-----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, Gl0FOYo+08/cYHnmHczTwJardVXzNiOcd6OOzZuuqZaSbkVk3wyl4GO1R8IrKPYo kdLPSYyYpdi8vhqxehZD6w== 0000912219-02-000001.txt : 20020413 0000912219-02-000001.hdr.sgml : 20020413 ACCESSION NUMBER: 0000912219-02-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020118 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: 2512709 BUSINESS ADDRESS: STREET 1: 5455 WEST BELMONT AVENUE CITY: CHICAGO STATE: IL ZIP: 60641 BUSINESS PHONE: 7737364414 MAIL ADDRESS: STREET 1: 5455 WEST BELMONT AVENUE CITY: CHICAGO STATE: IL ZIP: 60641 10-Q 1 dec01.txt =============================================================================== 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, 2001 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 There were 2,053,867 shares of common stock, par value $.01, outstanding as of January 15, 2002. =============================================================================== 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, 2001 (unaudited) and September 30, 2001 1 Consolidated Statements of Earnings for the three months ended December 31, 2001 and 2000 (unaudited) 2 Consolidated Statements of Changes in Stockholders' Equity for the three months ended December 31, 2001 and 2000 (unaudited) 3 Consolidated Statements of Cash Flows for the three months Ended December 31, 2001 and 2000 (unaudited) 4-5 Notes to Unaudited Consolidated Financial Statements (unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-14 Item 3. Quantitative and Qualitative Disclosures about Market Risks 14-15 Part II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities 16 Item 3. Defaults upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signature Page 17 1 FIDELITY BANCORP and SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data)
December 31, September 30, ASSETS 2001 2001 Cash and due from banks $ 2,595 7,107 Interest-earning deposits 2,257 1,397 Federal funds sold 100 100 ------- -------- Cash and cash equivalents 4,952 8,604 FHLB of Chicago stock, at cost 18,230 18,055 Mortgage-backed securities available for sale 152,898 127,685 Securities available for sale 33,079 42,006 Loans held for sale 16,380 41,219 Loans receivable, net of allowance for loan losses of $1,349 at December 31, 2001 and $1,236 at September 30, 2001 432,327 422,980 Accrued interest receivable 3,626 3,650 Premises and equipment 3,798 3,850 Other assets 1,165 657 ------- ------- $ 666,455 668,706 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits 418,369 399,619 Borrowed funds 187,930 187,345 Advance payments by borrowers for taxes and insurance 4,244 7,193 Due to broker - 14,918 Other liabilities 7,666 10,247 ------- ------- Total liabilities 618,209 619,322 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; 2,022,867 and 2,020,367 shares outstanding at December 31, 2001 and September 30, 2001, respectively 38 38 Additional paid-in capital 38,623 38,636 Retained earnings, substantially restricted 42,628 40,926 Treasury stock, at cost (1,759,483 and 1,761,983 shares at December 31, 2001 and September 30, 2001, respectively) (31,496) (31,540) Common stock acquired by Bank Recognition and Retention Plans (176) (178) Accumulated other comprehensive income (loss) (1,371) 1,502 ------- ------- TOTAL STOCKHOLDERS' EQUITY 48,246 49,384 ------- ------- $ 666,455 668,706 ======= =======
See accompanying notes to unaudited consolidated financial statements. 2 FIDELITY BANCORP and SUBSIDIARY CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data)
Three months ended December 31, 2001 2000 ------ ------ Interest Income: Loans receivable $ 8,270 10,234 Investment securities 916 1,632 Mortgage-backed securities 2,195 53 Other interest income 10 14 ------ ------ 11,391 11,933 Interest Expense: Deposits 3,822 5,015 Borrowed funds 2,535 3,538 ------ ------ 6,357 8,553 ------ ------ Net interest income before provision for loan losses 5,034 3,380 Provision for loan losses 140 70 ------ ------ Net interest income after provision for loan losses 4,894 3,310 Non-Interest Income: Fees and commissions 143 118 Insurance and annuity commissions 220 146 Gain on sale of securities 72 - Gain on sale of loans 541 - Other 9 121 ------ ------ 985 385 Non-Interest Expense: General and administrative expenses: Salaries and employee benefits 1,699 1,411 Office occupancy and equipment 370 374 Data processing 132 134 Advertising and promotions 158 155 Other 412 365 ------ ------ 2,771 2,439 Income before income taxes 3,108 1,256 Income tax expense 1,163 393 ------ ------ Net income $ 1,945 863 ====== ====== Earnings per share - basic $ 0.96 0.43 ====== ====== Earnings per share - diluted $ 0.92 0.41 ====== ====== Comprehensive income (loss) $ (928) 1,752 ====== ======
See accompanying notes to unaudited consolidated financial statements. 3 FIDELITY BANCORP and SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data)
Three months ended December 31, 2001 and 2000 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, 2000 38 38,780 37,022 (31,391) (189) (191) (1,266) $ 42,803 Net income - - 863 - - - - 863 Change in accumulated other comprehensive income - - - - - - 889 889 --- ------ ------- ------- ------ ----- ----- ------- Total comprehensive income 1,752 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 --- ------ ------- ------- ------ ----- ----- ------- Balance at December 31, 2000 $ 38 38,811 37,642 (31,651) - (186) (377) $ 44,277 === ====== ======= ======= ====== ===== ===== ======= Balance at September 30, 2001 38 38,636 40,926 (31,540) - (178) (1,502) $ 49,384 Net income - - 1,945 - - - - 1,945 Change in accumulated other comprehensive income - - - - - - (2,873) (2,873) --- ------ ------- ------- ------ ----- ------- ------- Total comprehensive income (928) Cash dividends ($.12 per share) - - (243) - - - - (243) Amortization of award of BRRP's stock - - - - - 2 - 2 Exercise of stocks options reissuance of treasury shares (2,500 shares) - (20) - 44 - - - 24 Tax benefit related to stock options exercised - 7 - - - - - 7 --- ------ ------- ------- ------ ----- ------ ------- Balance at December 31, 2001 $ 38 38,623 42,628 (31,496) - (176) (1,371) $ 48,246 === ====== ======= ======= ====== ===== ====== =======
See accompanying notes to unaudited consolidated financial statements. 4 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Cash Flows (Dollars in thousands)
Three months ended December 31, 2001 2000 -------- ------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,945 863 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 94 89 Provision for loan losses 140 70 Net amortization and accretion of premiums and discounts 136 (4) Amortization of cost of stock benefit plans 2 5 ESOP - 227 Deferred loan costs, net of amortization 97 (62) Stock dividend from FHLB of Chicago (175) (191) Loans originated for sale (1,740) - Proceeds from loans originated for sale 1,203 - Gain on sale of securities and loans (613) - Amortization of deposit base intangible 1 4 Decrease in accrued interest receivable 24 436 Decrease (increase) in other assets (98) 689 Increase (decrease) in other liabilities (829) 288 -------- ------ Net cash provided by operating activities 187 2,414 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of real estate owned - 4 Proceeds from maturities of securities available for sale 20,000 - Proceeds from sales of mortgage-backed securities available for sale 26,894 - Proceeds from sale of loans 22,468 - Purchase of mortgage-backed securities available for sale (78,560) - Purchase of securities available for sale (11,649) - Purchase of Federal Home Loan Bank of Chicago Stock - (229) Loans originated for investment (49,166) (33,844) Purchase of premises and equipment (42) (43) Principal repayments collected on loans receivable 42,623 26,548 Principal repayments collected on mortgage-backed securities 7,426 191 -------- ------ Net cash used in investing activities (20,006) (7,373) (continued)
5 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Cash Flows (continued) (Dollars in thousands)
Three months ended December 31, 2001 2000 ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 18,750 4,099 Net increase (decrease) in borrowed funds 585 (2,020) Net increase (decrease) in advance payments by borrowers for taxes and insurance (2,949) 3,410 Purchase of treasury stock - (290) Payment of common stock dividends (243) (243) Proceeds from exercise of stock options 24 19 -------- ------ Net cash provided by financing activities 16,167 4,975 -------- ------ Net change in cash and cash equivalents (3,652) 16 Cash and cash equivalents at beginning of period 8,604 6,195 -------- ------ Cash and cash equivalents at end of period $ 4,952 6,211 ======== ====== CASH PAID DURING THE PERIOD FOR: Interest $ 6,404 8,414 Income taxes 1,567 190 NON-CASH INVESTING ACTIVITIES- Loans transferred to real estate in foreclosure 398 11 Due to Broker for securities transactions (14,918) - ======== ======
See accompanying notes to consolidated financial statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and conform to general practices within the banking industry 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, 2001 are not necessarily indicative of results that may be expected for the entire fiscal year ending September 30, 2002. 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, 2001 and 2000 were computed by dividing net income by the weighted average number of shares of common stock outstanding for the periods, which were 2,022,079 and 2,014,563, respectively. ESOP shares are considered outstanding for the calculation unless unearned. Diluted earnings per share for the three months ended December 31, 2001 and 2000 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 2,123,049 and 2,096,148 respectively. Diluted earnings per share include the dilutive effects of additional potential issuable common stock 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, 2001 2000 ---- ---- Net income 1,945 863 Other comprehensive income (loss), net of tax - Unrealized gain (loss) on securities available for sale arising during the period (2,873) 889 ----- ---- Comprehensive Income (928) 1,752 ===== ====
7 (4) COMMITMENTS AND CONTINGENCIES At December 31, 2001, the Bank had outstanding commitments to originate loans of $7.8 million, of which $1.6 million were at a fixed rates ranging from 6.125% to 7.75% and $6.1 million were adjustable rate commitments. In addition to the outstanding commitments there are six construction and development loan commitments for a total of $17.1 million with floating rates based on prime plus a margin. Draws on these construction and development loan commitments totaled $15.7 million through December 31, 2001. (5) RECLASSIFICATIONS Certain reclassifications have been made in prior years financial statements to conform to the current year's presentation. (6) NEW ACCOUNTING PRONOUNCEMENTS New accounting guidance was issued that will, beginning in 2002, revise the accounting for goodwill and intangible assets. Intangible assets with indefinite lives and goodwill will no longer be amortized, but will periodically be reviewed for impairment and written down if impaired. Additional disclosures about intangible assets and goodwill may be required. The Company does not expect this new guidance to have any effect on the financial statements. Beginning October 1, 2002, a new accounting pronouncement addressing the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs will become effective. The Company does not expect this new accounting pronouncement to have any effect on the financial statements. Another new accounting pronouncement becomes effective October 1, 2002 which addresses financial accounting and reporting for the impairment of long-lived assets and long-lived assets to be disposed of. The Company does not expect this new accounting pronouncement to have any effect on the financial statements. 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, data processing, advertising and promotions 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's earnings per diluted share increased $0.51 to $0.92 for the first fiscal quarter ended December 31, 2001, from $0.41 for the same period in 2000. 8 Net income for the quarter was $1.9 million, compared with $863,000 in 2000. Earnings per share and net income increased primarily due to reduced interest expense and increased non-interest income. The Company also announced that its board of directors increased the quarterly dividend by 8%, from $0.12 to $0.13 per share, payable on February 15, 2002 to stockholders of record as of January 31, 2002. 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, 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 to increase core deposit relationships. The Bank utilizes particular sources of funds based on comparative costs and availability. The Company's most liquid assets are cash and cash equivalents, which include federal funds and interest-bearing deposits. The level of these assets is dependent on the Company's operating, financing, lending, and investing activities during the given period. At December 31, 2001, cash and cash equivalents totaled $5.0 million. 9 Mortgage-backed securities and securities available for sale represent a secondary source of liquidity to the Bank and the Company. The market value of these securities fluctuates with interest rates movements. Net interest income in the future periods may be adversely impacted to the extent interest rates increase and these securities are not sold with the proceeds reinvested at higher market rates. The decision whether to sell the available for sale mortgage-backed securities and securities available for sale or not, is based on a number of factors, including projected funding needs, reinvestment opportunities and the relative cost of alternative liquidity sources. 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 $187,000 for the three months ended December 31, 2001. Net cash used in investing activities was $20.0 million for the three month period ended December 31, 2001. During the period investing activities consisted of loans originated for investment and purchases of mortgage-backed securities, largely offset by principal collections on loans, proceeds from maturities of securities and proceeds from sales of securities and loans. Cash flows provided by financing activities amounted to $16.2 million for the three months ended December 31, 2001. The increase of $18.8 million in deposits during the first quarter of fiscal 2002 was only partially offset by the decrease in advance payments from borrowers of $2.9 million. At December 31, 2001, the Bank had outstanding loan commitments of $7.8 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, 2001 totaled $192.5 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 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, 2001, the Company and the Bank met the capital adequacy requirements to which they are subject. The Bank's Tangible Equity ratio at December 31, 2001 was 7.74%. The Tier 1 Capital ratio was 7.74%, the Tier 1 Risk-based ratio was 17.94%, and the Total Risk-Based Capital ratio was 18.40%. 10 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, 2001 were $666.5 million, compared to $668.7 million at September 30, 2001. Mortgage-backed securities classified as available for sale were $152.9 million at December 31, 2001. The period purchases were funded from heavy refinance activity in the Bank's loan portfolio as well as the redeployment of the proceeds from the sale of mortgage loans from the held for sale category. Net loans receivable at December 31, 2001 were $432.3 million, up $9.3 million or 2% from September 30, 2001. Solid demand for higher-yielding loan products helped offset continued high loan repayments, resulting in loans receivable growth. New loans closed, including multi-family and commercial mortgages and loans secured by commercial leases, totaled $49.2 million for the quarter ended December 31, 2001. Loan repayments totaled $42.6 million for the quarter ended December 31, 2001, compared with $26.5 million for the same period in 2000. During the quarter, the Bank recorded two loan sales to FNMA from the held for sale category. The Bank recorded $22.5 million in proceeds from the sale of these fixed-rate 30-year mortgages. The sale generated a $531,000 PRE-tax gain and a $73,000 deferred servicing asset. In addition to these sales, normal operations originated $1.2 million in loans available for sale. These were sold on an individual basis to FHLMC and produced a PRE-tax profit of $10,000. Deposits grew to $418.4 million at December 31, 2001, up 5% from $399.6 million at September 30, 2001. The quarter's growth brings deposits over $400 million for the first time. The growth represents an increase of $16.8 million in transactions accounts. A new high-rate checking product, power-checking, attracted $10.4 million in its introductory offering period. Other savings products including Passbook 24, a tiered rate premium priced passbook product linked to an ATM card to provide 24 hour-banking convenience, which attracted $11.6 million this quarter. FHLB advances remained fairly stable, increasing only $585,000 to $187.9 million at December 31, 2001 from September 30, 2001. Book value per share on December 31, 2001 was $23.85, compared with $24.44 at September 30, 2001. The decrease in book value per share was attributable to an unrealized decline in market value in the mortgage-backed securities and securities available for sale portfolios. Book value per share, excluding accumulated other comprehensive income or loss, was $24.53 at December 31, 2001, an increase of 3%, compared to $23.70 at September 30, 2001. 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 11 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. 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 2001 Form 10-K filed with the Securities and Exchange Commission on December 24, 2001. In late 2001, the Estate Representative for RAG arrived at a preliminary settlement with certain parties that would allow RAG to settle or satisfy the claims of certain of its creditors including the Company. Under the proposed settlement, certain members of the Taylor family would be required to deliver to RAG $15 million in cash, $30 million of trust preferred securities and 15% of the outstanding common stock of Taylor Capital Group, Inc. the parent bank holding company of Cole Taylor Bank. The proposed settlement is subject to certain significant conditions and no assurances can be provided that the settlement will be completed or that the Company will receive any settlement proceeds. Since the amount of settlement, in any, cannot be quantified until various legal processes are complete, no estimated recovery has been recorded in the Company's financial statements as of December 31, 2001. ASSET QUALITY As of December 31, 2001, the Company had non-performing assets of $1.8 million. The non-performing assets at December 31, 2001 included three single-family homes in real estate in judgment, two multi-unit building, seven single-family residences, and one consumer loan. There were no assets classified as doubtful. The Company's ratio of non-performing loans to net loans receivable remains below industry standards as well as our national and regional peers. The 0.26% non-performing assets to total assets, reflects an increase compared to September 30, 2001 due to an overall weakened economy. 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. 12 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, 2001 2000 Average Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost (dollars in thousands) Interest-earning assets: Loans receivable, net $ 454,845 8,270 7.27% $ 538,457 10,234 7.60% Mortgage-backed securities 144,457 2,195 6.08% 2,924 53 7.25% Interest-bearing deposits 1,570 7 1.78% 748 12 6.42% Securities available for sale and federal funds sold (4) 53,644 919 6.85% 85,241 1,634 7.67% -------- ----- ----- ------- ----- ----- Total interest-earning assets 654,516 11,391 6.96% 627,370 11,933 7.61% Non-interest earning assets 15,782 12,632 -------- ------- Total assets $ 670,298 640,002 ======== ======= Interest-bearing liabilities: Deposits: Passbook & NOW accounts 156,178 1,085 2.78% 138,518 1,353 3.91% Money market accounts 12,566 99 3.15% 12,079 109 3.61% Certificate accounts 223,339 2,638 4.72% 200,023 3,553 6.46% -------- ----- ----- ------- ----- ----- Total deposits 392,083 3,822 3.90% 370,620 5,015 5.41% Borrowed funds 197,510 2,535 5.13% 208,497 3,538 6.79% -------- ----- ----- ------- ----- ----- Total interest-bearing liabilities 589,593 6,357 4.31% 579,117 8,553 5.91% Non-interest bearing deposits 14,326 6,680 Other liabilities 15,811 10,522 -------- ------- Total liabilities 619,730 596,319 Stockholders' equity 50,568 43,683 -------- ------- Total liabilities and stockholders' equity $ 670,298 $ 640,002 ======== ======= Net interest income/interest rate spread (1) 5,034 2.65% 3,380 1.70% ===== ===== ===== ===== Net earning assets/net interest margin (2) $ 64,923 3.08% $ 48,253 2.16% ======== ===== ======= ===== Ratio of interest-earning assets to interest-bearing liabilities 1.11x 1.08x ==== ====
13 (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. (4) Municipal bond yields included in securities available for sale category above are not tax effected COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 GENERAL. For the quarter ended December 31, 2001, earnings per diluted share increased $0.51 to $0.92 from $0.41 for the same period in 2000. Net income for the quarter was $1.9 million, compared with $863,000 in 2000. Earnings per share and net income increased due to reduced interest expense and increased non-interest income. The Company's net interest margin, the primary driver of its earnings, increased from 2.16% for the quarter ended December 31, 2000 to 3.08% in 2001. Net interest income, before provision for loan losses, was $5.0 million for the quarter ended December 31, 2001, up $1.7 million or 49% from $3.4 million in 2000. The increase in the Company's net interest income was primarily the result of a significant decrease in interest expense. INTEREST INCOME. Income from loans receivable, the chief contributor to interest income, was $8.3 million for the quarter ended December 31, 2001, down 19% from the prior year. Income from loans receivable fell primarily as a result of a decline in the quarterly outstanding average balances; $454.8 million for the quarter ended December 31, 2001, compared with $538.5 million one year earlier. High repayments and loan sales that took place in the latter half of fiscal 2001 and the first quarter of 2002 adversely affected both volume and yield. Repayments from the first quarter totaled $42.6 million, compared to $26.5 for the same quarter 2000. The average balance of the securities available for sale portfolios, including mortgage-backed securities increased to $198.1 million for the quarter ended December 31, 2001, from $88.2 the same quarter last year. Interest generated from mortgage-backed and investment securities for the quarter ended December 31, 2001 was $3.1 million, an increase of $1.4 million from the quarter ended December 31, 2000. Changes were made to the mix of the investment portfolio to include government and agency, mortgage-backed, corporate and municipal securities. An initiative to maintain earning asset levels resulted in the purchase of mortgage-backed securities with proceeds from repayments and the sale of single-family conforming mortgages. INTEREST EXPENSE. Total interest expense for the quarter ended December 31, 2001 was $6.4 million, down $2.2 million or 26% from $8.6 million one year ago. Over the past year, the Federal Reserve lowered interest rates 11 times, resulting in a gradual reduction of interest costs on both borrowed funds and deposits. For the quarter ended December 31, 2001, interest expense on deposits was $3.8 million, compared with $5.0 million a year ago, down $1.2 million, or 24%. Despite significant cuts in interest rates, especially on some promotionally priced certificates of deposit, average deposits increased $21.5 million, from $370.6 million for the quarter ended December 31, 2000 to $392.1 million for the 2001 quarter. 14 Interest expense on borrowed funds declined 28%, to $2.5 million for the quarter ended December 31, 2001, from $3.5 million in 2000. The improvement is a combination of a smaller average outstanding balance; the average balance decreased $10.9 million to $197.5 million for the quarter ended December 31, 2001, as well as an improved interest cost. The cost of borrowed funds decreased 166 basis points in the first quarter of fiscal 2002 compared to the same period last year. PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of $140,000 and $70,000, respectively, for the quarters ended December 31, 2001 and 2000. The increase was primarily a result of the shift in the composition of the loan portfolio. Commercial and construction loans totaled $22.2 million at December 31, 2001, compared to $7.8 million one year earlier. The provision for loan losses reflects management's on-going evaluation of probable losses on loans and the adequacy of the allowance for loan losses based on all pertinent considerations, including, but not limited to, the overall economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available or as future events occur. As of December 31, 2001, the allowance for loan losses was $1.3 million. The ratio of the allowance for loan losses to net loans receivable was 0.31% at December 31, 2001. NON-INTEREST INCOME. Non-interest income was up $600,000, to $985,000 for the quarter ended December 31, 2001, from $385,000 in the year earlier period. The increase was primarily the result of a $541,000 before tax gain on the sale of $23.1 million of loans held for sale. In addition, insurance and annuity commissions totaled $220,000 for the quarter, up $74,000 or 51% from $146,000 in 2000. A reduction in the rate of commissions earned by the Bank was overcome by an aggressive sales effort. NON-INTEREST EXPENSE. Non-interest expense increased to $2.8 million for the quarter ended December 31, 2001, compared with $2.4 million in the same period in 2000, an increase of 14%. Salaries and employee benefits increased $288,000. The increase is a result of normal annual salary increases combined with additional personnel and higher group health insurance premiums. Management has continued its efforts to control operating expenses. INCOME TAXES. Income taxes increased $770,000 for the three months ended December 31, 2001 to $1.2 million compared to $393,000 for the prior year. The current quarter increase is a result of increased income before taxes combined with the prior year's utilization of capital loss carry forwards. 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 15 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. 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 September 30, 2001.
Net Portfolio Value as a % Net Portfolio Value of Present Value of Assets ------------------------------ -------------------------- Rates $ Amount $ Change % Change NPV Ratio Change - ---------- --------- -------- -------- --------- --------- + 300 bp 41,324 (39,870) (49)% 6.31% - 522 bp + 200 bp 54,777 (26,416) (33)% 8.16% - 337 bp + 100 bp 68,370 (12,824) (16)% 9.94% - 159 bp 0 bp 81,194 11.53% - 100 bp 89,382 8,188 10 % 12.49% + 95 bp - 200 bp 95,104 13,910 17 % 13.11% + 158 bp - 300 bp - - - % -% + - bp - -------------------------------------------------------------------------------
16 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 17 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 18, 2002 /s/ RAYMOND S. STOLARCZYK ---------------- -------------------------- Raymond S. Stolarczyk Chairman and Chief Executive Officer Dated: January 18, 2002 /s/ ELIZABETH A. DOOLAN ---------------- -------------------------- Elizabeth A. Doolan Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----