-----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, WdMjZ7p4y1II4JaOiftUZCSy8SE/JlwmOMh0I1nsq5NXQ7SVxURP7mJzWYnqJVhg iYrG8Wd1vsg72uYSx+S2vw== 0000912219-97-000008.txt : 19970722 0000912219-97-000008.hdr.sgml : 19970722 ACCESSION NUMBER: 0000912219-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970721 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY BANCORP INC /DE/ CENTRAL INDEX KEY: 0000912219 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 363915246 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12753 FILM NUMBER: 97643224 BUSINESS ADDRESS: STREET 1: 5455 WEST BELMONT AVENUE CITY: CHICAGO STATE: IL ZIP: 60641 BUSINESS PHONE: 3127364414 MAIL ADDRESS: STREET 1: 5455 WEST BELMONT AAVENUE CITY: CHICAGO STATE: IL ZIP: 60641 10-Q 1 FIDELITY BANCORP, INC. FORM 10-Q, 6/30/97 =============================================================================== 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 quarterly period ended June 30, 1997 Commission file number 0-22826 Fidelity Bancorp, Inc. (Exact name of registrant as specified in its charter) Delaware 36-3915246 (State of Incorporation) (I.R.S. Employer Identification No.) 5455 W. Belmont, Chicago, Illinois, 60641 (Address of principal executive offices) (773) 736-4414 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the reports 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 report), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The number of shares outstanding of each of the issuer's classes of common stock, was 2,791,978 shares of common stock, par value $.01, outstanding as of July 18, 1997. =============================================================================== FIDELITY BANCORP, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION PAGE(S) Item 1. Financial Statements Consolidated Statements of Financial Condition as of June 30, 1997 (unaudited) and September 30, 1996 1 Consolidated Statements of Earnings for the nine and three months ended June 30, 1997 and 1996 (unaudited) 2 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended June 30, 1997 and 1996 (unaudited) 3 Consolidated Statements of Cash Flows for the nine months Ended June 30, 1997 and 1996 (unaudited) 4 Notes to Unaudited Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12-13 SIGNATURE PAGE 14 FIDELITY BANCORP, INC. Consolidated Statements of Financial Condition (Dollars in thousands, except per share data)
ASSETS June 30, September 30, 1997 1996 (unaudited) Cash and due from banks $ 885 3,848 Interest-bearing deposits 640 225 Federal funds sold 7,000 200 Investment in dollar-denominated mutual funds, at fair value 4,140 3,146 FHLB of Chicago stock 5,175 5,795 Mortgage-backed securities held to maturity, at amortized cost (approximate fair value of $18,857 at June 30, 1997 and $21,766 at September 30, 1996) 18,702 21,673 Investment securities available for sale, at fair value 64,745 78,104 Loans receivable, net of allowance for loan losses of $857 at June 30, 1997 and $810 at September 30, 1996 380,733 354,255 Accrued interest receivable 2,924 3,199 Real estate in foreclosure 109 97 Premises and equipment 3,566 3,780 Deposit base intangible 119 158 Other assets 1,105 1,382 ------- ------- $ 489,843 475,862 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits 335,347 302,934 Borrowed funds 91,500 115,300 Advance payments by borrowers for taxes and insurance 4,685 1,953 Other liabilities 7,430 6,847 ------- ------- Total liabilities 438,962 427,034 STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; authorized 2,500,000 shares; none outstanding - - Common stock, $.01 par value; authorized 8,000,000 shares; issued 3,782,350 shares; 2,791,978 and 2,866,108 shares outstanding at June 30, 1997 and September 30, 1996 38 38 Additional paid-in capital 37,293 37,079 Retained earnings, substantially restricted 30,100 27,851 Treasury stock, at cost (990,372 and 916,242 shares at June 30, 1997 and September 30, 1996, respectively) (13,897) (12,619) Common stock acquired by Employee Stock Ownership Plan (1,662) (2,078) Common stock acquired by Bank Recognition and Retention Plans (516) (708) Unrealized loss on investment securities available for sale, less applicable taxes (475) (735) ------- ------- TOTAL STOCKHOLDERS' EQUITY 50,881 48,828 Commitments and contingencies $ 489,843 475,862 ======= =======
See accompanying notes to unaudited consolidated financial statements. FIDELITY BANCORP, INC. Consolidated Statements of Earnings (Dollars in thousands, except per share data)
Three Months ended Nine Months ended June 30, June 30, 1997 1996 1996 1997 -------------------- ----------------- (unaudited) Interest Income: Loans receivable $ 7,130 6,076 21,160 17,259 Investment securities 1,450 1,519 4,425 4,262 Mortgage-backed securities 340 415 1,075 1,310 Interest earning deposits 16 13 35 53 Federal funds sold 6 3 11 36 Investment in mutual funds 42 27 124 33 ------ ------ ------ ------ 8,984 8,053 26,830 22,953 Interest Expense: Deposits 4,022 3,471 11,820 10,465 Borrowed funds 1,364 1,178 4,141 2,609 ------ ------ ------ ------ 5,386 4,649 15,961 13,074 Net interest income before provision for loan losses 3,598 3,404 10,869 9,879 Provision for loan losses 15 10 54 90 ------ ------ ------ ------ Net interest income after provision for loan losses 3,583 3,394 10,815 9,789 Non-Interest Income: Fees and commissions 85 87 287 283 Insurance and annuity commissions 192 105 482 401 Other 17 18 45 39 ------ ------ ------ ------ 294 210 814 723 Non-Interest Expense: General and administrative expenses: Salaries and employee benefits 1,343 1,215 4,016 3,634 Office occupancy and equipment 305 302 903 897 Data processing 116 110 357 336 Advertising and promotions 130 94 468 333 Federal deposit insurance premiums 59 170 267 499 Other 334 332 1,034 922 ------ ------ ------ ----- Total general and administrative expenses 2,287 2,223 7,045 6,621 Amortization of intangible 12 16 39 48 ------ ------ ------ ------ 2,299 2,239 7,084 6,669 ------ ------ ------ ------ Income before income taxes 1,578 1,365 4,545 3,843 Income tax expense 546 530 1,682 1,492 ------ ------ ------ ------ Net income $ 1,032 835 2,863 2,351 ====== ====== ====== ====== Earnings per share - primary $ 0.37 0.28 1.02 0.78 Earnings per share - fully diluted $ 0.37 0.28 1.02 0.77 ====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements. FIDELITY BANCORP, INC. Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands) Nine months ended June 30, 1997 and 1996
Unrealized Loss on Common Common Investment Additional Stock Stock Securities Common Paid-In Retained Treasury Acquired Acquired Available Stock Capital Earnings Stock by ESOP by BRRP's For Sale Total --- ------ ------- ------- ------ ------ ---- ------- Balance at September 30, 1995 $38 36,795 26,449 (5,978) (2,494) (963) (55) $53,792 Net income - - 2,351 - - - - 2,351 Purchase of treasury stock (350,466 shares) - - - (5,573) - - - (5,573) Cash dividends ($.16 per share) - - (564) - - - - (564) Amortization of award of BRRP's stock - - - - - 191 - 191 Cost of ESOP shares released - - - - 416 - - 416 Exercise of stock options and reissuance of treasury shares (2,200 shares) - (6) - 28 - - - 22 Tax benefit related to stock options exercised - 2 - - - - - 2 Market adjustment for committed ESOP shares - 171 - - - - - 171 Change in unrealized loss on investment securities available for sale - - - - - - (1,007) (1,007) --- ------ ------- ------ ------ ------ ---- ------- Balance at June 30 1996 $38 36,962 28,236 (11,523) (2,078) (772) (1,062) $49,801 === ====== ======= ====== ====== ======= ====== ======= Balance at September 30, 1996 38 37,079 27,851 (12,619) (2,078) (708) (735) 48,828 Net income - - 2,863 - - - - 2,863 Purchase of treasury stock (82,030 shares) - - - (1,389) - - - (1,389) Cash dividends ($.22 per share) - - (614) - - - - (614) Amortization of award of BRRP's stock - - - - - 192 - 192 Cost of ESOP shares released - - - - 416 - - 416 Exercise of stock options and reissuance of treasury shares (7,900 shares) - (32) - 111 - - - 79 Tax benefit related to stock options exercised - 13 - - - - - 13 Market adjustment for committed ESOP shares - 233 - - - - - 233 Change in unrealized loss on investment securities available for sale - - - - - - 260 260 --- ------ ------- ------ ------ ----- ---- ------ Balance at June 30, 1997 $38 37,293 30,100 (13,897) (1,662) (516) (475) $50,881 === ====== ======= ====== ====== ===== ==== =======
See accompanying notes to unaudited consolidated financial statements. FIDELITY BANCORP, INC. Consolidated Statements of Cash Flows (Dollars in thousands)
Nine months ended June 30, 1997 1996 ------ ------ (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,863 2,351 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation 261 287 Deferred income taxes 13 2 Provision for loan losses 54 90 Recapture of credit enhancement losses - (10) Net amortization and accretion of premiums and discounts 21 211 Amortization of cost of stock benefit plans 192 191 Principal payment on ESOP loan 416 416 Market adjustment for committed ESOP shares 233 171 Deferred loan fees, net of amortization (337) (862) Amortization of deposit base intangible 39 48 Sale of real estate owned 101 - Decrease in accrued interest receivable 275 2 Decrease in other assets 267 60 Increase in other liabilities 398 617 ------ ------ Net cash provided by operating activities 4,796 3,574 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investment securities 30,000 63,000 Proceeds from redemption of mutual funds - 40 Redemption of Federal Home Loan Bank of Chicago stock 935 179 Purchase of mutual funds (994) (2,956) Purchase of Federal Home Loan Bank of Chicago stock (315) (2,789) Purchase of investment securities available for sale (19,975) (65,000) Loans originated for investment (66,917) (107,216) Purchase of premises and equipment (47) (94) Principal repayments collected on loans receivable 40,606 41,653 Principal repayments collected on investment securities 3,784 5,671 Principal repayments collected on mortgage-backed securities 2,958 3,359 ------ ------ Net cash used in investing activities (9,965) (64,153) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 32,413 9,947 Proceeds from (repayments of) FHLB advances (23,800) 58,018 Net increase (decrease) in advance payments by borrowers for taxes and insurance 2,732 (722) Purchase of treasury stock (1,389) (5,573) Payment of common stock dividends (614) (564) Proceeds from exercise of stock options 79 22 ------ ------ Net cash provided by financing activities 9,421 61,128 ------ ------ Net change in cash and cash equivalents 4,252 549 Cash and cash equivalents at beginning of period 4,273 4,115 ------ ------ Cash and cash equivalents at end of period $ 8,525 4,664 ====== ====== CASH PAID DURING THE PERIOD FOR: Interest $ 15,912 13,049 Income taxes 815 1,076 NON-CASH INVESTING ACTIVITIES - Loans transferred to real estate in foreclosure 109 112 ====== ======
See accompanying notes to unaudited consolidated financial statements. FIDELITY BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation have been included. The results of operations and other data for the nine months ended June 30, 1997 are not necessarily indicative of results that may be expected for the entire fiscal year ending September 30, 1997. The unaudited consolidated financial statements include the accounts of Fidelity Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Fidelity Federal Savings Bank and subsidiaries (the "Bank"). All material intercompany accounts and transactions have been eliminated in consolidation. (2) EARNINGS PER SHARE Earnings per share of common stock for the three and nine months ended June 30, 1997 have been determined by dividing net income by 2,803,996 and 2,799,423, respectively, the weighted average number of shares of common stock and common stock equivalents outstanding. Earnings per share information for the three and nine months ended June 30, 1996 were determined by dividing net income by 2,944,771 and 3,039,841, respectively, the weighted average number of shares of common stock and common stock equivalents outstanding. Stock options are regarded as common stock equivalents and are therefore considered in the earnings per share calculations. Common stock equivalents are computed using the treasury stock method. (3) COMMITMENTS AND CONTINGENCIES At June 30, 1997, the Bank had outstanding commitments to originate mortgage loans of $5.7 million, of which $540,000 were fixed rate, with rates ranging from 7.75% to 8.25%, and $5.2 million were adjustable rate commitments. The Bank had a commitment to purchase a $8.45 million FHLB note with a rate of 7.4%. This note settles on July 9, 1997, and has a stated maturity of July 9, 2007, callable on July 9, 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's results of operations are dependent on net interest income which is the difference between interest earned on its loan and investment portfolios, and its cost of funds, consisting of interest paid on deposits and borrowed money. The Company also generates non-interest income such as transactional fees, loan servicing fees, and fees and commissions from the sales of insurance products and securities through its subsidiary. Operating expenses primarily consist of employee compensation, occupancy expenses, federal deposit insurance premiums and other general and administrative expenses. The results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. The Company reported earnings for the third quarter ended June 30, 1997 of $1.0 million compared with $835,000 for the same quarter a year ago, an increase of 23.6%. Earnings per fully diluted share for the quarter were $0.37 per share, up $0.09 per share, or 32.1% from the third quarter of 1997. For the first nine months of the fiscal year, the Company reported similar gains in net income and earnings per share. For the nine months ended June 30, 1997, Fidelity's net income was $2.9 million, compared with $2.4 million for the first nine months of 1996. Earnings per fully diluted share for the first nine months were $1.02 per share, up 30.8% from the nine month period one year ago. The Company also announced that its board of directors declared a quarterly dividend of $0.08 per share, payable August 15, 1997 to shareholders of record as of July 31, 1997. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward- looking statements to be covered by the safe harbor provisions for forward- looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. LIQUIDITY & CAPITAL RESOURCES Liquidity management is both a daily and long-term function of management's strategy. The Company's primary sources of funds are deposits and borrowings, amortization and prepayment of loan principal and mortgage-backed securities, maturities of investment securities and operations. While maturing investments and scheduled loan repayments are relatively predictable, deposit flows and loan prepayments are greatly influenced by interest rates, floors and caps on loan rates, general economic conditions and competition. Management generally manages the pricing of its deposits to be competitive and increase core deposit relationships, but has from time to time decided not to pay deposit rates that are as high as those of its competitors and, when necessary, to supplement deposits with Federal Home Loan Bank ("FHLB") advances. Federal regulations require the Bank to maintain minimum levels of liquid assets. This requirement, which may be varied at the direction of the Office of Thrift Supervision ("OTS") depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The current required ratio is 5.0%. The Bank has historically maintained its liquidity ratio for regulatory purposes at levels in excess of those required. At June 30, 1997, the Bank's liquidity ratio was 7.45%. The Bank's cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows from operating activities, consisting primarily of interest and dividends received less interest paid on deposits, were $4.8 million for the nine months ended June 30, 1997. A one-time special assessment charge of $1.6 million was recorded on September 30, 1996 as the result of legislation regarding the Savings Association Insurance Fund (the "SAIF"). During the nine month period ended June 30, 1997, the Company paid the SAIF special assessment, thereby reducing the net cash provided by operating activities. Net cash used in investing activities was $10.0 million for the nine months ended June 30, 1997. Investing activities consisted primarily of disbursements for loan originations and principal collected on loans as well as maturities and reinvestments of the Bank's investment portfolio. Net cash provided by financing activities amounted to $9.4 million for the nine months ended June 30, 1997. The $32.4 million in increased deposits was partially offset by net repayments of $23.8 million in FHLB advances. At June 30, 1997, the Bank had outstanding loan commitments of $5.7 million. Management anticipates that it will have sufficient funds available to meet its current loan commitments. Certificates of deposit scheduled to mature in one year or less from June 30, 1997 totalled $168.7 million. Consistent with historical experience, management believes that a significant portion of such deposits will remain with the Bank, and that their maturity and repricing will not have a material adverse impact on the operating results of the Company. The Bank's Tangible and Leverage Capital ratio at June 30, 1997 was 8.6%. This exceeded the Tangible Capital requirement of 1.5% of adjusted assets and the Core ("Leverage") Capital requirement of 3% of adjusted assets by $34.3 million and $27.1 million, respectively. The Bank's Risk-based Capital ratio was 18.3% at June 30, 1997 which exceeded the Risk-based Capital requirement of 8% of Risk-weighted assets by $23.7 million. CHANGES IN FINANCIAL CONDITION Total assets at June 30, 1997 were $489.8 million, compared to $475.9 million at September 30, 1996. Loans receivable, net of allowance for loan losses, grew at an annualized growth rate 10.0% during the first nine months of fiscal 1997. The Company continues to offer various loan products, and prices them competitively. Current year multi-family and commercial originations accounted for $13.0 million, or 19.4% of all originations. The Company's total loan originations were $66.9 million for the nine months ended June 30, 1997. Total deposits increased $32.4 million to $335.3 million at June 30, 1997 compared to the balance of $302.9 million at September 30, 1996. Growth in deposits for the nine month period was the result of the promotion of transaction accounts, including the introduction of a new line of checking accounts. Management continues to utilize FHLB advances when they are a cost effective source to fund loan activity. During the nine month period ending June 30, 1997, the Company has repaid a net $23.8 million in FHLB advances. Book value per share on June 30, 1997 was $18.22, compared with $17.04 at September 30, 1996. ASSET QUALITY As of June 30, 1997, the Company had non-performing assets of $3.9 million. Classified loans of $1.9 million were categorized as substandard as were $2.0 of Bennett Funding Group commercial leases (see below). The $1.9 million amount increased from last quarter because of three additional residential mortgage loans that were non-performing at the end of the quarter. Management believes it has reserved sufficiently for these non-performing assets. From October 1994 through January 1995, the Company purchased 454 full-payout commercial equipment leases located in various parts of the country with original aggregate outstanding principal balances of $3.0 million. Since that time normal lease payments had reduced the aggregate outstanding balance to $2.0 million at February 29, 1996. These leases were all originated by, serviced by, and financially guaranteed by Bennett Funding Group of Syracuse, New York ("BFG"). On March 29, 1996 it was reported that BFG was the target of a civil complaint filed by the Securities and Exchange Commission. On that same date, BFG filed a Chapter 11 bankruptcy petition in the Northern District of New York and halted payments on the lease agreements. The Bankruptcy Trustee is currently collecting the lease payments from the lessees and holding them in escrow pending the outcome of the litigation concerning BFG, its creditors, and related issues. This disruption of payment flows from the servicer, BFG, has caused the Company to classify all the leases as substandard, place them on non-accrual status and to categorize them as non- performing and impaired. The Company is vigorously pursuing available legal remedies in an attempt to protect and collect amounts due under the terms of the underlying leases. The substance of the Company's claims center on the assertion that it has a perfected security interest in the leases and the proceeds thereof. The Trustee disagrees. The opinion of the Company's bankruptcy counsel at this time is that the Company's position should ultimately prevail. There can be no assurance, however, of the actual results of this legal process or the extent of the Company's recovery, if any. Management has estimated what is believed to be the realizable value of the leases and established a valuation allowance of $406,000. In the event that the outcome of the litigation is not favorable, i.e. the Company's status is that of an unsecured creditor, the recovery may be substantially smaller. Any recovery by the Company of less than the net book value of the leases will cause additional losses to the Company. STOCK REPURCHASE On November 26, 1996, the Company completed its sixth repurchase program. As a component of its strategy to build shareholder value, the Company has repurchased 1,002,472 shares, at an average cost of $14.03 through June 30, 1997. RECENT REGULATORY DEVELOPMENTS Legislation has been introduced in the Congress that would eliminate the federal thrift charter by requiring each federal thrift to convert to a national bank or to a state bank or state thrift. One of the pending bills would require the conversion to occur by January 1, 1998 while the other would require conversion by June 30, 1998. Under the proposed legislation, state thrift institutions would be regulated for purposes of federal law as state banks. The bills would allow a converting federal thrift to retain nonconforming investments and activities for a period of two years following conversion (subject to extension by the converted bank's primary federal regulator for up to two additional one year periods). The pending legislation would allow savings and loan holding companies that become bank holding companies as a result of a charter conversion pursuant to the legislation to continue to engage in any activity in which they are currently allowed to engage, provided that they remain "qualified bank holding companies." In order to be deemed a qualified bank holding company, each depository institution subsidiary of the holding company that was previously a thrift institution must continue to satisfy the qualified thrift lender test and comply with all investment limitations to which the institution was subject as a thrift institution. Further, the proposed legislation imposes certain restrictions on the ability of a qualified bank holding company to acquire other depository institutions or to be acquired. If a savings and loan holding company failed to remain a qualified bank holding company, the company would become subject to all of the nonbanking activities restrictions generally applicable to bank holding companies. The Congress is also considering legislation that would allow bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. While the scope of permissible nonbanking activities and the conditions under which the new powers could be exercised varies among the bills, the expanded powers generally would be available to a bank holding company only if the bank holding company and its bank subsidiaries remain well-capitalized and well-managed. The bills also impose various restrictions on transactions between the depository institution subsidiaries of bank holding companies and their nonbank affiliates. These restrictions are intended to protect the depository institutions from the risks of the new nonbanking activities permitted to such affiliates. At this time, the Company is unable to predict whether any of the pending bills will be enacted and, therefore, is unable to predict the impact such legislation may have on the operations of the Company and the Bank. AVERAGE BALANCE SHEET The following table sets forth certain information relating to the Company's average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields and costs include fees, which are considered adjustments to yields.
Three Months Ended June 30, Nine Months Ended 1997 1996 June 30,1997 ------------------------ ----------------------- ---------------------- Inter- Average Inter- Average Inter- Average Average est Yield Average est Yield Average est Yield (dollars in thousands) ------------------------ ----------------------- ---------------------- Interest-earning assets: Loans receivable, net $375,286 7,130 7.60% 316,350 6,076 7.68% 367,004 21,160 7.69% Mortgage-backed securities 19,342 340 7.03% 23,732 415 6.99% 20,390 1,075 7.03% Interest-bearing deposits 1,251 16 5.12% 981 13 5.30% 924 35 5.05% Investment securities, mutual funds, federal funds sold and FHLB stock 83,336 1,498 7.19% 88,793 1,549 6.98% 85,491 4,560 7.11% ------- ----- ----- ------ ----- ----- ------- ----- ----- Total interest-earning assets 479,215 8,984 7.50% 429,856 8,053 7.49% 473,809 26,830 7.55% Non-interest earning assets 10,786 12,164 11,209 ------- ------- ------- Total assets $490,001 442,020 485,018 ======= ======= ======= Interest-bearing liabilities: Deposits: Savings account 77,231 549 2.84% 97,603 703 2.99% 80,803 1,721 2.84% Money market accounts 18,202 190 4.18% 20,805 213 4.10% 18,627 581 4.16% Certificate accounts 232,695 3,283 5.64% 172,029 2,528 5.88% 222,812 9,518 5.70% ------- ----- ----- ------ --- ----- ------- ----- ----- Total deposits 328,128 4,022 4.90% 290,437 3,471 4.78% 322,242 11,820 4.89% Borrowed funds 96,067 1,364 5.68% 85,470 1,178 5.51% 97,939 4,141 5.64% ------- ----- ----- ------ --- ----- ------- ----- ----- Total interest-bearing liabilities 424,195 5,386 5.08% 375,907 4,649 4.95% 420,181 15,961 5.06% Non-interest bearing deposits 4,626 5,519 4,613 Other liabilities 10,344 8,596 10,053 ------- ------ ------- Total liabilities 439,165 390,022 434,847 Stockholders' equity 50,836 51,998 50,171 ------- ------ ------- Total liabilities and stockholders' equity $490,001 442,020 485,018 ======= ======= ======= Net interest income/interest rate spread (1) 3,598 2.42% 3,404 2.55% 10,869 2.49% Net earning assets/net interest margin (2) $55,020 3.00% 53,931 3.17% 53,628 3.06% Ratio of interest- earning assets to interest-bearing liabilities 1.13x 1.14x 1.13x
(1) Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest bearing liabilities. (2) Net interest margin represents net interest income divided by average interest-earning assets. (3) Average yields and costs for the three and nine month periods are annualized for presentation purposes. (4) The consumer loan receivable portfolio includes $2.0 million of Bennett Funding Group commercial leases for which there has been no interest recorded since February 1996. (see Asset Quality) COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 GENERAL. Net income for the three months ended June 30, 1997 was $1.0 million, an increase of $197,000 from the net income of $835,000 for the three months ended June 30, 1996. Current quarter pre-tax income increased 15.6% due to a 5.7% increase in net interest income before provision. The increase is primarily due to a $1.1 million increase in loans receivable income. INTEREST INCOME. Interest income increased $931,000, or 11.6% to $9.0 million in the 1997 period from $8.1 million for the 1996 period. The increase in interest income is the result of an 11.5% increase in interest-earning assets. The yield from 1996 to 1997 has remained level at 7.5%. Due to greater originations and lower pay-offs, the average loan portfolio increased 18.6% to $375.3 million. The decreased average balance of mortgage-backed securities is purely a result of continued monthly repayments. The average investment portfolio decreased 6.1% to $83.3 million. The changes in the investment portfolio have been limited to maturities and purchases of similar products. The investment portfolio earned 21 basis points more than the same quarter a year ago. INTEREST EXPENSE. Increasing deposit rates combined with a 13.0% larger average deposit base caused interest expense on savings to increase by $551,000, or 15.9% for the three months ended June 30, 1997. The cost of borrowed funds increased $186,000 from the previous year's quarter because of increased utilization of FHLB advances. The cost of these advances has increased 17 basis points while the average FHLB advances balance increased from $85.5 million to $96.1 million. PROVISION FOR LOAN LOSSES. The Company recorded a $15,000 provision for loan losses in the third quarter as compared to a $10,000 provision for loan losses in the 1996 period. As of June 30, 1997, the cumulative allowance for loan losses was $857,000, or 22.4% of non-performing loans. The ratio of the allowance for loan losses to net loans receivable stands at 0.23%. See discussion regarding non-performing assets in the "Asset Quality" section of the Management's Discussion and Analysis of Financial Condition. Management believes that its allowance for loan losses is adequate to provide for potential foreseeable losses. NON-INTEREST INCOME. Non-interest income increased 40.0% to $294,000 from $210,000 in the same quarter the previous year. Insurance and annuity commissions increased $87,000 due to increased sales activity. The increase is due to the INVEST program sponsoring and promoting seminars for the benefit of customers. NON-INTEREST EXPENSE. Non-interest expense for the quarter ended June 30, 1997 totalled $2.3 million, compared to $2.2 million in 1996. Advertising expenditures have increased $36,000 in a planned effort to introduce new products to the community. The results of this effort are reflected in the increased deposits. Federal deposit insurance premiums decreased by $111,000 or 65.3%, primarily as a result of the recently-passed FDIC deposit insurance legislation. INCOME TAXES. Income taxes increased $16,000 for the three months ended June 30, 1997 to $546,000 compared to $530,000 for the prior year due to increased pre-tax income as well as slight changes in the effective tax rate. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 GENERAL. Net income for the nine months ended June 30, 1997 was $2.9 million, an increase of $512,000 from the net income of $2.4 million for the nine months ended June 30, 1996. This 21.8% increase can be attributed to a 10.0% increase in net interest income before provision for loan losses. INTEREST INCOME. Interest income increased $3.9 million, or 16.9%, to $26.8 million in the 1997 period from $23.0 million for the 1996 period. The increase is attributable primarily to increased interest income from loans receivable. Successful originations account for the 25.7% increase in average loans receivable. The increased volume of $75.1 million, offset by the 19 basis point decrease in weighted average loan yields, accounts for the 22.6% increase in loan receivable interest income. Also contributing to the increase was the $229,000 increase in income generated from the investment portfolio. Although the average volume of investments remained stable at $85 million, the average yield increased 28 basis points over the prior year. INTEREST EXPENSE. Interest expense increased $2.9 million, or 22.1%, to $16.0 million for the nine months ended June 30, 1997. A $35.7 million increase in the average deposit balance accounts for the increase in deposit interest cost. The average cost of savings products remained at 4.9%. Interest expense on borrowed funds reflects the 59.2% increase in the average FHLB advances. The weighted average rate from June 30, 1997 to June 30, 1996 remained at 5.6%. The current quarter average balance of $97.9 million in borrowed funds increased $36.4 million from the one year prior average balance of $61.5 million. PROVISION FOR LOAN LOSSES. The Company recorded a $54,000 provision for loan losses in the first nine months of fiscal 1997, as compared to a $90,000 provision in its comparable period one year ago. The provision for the loan losses reflect management's on-going evaluation of losses on loans and the adequacy of the allowance for loan losses based on all pertinent considerations, including current market conditions. See discussion regarding non-performing assets in the "Asset Quality" section of the Management's Discussion and Analysis of Financial Condition. NON-INTEREST INCOME. Non-interest income generated from insurance and annuity commissions increased $81,000, or 20.2% compared to $401,000 the previous year. The increase is a result of increased INVEST sales efforts. NON-INTEREST EXPENSE. Non-interest expense for 1997 totalled $7.1 million, an increase of $415,000 or 6.2%, from $6.7 million for the nine months ended June 30, 1996. Salaries and employee benefits continued to increase due to additional personnel and market adjustments for the ESOP shares to be released December 31, 1997. In addition to compensation, advertising increased due to the introduction of new products to customers. Insurance premium expense decreased $232,000 primarily as a result of legislation passed September 30, 1996 regarding FDIC premiums, partially offset by the premiums on increased balances in savings deposits. INCOME TAXES. Income taxes increased $190,000 for the nine months ended June 30, 1997 to $1.7 million compared to $1.5 million for the prior year due to increased taxable income and updates of the effective tax rate. Part II - Other Information Item 1. LEGAL PROCEEDINGS The Bank is involved in legal proceedings regarding the Bennett Funding Group ("BFG") bankruptcy proceedings, in which the Bank has an investment in commercial leases guaranteed by BFG. The Bankruptcy Trustee has filed an adversary complaint against the Bank for claimed violations of the automatic stay provisions of the bankruptcy code with respect to post-petition collection efforts of the Bank. The monies collected by the Bank, aggregating approxi- mately $60,000, have since been remitted to the Trustee's escrow account after obtaining assurances from the court that the funds would be protected pending the outcome of the litigation. The Trustee's claim for $10 million for sanctions and actual damages based on the Bank's post-petition collection activity is also being vigorously contested. The Trustee has also filed an adversary proceeding against 60 banks, including the Bank, asserting various causes of action. The results of these adversary proceeding are not expected to have a material adverse impact on the Company. 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) Exhibits 27.0 Financial Data Schedule (b) Reports on Form 8-K None. 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 Bancorp, Inc. Dated: July 21, 1997 /s/ RAYMOND S. STOLARCZYK ----------------------------- Raymond S. Stolarczyk Chairman and Chief Executive Officer Dated: July 21, 1997 /s/ JAMES R. KINNEY ----------------------------- James R. Kinney Sr. V. P. and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Consolidated Statement of Condition at June 30, 1997 (unaudited) and the Consolidated Statement of Earnings for the nine months ended June 30, 1997 (unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS SEP-30-1996 JUN-30-1997 885 640 7000 0 68885 23877 24032 381590 857 489843 335347 53500 12115 38000 0 0 38 50843 489843 21160 1075 4595 26830 11820 15961 10869 54 0 7084 4545 0 0 0 2863 1.02 1.02 2.49 3830 0 0 0 810 17 11 857 857 0 0
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