10-Q 1 0001.txt FIDELITY BANCORP, INC. FORM 10-Q, 12/31/00 =============================================================================== 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 December 31, 2000 Commission file number 1-12753 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 2,011,710 shares of common stock, par value $.01, outstanding as of January 18, 2001. =============================================================================== FIDELITY BANCORP, INC. FORM 10-Q INDEX Part I. FINANCIAL INFORMATION PAGE(S) Item 1. Financial Statements Consolidated Statements of Financial Condition as of December 31, 2000 (unaudited) and September 30, 2000 1 Consolidated Statements of Earnings for the three months ended December 31, 2000 and 1999 (unaudited) 2 Consolidated Statements of Changes in Stockholders' Equity for the three months ended December 31, 2000 and 1999 (unaudited) 3 Consolidated Statements of Cash Flows for the three months Ended December 31, 2000 and 1999 (unaudited) 4 Notes to Unaudited Consolidated Financial Statements (unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10 Item 3. Quantitative and Qualitative Disclosures about Market Risks 11-12 Part II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature Page 15 1 FIDELITY BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data)
December 31, September 30, ASSETS 2000 2000 Cash and due from banks $ 5,495 4,690 Interest-earning deposits 616 1,405 Federal funds sold 100 100 ------- -------- Cash and cash equivalents 6,211 6,195 FHLB of Chicago stock, at cost 10,485 10,065 Mortgage-backed securities held to maturity, at amortized cost (approximate fair value of $3,131 at December 31, 2000 and $3,202 at September 30, 2000) 3,065 3,179 Investment securities available for sale, at fair value 75,801 74,366 Loans receivable, net of allowance for loan losses of $1,017 at December 31, 2000 and $950 at September 30, 2000 541,204 533,999 Accrued interest receivable 3,725 4,161 Real estate in foreclosure 11 3 Premises and equipment 3,879 3,925 Deposit base intangible 9 13 Other assets 432 1,125 ------- ------- $ 644,822 637,031 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits 385,532 381,433 Borrowed funds 203,130 205,150 Advance payments by borrowers for taxes and insurance 5,608 2,198 Other liabilities 6,275 5,447 ------- ------- Total liabilities 600,545 594,228 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; 2,010,785 and 2,025,085 shares outstanding at December 31, 2000 and September 30, 2000, respectively 38 38 Additional paid-in capital 38,811 38,780 Retained earnings, substantially restricted 37,642 37,022 Treasury stock, at cost (1,771,565 and 1,757,265 shares at December 31, 2000 and September 30, 2000, respectively) (31,651) (31,391) Common stock acquired by Employee Stock Ownership Plan - (189) Common stock acquired by Bank Recognition and Retention Plans (186) (191) Accumulated other comprehensive income (377) (1,266) ------- ------- TOTAL STOCKHOLDERS' EQUITY 44,277 42,803 $ 644,822 637,031 ======= =======
See accompanying notes to unaudited consolidated financial statements. 2 FIDELITY BANCORP, INC. CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data)
Three months ended December 31, 2000 1999 ------ ------ Interest Income: Loans receivable $ 10,234 9,290 Investment securities 1,632 1,322 Mortgage-backed securities 53 65 Other interest income 14 12 ------ ------ 11,933 10,689 Interest Expense: Deposits 5,015 4,066 Borrowed funds 3,538 2,612 ------ ------ 8,553 6,678 ------ ------ Net interest income before provision for loan losses 3,380 4,011 Provision for loan losses 70 40 ------ ------ Net interest income after provision for loan losses 3,310 3,971 Non-Interest Income: Fees and commissions 118 103 Insurance and annuity commissions 146 224 Other 121 12 ------ ------ 385 339 Non-Interest Expense: General and administrative expenses: Salaries and employee benefits 1,411 1,425 Office occupancy and equipment 374 358 Data processing 134 127 Advertising and promotions 155 182 Other 361 380 Amortization of intangible 4 6 ------ ------ 2,439 2,478 Income before income taxes 1,256 1,832 Income tax expense 393 699 ------ ------ Net income $ 863 1,133 ====== ====== Earnings per share - basic $ 0.43 0.53 ====== ====== Earnings per share - diluted $ 0.41 0.51 ====== ====== Comprehensive income $ 1,752 48 ====== ======
See accompanying notes to unaudited consolidated financial statements. 3 FIDELITY BANCORP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data)
Three months ended December 31, 2000 and 1999 Accumulated Other Common Common Comprehen- Additional Stock Stock sive Common Paid-In Retained Treasury Acquired Acquired Income Stock Capital Earnings Stock by ESOP by BRRP's (Loss) Total --- ------ ------- ------- ------ ------ ---- ------- Balance at September 30, 1999 38 38,690 33,771 (28,168) (632) (198) (1,480) $ 42,021 Net income - - 1,133 - - - - 1,133 Purchase of treasury stock (59,500 shares) - - - (1,038) - - - (1,038) Cash dividends ($.11 per share) - - (243) - - - - (243) Amortization of award of BRRP's stock - - - - - 2 - 2 Cost of ESOP shares released - - - - 443 - - 443 Exercise of stock options and reissuance of treasury shares (420 shares) - (3) - 7 - - - 4 Tax benefit related to stock options exercised - 1 - - - - - 1 Market adjustment for committed ESOP shares - 76 - - - - - 76 Change in accumulated other comprehensive income - - - - - - (1,085) (1,085) --- ------ ------- ------- ------ ----- ----- ------- Balance at December 31, 1999 $ 38 38,764 34,661 (29,199) (189) (196) (2,565) $ 41,314 === ====== ======= ======= ====== ===== ===== ======= Balance at September 30, 2000 38 38,780 37,022 (31,391) (189) (191) (1,266) $ 42,803 Net income - - 863 - - - - 863 Purchase of treasury stock (16,000 shares) - - - (290) - - - (290) Cash dividends ($.12 per share) - - (243) - - - - (243) Amortization of award of BRRP's stock - - - - - 5 - 5 Cost of ESOP shares released - - - - 189 - - 189 Exercise of stock options and reissuance of treasury shares (1,700 shares) - (11) - 30 - - - 19 Tax benefit related to stock options exercised - 4 - - - - - 4 Market adjustment for committed ESOP shares - 38 - - - - - 38 Change in accumulated other comprehensive income - - - - - - 889 889 --- ------ ------- ------- ------ ----- ------ ------- Balance at December 31, 2000 $ 38 38,811 37,642 (31,651) - (186) (377) $ 44,277 === ====== ======= ======= ====== ===== ====== =======
See accompanying notes to unaudited consolidated financial statements. 4 FIDELITY BANCORP, INC. Consolidated Statements of Cash Flows (Dollars in thousands)
Three months ended December 31, 2000 1999 -------- ------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 863 1,133 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 89 109 Deferred income taxes (85) 1 Provision for loan losses 70 40 Net amortization and accretion of premiums and discounts (4) (11) Amortization of cost of stock benefit plans 5 2 ESOP 227 519 Deferred loan costs, net of amortization (62) (45) Stock dividend from FHLB of Chicago (191) - Amortization of deposit base intangible 4 6 Decrease in accrued interest receivable 436 847 Decrease (increase) in other assets 689 (197) Increase (decrease) in other liabilities 373 (21) -------- ------ Net cash provided by operating activities 2,414 2,383 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of real estate owned 4 - Purchase of mortgage-backed securities held to maturity (77) - Purchase of Federal Home Loan Bank of Chicago Stock (229) - Loans originated for investment (33,767) (20,760) Purchase of premises and equipment (43) (75) Principal repayments collected on loans receivable 26,548 21,080 Principal repayments collected on mortgage-backed securities held to maturity 191 209 -------- ------ Net cash provided by (used in) investing activities (7,373) 454 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 4,099 948 Net increase (decrease) in borrowed funds (2,020) 2,290 Net increase (decrease) in advance payments by borrowers for taxes and insurance 3,410 (2,742) Purchase of treasury stock (290) (1,038) Payment of common stock dividends (243) (243) Proceeds from exercise of stock options 19 4 -------- ------ Net cash provided by (used in) financing activities 4,975 (781) -------- ------ Net change in cash and cash equivalents 16 2,056 Cash and cash equivalents at beginning of period 6,195 3,390 -------- ------ Cash and cash equivalents at end of period $ 6,211 5,446 ======== ====== CASH PAID DURING THE PERIOD FOR: Interest $ 8,414 6,587 Income taxes 190 - NON-CASH INVESTING ACTIVITIES- Loans transferred to real estate in foreclosure $ 11 145 ======== ======
See accompanying notes to unaudited consolidated financial statements. 5 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 three months ended December 31, 2000 are not necessarily indicative of results that may be expected for the entire fiscal year ending September 30, 2001. 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 intercompany accounts and transactions have been eliminated in consolidation. (2) Earnings Per Share Basic earnings per share for the three months ended December 31, 2000 and 1999 were computed by dividing net income by the weighted average number of shares of common stock outstanding for the periods, which were 2,014,563 and 2,144,952, respectively. ESOP shares are considered outstanding for the calculation unless unearned. Diluted earnings per share for the three months ended December 31, 2000 and 1999 were computed by dividing net income by the weighted average number of shares of common stock and potential common stock outstanding for the periods, which were 2,096,148 and 2,230,969, respectively. Diluted earnings per share include the dilutive effects of additional potential issuable under stock options. (3) Comprehensive Income The Company's comprehensive income includes net income and other comprehensive income (loss) comprised entirely of unrealized gains or losses on securities available for sale, net of tax effects, which are also recognized as separate components of equity.
Three months ended December 31, 2000 1999 ---- ---- Net income 863 1,133 Other comprehensive income, net of tax - Unrealized gain (loss) on securities available for sale arising during the period 889 (1,085) ----- ---- Comprehensive Income 1,752 48 ===== ====
6 (4) Commitments and Contingencies At December 31, 2000, the Bank had outstanding commitments to originate loans of $8.7 million, of which $195,000 was at a fixed 8.375% rate and $8.5 million were adjustable rate commitments. In addition to the outstanding commitments there are six construction and development loan commitments for a total of $10.1 million with floating rates based on prime plus a margin. Draws on these construction and development loan commitments totaled $6.1 million through December 31, 2000. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 first fiscal quarter ended December 31, 2000 of $863,000, compared with $1.1 million for the same quarter a year ago. Earnings per diluted share for the quarter ended December 31, 2000 were $0.41 per share, a decrease of $0.10 from the quarter ended December 31, 1999. Despite a significant increase in interest income, earnings per share and net income declined in the first quarter due to higher interest expense. The Company also announced that the board of directors declared a quarterly dividend of $0.12 per share, payable February 15, 2001 to shareholders of record as of January 31, 2001. 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 7 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, our implementation of new technologies, our ability to develop and maintain secure and reliable electronic systems 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 for the Bank is both a daily and long-term function of management's strategy. The Company's primary sources of funds are deposits and borrowings, proceeds from principal and interest on loans and mortgage-backed securities. While maturities and scheduled amortization of loan and mortgage prepayments are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rate cycles and economic conditions. The Bank generally manages the pricing of its deposits to be competitive and increase core deposit relationships. The Bank utilizes particular sources of funds based on comparative costs and availability. Federal regulations require the Bank to maintain minimum levels of liquid assets. The minimum liquidity requirement is 4% of the liquidity base. Liquidity requirements are determined quarterly, and savings associations have the option of calculating their liquidity requirements either on the basis of (i) their liquidity base at the end of the preceding quarter or (ii) the average daily balance of their liquidity base during the preceding quarter. Savings associations must maintain liquidity in excess of the minimum requirement if necessary to insure safe and sound operations. At December 31, 2000, the Bank was in compliance with OTS liquidity requirements, with a liquidity ratio of 14.98%. The Company'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 provided by operating activities, consisting primarily of interest and dividends received less interest paid on deposits, were $2.4 million for the three months ended December 31, 2000. Net cash used in investing activities was $7.4 million for the three month period ended December 31, 2000. Loan originations amounted to $33.8 million, which were offset primarily by $26.7 million in principal repayments received from loans and mortgage-backed securities. Cash flows provided by financing activities amounted to $5.0 million for the three months ended December 31, 2000. Deposits increased $4.1 million in the first quarter of fiscal 2001, as did advance payments from borrowers, by $3.4 million. These sources of funds were partially offset by $2.0 million in repayment of FHLB advances. At December 31, 2000, the Bank had outstanding loan commitments of $8.7 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 December 31, 2000 totaled $200.9 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. 8 The Bank is subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a material impact on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the entity's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting purposes. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets and of tangible capital to average assets. As of December 31, 2000, the Company and the Bank met the capital adequacy requirements to which they are subject. The Bank's Tangible Equity ratio at December 31, 2000 was 7.01%. The Tier 1 Capital ratio was 7.01%, the Tier 1 Risk-based ratio was 14.39%, and the Total Risk-Based Capital ratio was 14.71%. The most recent notification from the federal banking agencies categorized the Company and the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company and the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no conditions or events since that notification that have changed the Company's or the Bank's category. CHANGES IN FINANCIAL CONDITION Total assets at December 31, 2000 were $644.8 million, compared to $637.0 million at September 30, 2000. Loans receivable, net of allowance for loan losses, grew $7.2 million. The Company continues to offer various loan products, and prices them competitively. The Company's loan originations for the quarter ended December 31, 2000 were $33.8 million, with a weighted average yield of 8.98%. Deposits grew to $385.5 million at December 31, 2000, up from $381.4 million at September 30, 2000. FHLB advances decreased from $205.2 million at September 30, 2000 to $203.1 million at December 31, 2000. Book value per share on December 31, 2000 was $22.02, compared with $21.14 at September 30, 2000. The increase was the result of the current quarter earnings, the Company's ESOP adjustment and the change in accumulated other comprehensive income. INVESTMENT ACTIVITIES The Company is the holder of certain subordinated notes (the "Notes") issued by Cole Taylor Financial Group, Inc. The Notes have a par value and cost basis of $3.0 million. The Notes were acquired by the Company in 1994, when Cole Taylor was the parent company for both a consumer finance company and a Chicago area bank. In fiscal 1997, Cole Taylor's bank subsidiary was "spun-off" to certain Cole Taylor shareholders in exchange for stock and certain assets. The Notes remained as obligations of the surviving company, which is now known as Reliance Acceptance Group, Inc. ("RAG") and is the parent company for the consumer finance company. 9 A detailed summary discussing the Company's write-down of the Notes and various continuing lawsuits with respect to the Notes is included in the Company's 2000 Form 10-K filed with the Securities and Exchange Commission on December 20, 2000. The lawsuit involving the primary defendants has been re-scheduled to March 15, 2001. ASSET QUALITY As of December 31, 2000, the Company had non-performing assets of $519,000. The non-performing assets at December 31, 2000 included one multi-unit building, one commercial building, three single-family residences, and two consumer loans. There were no assets classified as doubtful. The Company's ratio of non-performing loans to net loans receivable remains below industry standards. The consistently low 0.08% non-performing assets to total assets are a result of management's ongoing monitoring and follow-up procedures of delinquent customers. A review of the foreclosed residential properties has established that no specific allowances were necessary, and management does not expect any material losses from the non-performing loans. STOCK REPURCHASE The Company announced it's most recent stock repurchase plan, the 10th, on October 19, 1999 for 110,000 shares and expanded it to 220,000 on January 26, 2000. Through December 31, 2000, 207,200 shares had been repurchased at an average price of $17.70 per share. The Company views stock repurchase programs as part of an ongoing strategy to build value for stockholders. 10 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 labilities, 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 December 31, 2000 1999 Average Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost (dollars in thousands) Interest-earning assets: Loans receivable, net $ 538,457 10,234 7.60% $ 504,489 9,290 7.37% Mortgage-backed securities 2,924 53 7.25% 3,481 65 7.47% Interest-bearing deposits 748 12 6.42% 892 11 4.93% Investment securities, and federal funds sold 85,241 1,634 7.67% 75,738 1,323 6.99% -------- ----- ----- ------- ----- ----- Total interest-earning assets 627,370 11,933 7.61% 584,600 10,689 7.31% Non-interest earning assets 12,632 11,044 -------- ------- Total assets $ 640,002 595,644 ======== ======= Interest-bearing liabilities: Deposits: Passbook & NOW accounts 138,518 1,353 3.91% 140,853 1,265 3.59% Money market accounts 12,079 109 3.61% 15,490 149 3.85% Certificate accounts 220,023 3,553 6.46% 196,599 2,652 5.40% -------- ----- ----- ------- ----- ----- Total deposits 370,620 5,015 5.41% 352,942 4,066 4.61% Borrowed funds 208,497 3,538 6.79% 182,791 2,612 5.72% -------- ----- ----- ------- ----- ----- Total interest-bearing liabilities 579,117 8,553 5.91% 535,733 6,678 4.99% Non-interest bearing deposits 6,680 5,906 Other liabilities 10,522 11,355 -------- ------- Total liabilities 596,319 552,994 Stockholders' equity 43,683 42,650 -------- ------- Total liabilities and stockholders' equity $ 640,002 $ 595,644 ======== ======= Net interest income/interest rate spread (1) 3,380 1.70% 4,011 2.32% ===== ===== ===== ===== Net earning assets/net interest margin (2) $ 48,253 2.16% $ 48,867 2.74% ======== ===== ======= ===== Ratio of interest-earning assets to interest-bearing liabilities 1.08x 1.09x ==== ====
(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 month periods are annualized for presentation purposes. 11 COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 GENERAL. Earnings per diluted share for the quarter ended December 31, 2000 were down $0.10 per share from $0.51 for the same period in 1999. Net income for the quarter ended December 31, 2000 was $863,000, down from $1.1 million in 1999. Despite a significant increase in interest income, earnings per share and net income declined in the first quarter due to higher interest expense. INTEREST INCOME. Income from loans receivable, the chief contributor to interest income, was $10.2 million for the quarter ended December 31, 2000, up 10.2% from the prior year. The Company increased average loans outstanding by 6.7%, or $34.0 million, to $538.5 million for the quarter ended December 31, 2000. The yield on loans increased 23 basis points. Interest income from the investment portfolio increased $311,000, which was the result of a 12.3% increase in average balance of investment securities for the quarter ended December 31, 2000 compared to that same quarter in 1999. Gross interest income totaled $11.9 million for the quarter ended December 31, 2000, up 11.6%, or $1.2 million from $10.7 million for the three months ended December 31, 1999. INTEREST EXPENSE. Interest expense on deposits for the quarter increased $949,000, from $4.1 million the previous year to $5.0 million. The increase was a direct result of the increases in both deposit volume and cost from quarter to quarter. The average deposit balance increased 5.0% from $352.9 million for the first fiscal quarter of 2000 to $370.6 million for the quarter ended December 31, 2000. The average deposit cost to the Company increased 80 basis points, primarily due to an increased volume of higher cost certificates of deposit. Average certificates outstanding increased $23.4 million for the three month period ended December 31, 2000, compared to the same three months in 1999. The Company continued to utilize FHLB of Chicago advances as a source of funds for lending operations. The average borrowings for the quarter ended December 31, 2000 increased $25.7 million to $208.5 million from the three month period ended December 31, 1999 of $182.8 million. Interest expense on borrowed funds increased $926,000 to $3.5 million, from $2.6 million for the quarter ended December 31, 1999. PROVISION FOR LOAN LOSSES. The Company recorded provisions for loan losses of $70,000 and $40,000, respectively, for the quarters ended December 31, 2000 and 1999. The increase was primarily a result of loans receivable increasing 6.8% from $507.9 million at December 31, 1999 to $542.2 million at December 31, 2000. The provision for loan losses reflects 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. As of December 31, 2000, the cumulative allowance for loan losses was $1,017,000. The ratio of the allowance for loan losses to net loans receivable was 0.19% at December 31, 2000. NON-INTEREST INCOME. Non-interest income increased 13.6% to $385,000 for the first fiscal quarter of 2000 compared to the same quarter ending in 1999. Included in non-interest income was a pre-tax gain of $106,000 recorded on the sale of the Bank's subsidiary's interest in a real estate investment. Insurance and annuity commissions produced $146,000, a $78,000 decrease compared to the same period in 1999. Uncertainty about the stock market, the presidential election and interest rates all contributed to slower product sales during the quarter. 12 NON-INTEREST EXPENSE. Non-interest expense for the three months ended December 31, 2000 decreased $39,000 from the quarter ended December 31, 1999. Management has continued its efforts to control operating expenses. The Company's efficiency improved, with the ratio of operating expenses to average assets falling to 1.52% for the quarter ended December 31, 2000, from 1.66% for the quarter ended December 31, 1999. INCOME TAXES. Income taxes decreased $306,000 for the three months ended December 31, 2000 to $393,000 compared to $699,000 for the prior year. The effective tax rate dropped to 31.3% for the three months ended December 31, 2000 compared to 38.2% in the quarter ended December 31, 1999. The decrease relates to the utilization of capital loss carry forwards in connection with the gain on sale of the Bank's subsidiary's interest in a real estate property. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The OTS requires all regulated thrift institutions to calculate the estimated change in the Bank's net portfolio value (NPV) assuming instantaneous, parallel shifts in the Treasury yield curve of 100 to 300 basis points either up or down in 100 basis point increments. The NPV is defined as the present value of expected cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing off-balance sheet contracts. The OTS provides all institutions that file a Consolidated Maturity/Rate schedule (CMR) as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of NPV. The OTS simulation model uses a discounted cash flow analysis and an option-based pricing approach to measuring the interest rate sensitivity of NPV. The OTS model estimates the economics value of each type of asset, liability, and off-balance sheet contact under the assumption that the Treasury yield curve shifts instantaneously and parallel up and down 100 to 300 basis points in 100 basis point increments. The OTS provides thrifts the results of their interest rate sensitivity model, which is based on information provided by the Bank, to estimate the sensitivity of NPV. The OTS model utilizes an option-based pricing approach to estimate the sensitivity of mortgage loans. The most significant embedded option in these types of assets is the prepayment option of the borrowers. The OTS model uses various price indications and prepayment assumptions to estimate sensitivity of mortgage loans. In the OTS model, the value of deposit accounts appears on the asset and liability side of the NPV analysis. In estimating the value of certificate of deposit accounts, the liability portion of the CD is represented by the implied value when comparing the difference between the CD face rate and available wholesale CD rates. On the asset side of the NPV calculation, the value of the "customer relationship" due to the rollover of retail CD deposits represents an intangible asset in the NPV calculation. Other deposit accounts such as transaction accounts, money market deposit accounts, passbook accounts, and non-interest bearing accounts also are included on the asset and liability side of the NPV calculation in the OTS model. The accounts are valued at 100% of the respective account balances on the liability side. On the assets side of the analysis, the value of the "customer relationship" of the various types of deposit accounts is reflected as a deposit intangible. 13 The NPV sensitivity of borrowed funds is estimated by the OTS model based on a discounted cash flow approach. The cash flows are assumed to consist of monthly interest payments with principal paid at maturity. The OTS model is based only on the Bank's balance sheet. The assets and liabilities at the parent company level are short-term in nature, primarily cash and equivalents, and were not considered in the analysis because they would not have a material effect on the analysis of NPV sensitivity. The following table sets forth the Company's most recent interest rate sensitivity of NPV, as of June 30, 2000.
Net Portfolio Value as a % Net Portfolio Value of Present Value of Assets ------------------------------ -------------------------- Changes in Rates $ Amount $ Change % Change NPV Ratio Change ---------- --------- -------- -------- --------- --------- + 300 bp 20,828 (36,217) (63)% 3.61% - 553 bp + 200 bp 33,386 (23,658) (41)% 5.63% - 351 bp + 100 bp 45,924 (11,121) (19)% 7.54% - 160 bp 0 bp 57,045 9.14% - 100 bp 65,318 8,273 15 % 10.27% + 113 bp - 200 bp 71,041 13,996 25 % 11.00% + 186 bp - 300 bp 79,173 22,128 39 % 12.04% + 290 bp ------------------------------------------------------------------------------- 14 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company and the Bank are not engaged in any legal proceedings of a material nature at the present time. 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 None (b) Reports on Form 8-K None 15 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: January 22, 2001 /s/ RAYMOND S. STOLARCZYK ---------------- -------------------------- Raymond S. Stolarczyk Chairman and Chief Executive Officer Dated: January 22, 2001 /s/ ELIZABETH A. DOOLAN ---------------- -------------------------- Elizabeth A. Doolan Vice President and Chief Financial Officer