY FEDERAL BANCORP Date: JANUARY 13, 1998 By: /s/ M. BRIAN DAVIS --------------------------- --------------------------------- M. Brian Davis President and CEO By: /s/ DONALD R. NEEL --------------------------------- Donald R. Neel, Executive Vice President, CFO and Treasurer (Principal Financial Officer) 20 Exhibit Index Reg. S-K Exhibit No. Description of Exhibit Page - ------------------------------------------------------------------------------ 27 Financial Data Schedule 21 EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIDELITY FEDERAL BANCORP CONSOLIDATED BALANCE SHEET AS OF 12/31/97 AND THE CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 12/31/97. 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 1,687 2,898 8,000 0 8,886 0 0 177,490 1,794 215,821 161,711 2,560 2,166 33,682 0 0 3,128 12,574 215,821 8,608 375 375 9,340 4,885 6,341 2,999 225 74 3,346 1,252 1,252 0 0 917 .33 .32 2.75 599 101 0 0 1,781 221 9 1,794 1,794 0 0
-----END PRIVACY-ENHANCED MESSAGE-----