-----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, JMS6+4i0im1qICMYfKaXh4KNJ/hy/9F7pjC5Sk7iwC9JS4U8W0srmMnNWb24CKFJ 3ppizlByF677ToNvN5MgKQ== 0000912219-02-000004.txt : 20020515 0000912219-02-000004.hdr.sgml : 20020515 20020515120629 ACCESSION NUMBER: 0000912219-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 02649561 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 march.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 March 31, 2002 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 3,081,490 shares of common stock, par value $.01, outstanding as of May 3, 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 March 31, 2002 (unaudited) and September 30, 2001 1 Consolidated Statements of Earnings for the three and six months ended March 31, 2002 and 2001 (unaudited) 2 Consolidated Statements of Changes in Stockholders' Equity for the six months ended March 31, 2002 and 2001 (unaudited) 3-4 Consolidated Statements of Cash Flows for the six months ended March 31, 2002 and 2001 (unaudited) 5-6 Notes to Consolidated Financial Statements (unaudited) 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-18 Item 3. Quantitative and Qualitative Disclosure about Market Risks 19-20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 tem 2. Changes in Securities 21 Item 3. Defaults upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURE PAGE 23 1 FIDELITY BANCORP and SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
March 31, September 30, ASSETS 2002 2001 Cash and due from banks $ 4,695 7,107 Interest-earning deposits 858 1,397 Federal funds sold 100 100 ------- -------- Cash and cash equivalents 5,653 8,604 FHLB of Chicago stock, at cost 14,194 18,055 Mortgage-backed securities available for sale 179,970 127,685 Securities available for sale 49,872 42,006 Loans held for sale 84 41,219 Loans receivable, net of allowance for loan losses of $1,477 at March 31, 2002 and $1,236 at September 30, 2001 426,811 422,980 Accrued interest receivable 4,076 3,650 Premises and equipment 3,778 3,850 Other assets 1,223 657 ------- ------- $ 685,661 668,706 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits 433,953 399,619 Borrowed funds 196,130 187,345 Advance payments by borrowers for taxes and insurance 2,204 7,193 Due to broker - 14,918 Other liabilities 4,992 10,247 ------- ------- Total liabilities 637,279 619,322 STOCKHOLDERS' EQUITY Preferred stock - - Common stock 57 38 Additional paid-in capital 38,450 38,636 Retained earnings, substantially restricted 44,239 40,926 Treasury stock, at cost (30,932) (31,540) Common stock acquired by Bank Recognition and Retention Plans (170) (178) Accumulated other comprehensive income (loss) (3,262) 1,502 ------- ------- TOTAL STOCKHOLDERS' EQUITY 48,382 49,384 ------- ------- $ 685,661 668,706 ======= =======
See accompanying notes to unaudited consolidated financial statements. 2 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Earnings (unaudited) (Dollars in thousands, except for earnings per share)
Three Months ended Six Months ended March 31, March 31, 2002 2001 2002 2001 -------------------- ----------------- (unaudited) Interest Income: Loans receivable $ 7,794 10,059 16,064 20,293 Securities 1,088 1,527 2,004 3,159 Mortgage-backed securities 1,950 53 4,145 106 Other interest income 8 17 18 31 ------ ------ ------ ------ 10,840 11,656 22,231 23,589 Interest Expense: Deposits 3,537 4,962 7,359 9,977 Borrowed funds 2,110 3,121 4,645 6,659 ------ ------ ------ ------ 5,647 8,083 12,004 16,636 Net interest income before provision for loan losses 5,193 3,573 10,227 6,953 Provision for loan losses 110 40 250 110 ------ ------ ------ ------ Net interest income after provision for loan losses 5,083 3,533 9,977 6,843 Non-Interest Income: Fees and commissions 157 115 300 233 Insurance and annuity commissions 210 257 430 403 Gain on sale of securities 223 125 295 125 Gain on sale of loans 125 -- 666 -- Other 11 15 20 136 ------ ------ ------ ------ 726 512 1,711 897 Non-Interest Expense: General and administrative expenses: Salaries and employee benefits 1,576 1,393 3,275 2,804 Office occupancy and equipment 506 379 876 753 Data processing 130 143 262 277 Advertising and promotions 156 49 314 204 Other 444 390 856 755 ------ ------ ------ ------ 2,812 2,354 5,583 4,793 ------ ------ ------ ------ Income before income taxes 2,997 1,691 6,105 2,947 Income tax expense 1,119 642 2,282 1,035 ------ ------ ------ ------ Net income $ 1,878 1,049 3,823 1,912 ====== ====== ====== ====== Earnings per share - basic (1) $ 0.61 0.35 1.25 0.63 Earnings per share - diluted (1) $ 0.59 0.33 1.20 0.61 ====== ====== ====== ====== Comprehensive income $ (13) 1,474 (941) 3,226 ====== ====== ====== ======
(1) Adjusted for the February 28, 2002 3-for-2 stock split which was effected in the form of a stock dividend. See accompanying notes to unaudited consolidated financial statements. 3 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity (unaudited) Dollars in thousands (except for earnings per share) Six months ended March 31, 2002 and 2001
Accumulated Common Common Other Additional Stock Stock Comprehensive 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 - - 1,912 - - - - 1,912 Change in accumulated other comprehensive loss 1,314 1,314 --- ------ ------- ------- ------ ------ ---- ------- Total comprehensive income 3,226 Purchase of treasury stock (21,000 shares) - - - (394) - - - (394) Cash dividends ($0.16 per share) - - (484) - - - - (484) Amortization of award of BRRP's stock - - - - - 7 - 7 Cost of ESOP shares released - - - - 189 - - 189 Exercise of stock options and reissuance of treasury shares (14,750 shares) - (114) - 244 - - - 130 Tax benefit related to stock options exercised - 43 - - - - - 43 Market adjustment for committed ESOP shares - 38 - - - - - 38 --- ------ ------- ------ ------ ----- ---- ------ Balance at March 31, 2001 $38 38,747 38,450 (31,541) - (184) 48 $45,558 === ====== ======= ====== ====== ===== ==== ======= (continued)
4 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity (unaudited) (continued) Dollars in thousands (except for earnings per share) Six months ended March 31, 2002 and 2001
Accumulated Common Other Common Stock Additional Stock Comprehensive Par Paid-In Retained Treasury Acquired Income Shares Value Capital Earnings Stock by BRRP's (Loss) Total --- ------ ------- ------- ------ ------ ---- ------- Balance at September 30, 2001 3,782,350 $ 38 38,636 40,926 (31,540) (178) 1,502 $ 49,384 Net income - - - 3,823 - - - 3,823 Change in accumulated other comprehensive income - - - - - - (4,764) (4,764) --------- ------ ------- ------ ------ ----- ------ ------- Total comprehensive income (941) Cash dividends ($0.17 per share) - - - (510) - - - (510) Amortization of award of BRRP's stock - - - - - 8 - 8 Exercise of stock options and reissuance of treasury shares (34,000 shares) - - (266) - 608 - - 342 Tax benefit related to stock options exercised - - 101 - - - - 101 3-for-2 stock split effected in the form of a 50% stock dividend and payment of cash for fractional shares 1,891,175 19 (21) - - - - (2) --------- ------ ------- ------ ------ ----- ------ ------- Balance at March 31, 2002 5,673,525 $ 57 38,450 44,239 (30,932) (170) (3,262) $ 48,382 ========= ====== ======= ====== ======= ====== ======= =======
See accompanying notes to unaudited consolidated financial statements. 5 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Cash Flows (unaudited) (Dollars in thousands)
Six months ended March 31, 2002 2001 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,823 1,912 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 265 185 Provision for loan losses 250 110 Net amortization and accretion of premiums and discounts 296 (67) Amortization of cost of stock benefit plans 8 7 ESOP -- 227 Deferred loan fees, net of amortization 141 93 Stock dividend from FHLB of Chicago (439) (401) Loans originated for sale (3,980) -- Proceeds from loans originated for sale 4,042 -- Gain on ales of securities, mortgage-backed securities and loans (961) (125) Gain on sale of real estate owned (11) -- Amortization of deposit base intangible 2 7 Decrease (increase) in accrued interest receivable (426) 559 Decrease (increase) in other assets (109) 679 Increase (decrease) in other liabilities (2,266) 1,540 ------ ------ Net cash provided by operating activities 635 4,726 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of mortgage-backed securities (167,720) -- Purchase of securities (40,061) (44,030) Purchase of FHLB of Chicago stock (51,200) (229) Proceeds from maturities of securities 20,000 20,000 Proceeds from sale of securities and mortgage-backed securities 90,264 14,125 Proceeds from sale of real estate owned 110 4 Proceeds from redemption of FHLB of Chicago stock 55,500 -- Loans originated for investments (93,755) (49,409) Proceeds from sale of loans 37,829 -- Purchase of premises and equipment (193) (161) Principal repayments collected on loans receivable 92,888 62,371 Principal repayments collected on mortgage-backed securities 14,792 336 ------ ------ Net cash used in investing activities (41,546) 3,007
(continued) 6 FIDELITY BANCORP and SUBSIDIARY Consolidated Statements of Cash Flows (unaudited) (Dollars in thousands)
Six months ended March 31, 2002 2001 ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 34,334 6,892 Net (increase) decrease in borrowed funds 8,785 (10,800) Net increase (decrease) in advance payments by borrowers for taxes and insurance (4,989) 1,055 Purchase of treasury stock -- (394) Payment of common stock dividends (510) (484) Payment of fractional shares for 3-for-2 stock split (2) -- Proceeds from exercise of stock options 342 130 ------ ------ Net cash provided by (used in) financing activities 37,960 (3,601) ------ ------ Net change in cash and cash equivalents (2,951) 4,132 Cash and cash equivalents at beginning of period 8,604 6,195 ------ ------ Cash and cash equivalents at end of period $ 5,653 10,327 ====== ====== CASH PAID DURING THE PERIOD FOR: Interest $ 12,013 16,548 Income taxes 3,780 648 NON-CASH INVESTING ACTIVITIES - Loans transferred to real estate in foreclosure 546 11 Due from broker (14,918) 5,000 ====== ======
See accompanying notes to unaudited consolidated financial statements. 7 FIDELITY BANCORP, INC. NOTES TO UNAUDITED 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 six months ended March 31, 2002 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) COMMON STOCK On January 22, 2002, the Company's Board of Directors approved a 3-for-2 stock split to be effected in the form of a stock dividend to common stockholders of record as of February 6, 2002 with a payment date of February 28, 2002. Earnings and dividends per share for all periods have been restated to reflect the 3-for-2 stock split. (3) EARNINGS PER SHARE Basic earnings per share for the three months ended March 31, 2002 and 2001 were computed by dividing net income by the weighted average number of shares of common stock outstanding for the periods, which were 3,080,588 and 3,021,844, respectively. Basic earnings per share for the six months ended March 31, 2002 and 2001 were computed by dividing net income by the weighted average number of shares of common stock outstanding for the periods, which were 3,056,853 and 3,021,844, respectively. ESOP shares are considered outstanding for the calculations unless unearned. Diluted earnings per share for the three months ended March 31, 2002 and 2001 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 3,207,453 and 3,155,625, respectively. Diluted earnings per share for the six months ended March 31, 2002 and 2001 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 3,195,652 and 3,155,716, respectively. Diluted earnings per share include the dilutive effects of additional potential issuable common stock under stock options. 8 (4) 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. (5) COMMITMENTS AND CONTINGENCIES At March 31, 2002, the Bank had outstanding commitments to originate new loans of $9.2 million, of which $958,000 were fixed rate, with rates ranging from 6.50% to 8.00%, and $8.2 million were adjustable rate commitments. Additionally, the Bank has ten construction and development loan commitments for $22.6 million with floating rates based on prime plus a margin. Net draws on these construction and development loan commitments totaled $14.6 million through March 31, 2002. (6) RECLASSIFICATIONS Certain reclassifications have been made in prior years financial statements to conform to the current year's presentation. (7) 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. 9 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, 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 reported earnings for the second fiscal quarter ended March 31, 2002 of $1.9 million, compared with $1.0 million for the same quarter a year ago. Earnings per diluted share for the quarter and six months were $0.59 and $1.20 per share in 2001, an increase from $0.33 and $0.61 in 2001, respectively. Earnings per share and net income for the quarter were up from the previous year's results due to an improved net interest margin and increased non-interest income. The Company also announced that its board of directors declared a quarterly dividend of $0.09 per share, payable May 15, 2002 to shareholders of record as of April 30, 2002. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This document (including information incorporated by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company's management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events. 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 effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following: - - The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company's assets. 10 - - The economic impact of the terrorist attacks that occurred on September 11th, as well as any future threats and attacks, and the response of the United States to any such threats and attacks. - - The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters. - - The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company's assets) and the policies of the Board of Governors of the Federal Reserve System. - - The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector. - - The inability of the Company to obtain new customers and to retain existing customers. - - The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet. - - Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers. - - The ability of the Company to develop and maintain secure and reliable electronic systems. - - The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner. - - Consumer spending and saving habits which may change in a manner that affects the Company's business adversely. - - Business combinations and the integration of acquired businesses which may be more difficult or expensive than expected. - - The costs, effects and outcomes of existing or future litigation. - - Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board. - - The ability of the Company to manage the risks associated with the foregoing as well as anticipated. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other 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. 11 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 March 31, 2002, cash and cash equivalents totaled $5.7 million. 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 rate movements. Net interest income in 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 for the six months ended March 31, 2002, were $635,000. Net cash used $41.5 million in investing activities for the six-month period ended March 31, 2002. During the period investing activities consisted of loans originated for investment and purchases of mortgage-backed securities and securities, largely offset by principal collections on loans, proceeds from maturities of securities and proceeds from sales of securities, mortgage-backed securities and loans. Cash flows provided by financing activities amounted to $38.0 million for the six months ended March 31, 2002. Growth in deposits of $34.3 millions and a net increase in borrowed funds of $8.8 million was partially reduced by the payment of real estate taxes for borrowers. At March 31, 2002, the Bank had outstanding commitments to fund loans of $9.2 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 March 31, 2002 totaled $205.9 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. 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 March 31, 2002, the Company and the Bank met the capital adequacy requirements to which they are subject. The Bank's Tangible Equity ratio at March 31, 2002 was 7.62%. The Tier 1 Capital 12 ratio was 7.62%, the Tier 1 Risk-Based ratio was 18.18%, and the Total Risk-Based Capital ratio was 18.69%. 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 certain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios. There are no conditions or events since that notification that would have the effect of changing the Company's or the Bank's categorization. CHANGES IN FINANCIAL CONDITION Total assets at March 31, 2002 were $685.7 million, compared to $668.7 million at September 30, 2001. Mortgage-backed securities classified as available for sale were $180.0 million at March 31, 2002. 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 and supplemented by advances from the FHLB of Chicago. Net loans receivable at March 31, 2002 were $426.8 million, compared with $423.0 million at September 30, 2001. Solid demand for loan products, especially higher-yielding multi-family mortgages, led to the loan growth, despite heavy repayments from refinance activity. The Company plans to continue its focus on generating multi-family loans and is anticipating continued strong loan demand. The Company has recently seen a resurgence in the purchase market after a long period of refinance activity. New loans closed, including multi-family and commercial mortgages and loans secured by commercial leases, totaled $93.8 million for the six months ended March 31, 2002. Loan repayments totaled $92.9 million for the six months ended March 31, 2002, compared with $62.4 million for the same period in 2001. During the first six months, the Bank recorded three loan sales to FNMA from the held for sale category. The Bank recorded $37.8 million in proceeds from the sale of these fixed-rate 30-year mortgages. These sales generated $643,800 of pre-tax gains and a $126,700 deferred servicing asset. In addition to these sales, normal operations originated $4.0 million in loans available for sale. These were sold on an individual basis to FHLMC and produced a pre-tax profit of $21,900. Through deposit retention efforts and the addition of a wholesale jumbo certificate of deposit program, deposits for the six-month period grew 9% or $34.3 million to $434.0 million from $399.6 million at September 30, 2001. The wholesale CD program generated $28.7 million in deposits with terms of between 12 and 24 months that were generally longer in term and lower in rate than certificates generated from the bank's retail customers. The Bank also added a new checking product, power-checking, which attracted $13.3 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 $15.6 million during the first half of fiscal 2002. FHLB advances increased $8.7 million to $196.1 million at March 31, 2002 from September 30, 2001. 13 Book value per share on March 31, 2002 was $15.70, compared with $16.30 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 $16.76 at March 31, 2002, an increase of 3%, compared to $15.80 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 Cole Taylor shareholders in exchange for stock and certain assets. The Notes remained as obligations of the surviving company, which became known as Reliance Acceptance Group, Inc. ("RAG") and was the parent company for only 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 March 31, 2002. ASSET QUALITY As of March 31, 2002, the Company had non-performing assets of $1.5 million, consisting of $1.1 million in non-performing loans and $447,000 of real estate in foreclosure. The non-performing assets at March 31, 2002 included 9 single-family residences, 4 multi-unit residence, and 2 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 as well as our national and regional peers. The 0.22% 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 resolution of non-performing loans. 14 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 March 31, Six Months Ended 2002 2001 March 31, 2002 ------------------------ ----------------------- ---------------------- Inter- Average Inter- Average Inter- Average Average est Yield Average est Yield Average est Yield (dollars in thousands) ------------------------ ----------------------- ---------------------- Interest-earning assets: Loans receivable, net $433,168 7,794 7.20% 532,426 10,059 7.56% 444,126 16,064 7.23% Mortgage-backed securities 133,886 1 950 5.83% 2,931 53 7.23% 140,492 4,145 5.90% Interest-bearing deposits 1,355 6 1.77% 762 10 5.25% 1,679 13 1.55% Investment securities and federal funds 75,141 1,090 5.80% 86,775 1,534 7.07% 62,876 2,009 6.39% ------- ----- ----- ------ ----- ----- ------- ----- ----- Total interest-earning assets 643,550 10,840 6.74% 622,894 11,656 7.49% 649,173 22,231 6.85% Non-interest earning assets 13,415 10,619 14,630 ------- ------ ------- Total assets $656,965 633,513 663,803 ======= ======= ======= Interest-bearing liabilities: Deposits: Passbook & NOW accounts 166,570 991 2.38% 137,743 1,209 3.51% 161,317 2,077 2.58% Money market account 14,996 102 2.72% 11,520 102 3.54% 13,767 200 2.91% Certificate accounts 234,799 2,444 4.16% 229,634 3,651 6.36% 229,006 5,082 4.44% ------- ----- ----- ------- ----- ----- ------- ----- ----- Total deposits 416,365 3,537 3.40% 378,897 4,962 5.24% 404,090 7,359 3.64% Borrowed funds 165,171 2,110 5.11% 191,121 3,121 6.53% 181,701 4,645 5.11% ------- ----- ----- ------- ----- ----- ------- ----- ----- Total interest-bearing liabilities 581,536 5,647 3.88% 570,018 8,083 5.67% 585,791 12,004 4.10% Non-interest bearing deposits 14,382 7,191 14,244 Other liabilities 10,626 11,118 13,273 ------- ------- ------- Total liabilities 606,544 588,327 613,308 Stockholders' equity 50,421 45,186 50,495 ------- ------- ------- Total liabilities and stockholders' equity $656,965 633,513 663,803 ======= ======= ======= Net interest income/interest rate spread (1) 5,193 2.85% 3,573 1.81% 10,227 2.75% Net earning assets/net interest margin (2) $ 62,014 3.23% 52,876 2.29% 63,382 3.15% Ratio of interest-earning assets to interest-bearing liabilities 1.11x 1.09x 1.11x
15 (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 six month periods are annual- ized for presentation purposes. 16 COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 GENERAL. Earnings per diluted share for the quarter ended March 31, 2002 was $0.59 up $0.26 per share from $0.33 for the same period in 2001. Net income for the three months ended March 31, 2002 was $1.9 million, an increase of $829,000 from the net income of $1.0 million for the three months ended March 31, 2001. Earnings per share and net income for the quarter were up from the previous year's results due to an improved net interest margin and increased non-interest income. INTEREST INCOME. Income from loans receivable, the largest contributor to interest income, was $7.8 million for the quarter ended March 31, 2002, down 22.5% from the prior year. The decrease reflects a combination of less loan volume coupled with lower interest rates. The average loans outstanding decreased $99.3 million, comparing March 31, 2002 to March 31, 2001, due to loan sales and high repayment volume. The yield on loans decreased 36 basis points, primarily due to significant refinance activity. Interest income from mortgage-backed securities and investment portfolio increased $1.4 million. The increase in investment income was generated by a $118.3 million increase in the average outstanding investment portfolio, from $89.7 million for the quarter ended March 31, 2001 to $209.0 million for the quarter ended March 31, 2002. The purchases were funded by the proceeds from heavy refinance activity as well as the redeployment of the proceeds from the sale of mortgage loans. Gross interest income totaled $10.8 million for the three months ended March 31, 2002, down 7.0%, or $816,000 from $11.7 million for the quarter ended March 31, 2001. INTEREST EXPENSE. 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. Interest expense on deposits for the quarter decreased $1.4 million, from $5.0 million to $3.5 million. The average deposit balance increased 9.9% from $378.9 million for the quarter ended March 31, 2001 to $416.4 million for the quarter ended March 31, 2002. The average cost of deposits decreased 184 basis points to 3.40% for the quarter ended March 31, 2002. Interest expense on borrowed funds decreased $1.0 million to $2.1 million for the quarter ended March 31, 2002, from $3.1 million for the prior year's comparable quarter. The average cost of borrowings has also been reduced significantly due to the current interest rate scenario. The average cost of borrowings for the quarter ended March 31, 2002 was 5.11%. PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses of $110,000 and $40,000 for the quarters ended March 31, 2002 and 2001, respectively. The increase was primarily the result of a shift in the mix of the loan portfolio. The current portfolio includes a mix of residential, commercial properties, acquisition and development loans, commercial loans secured by leases as well as multi-family. These loans total $32.2 million at March 31, 2002, compared to $14.6 million one year ago. 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 March 31, 2002, the allowance for loan losses was $1.5 million. The ratio of the allowance for loan losses to net loans receivable was 0.35% at March 31, 2002. NON-INTEREST INCOME. Non-interest income increased $214,000 or 41.8% to $726,000 for the second quarter of fiscal 2002. Excluding gains on the sales of loans and securities in both the current and prior year, non-interest income remained stable. 17 NON-INTEREST EXPENSE. Non-interest expense for the three months ended March 31, 2002 increased $458,000 to $2.8 million from the three months ended March 31, 2001 of $2.4 million. Increases were noted in salaries and employee benefits, equipment and advertising expenses. The increase in salaries and employee benefits is a result of normal annual salary increases combined with the costs associated with additional personnel and higher group health insurance premiums. The increase in equipment is a direct result of accelerated depreciation of computer equipment that will be obsolete after December 31, 2002. Management has continued its efforts to control operating expenses. INCOME TAXES. Income taxes increased $477,000 for the three months ended March 31, 2002 to $1.1 million compared to $642,000 for the prior year due to decreased taxable income. The effective tax rate remains stable at 37.3% for the three month period ended March 31, 2002. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 GENERAL. For the first six months of the fiscal year, earnings per diluted share were $1.20, up $0.59 per share from $0.61 per diluted share in the first six months of 2001. Net income for the first six months of 2002 was $3.8 million which is double the net income reported for the same period in 2001. The results reflect continued improvement in the Company's net interest margin. With the balance sheet initiatives (which included loans and securities sales) that began six months ago as the Federal Reserve lowered short-term interest rates, the Company has achieved three things: substantial increases in non-interest income; stabilized earning asset levels; and laid the groundwork for future revenue streams. INTEREST INCOME. Income from loans receivable, the chief contributor to interest income, was $16.1 million for the six months ended March 31, 2002, down 20.8% from the prior year. Income from loans receivable fell primarily as a result of a decline in the six-month outstanding average balances; $444.1 million for the six-month period ended March 31, 2002, compared with $535.5 million one year earlier. High repayments and loan sales that took place in the latter half of fiscal 2001 and the first half of 2002 adversely affected both volume and yield. Repayments from the first half of fiscal 2002 totaled $92.9 million, compared to $62.4 for the same period in 2001. The average balance of the securities available for sale portfolios, including mortgage-backed securities increased to $203.4 million for the six-month period ended March 31, 2002, from $88.9 the same period last year. Interest generated from mortgage-backed and investment securities for the six month period ended march 31, 2002 was $6.2 million, an increase of $2.9 million from the six-month period ended March 31, 2001. 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 six months ended March 31, 2002 was $12.0 million, down $4.6 million, or 27.8%, from $16.6 million in 2001. Interest expense on borrowed funds declined 30.2%, to $4.6 million for the six months ended March 31, 2002, from $6.7 million in 2001 as high priced borrowed funds matured. The effect of $25 million in higher cost borrowings maturing in the third quarter of this fiscal year, the extension of maturities 18 on certain FHLB advances by management, and a moderate improvement in the mix of core deposits, should produce flat to moderately decreased interest expense for the remainder of this fiscal year. For the six months ended March 31, 2002, interest expense on deposits was $7.4 million, down $2.6 million or 26.2% from $10.0 million in 2001. Average interest-bearing deposits increased $29.4 million, or 7.8%, to $404.1 million for the six-month period in 2002 compared to $374.7 million in 2001. The weighted average cost of deposits decreased 169 basis points. PROVISION FOR LOAN LOSSES. The Company recorded a $250,000 provision for loan losses in the first six months of fiscal 2002, compared to $110,000 in 2001. The increase was primarily a result of the shift in the composition of the loan portfolio. Commercial and construction loans totaled $32.2 million at March 31, 2002, compared to $14.6 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 March 31, 2002, the allowance for loan losses was $1.5 million. NON-INTEREST INCOME. Non-interest income was up $814,000 to $1.7 million for the six month period ended March 31, 2002 from $897,000 in the year earlier period. The increase was primarily the result of a $961,000 before tax gain on the sale of loans and securities. Insurance and annuity commissions contributed $430,000 for the six months, up $27,000 or 6.7% from $403,000 in 2001. However, without the gain on the sale of loans and investments, non-interest income for the six-month period in 2002 was essentially unchanged from 2001. NON-INTEREST EXPENSE. Non-interest expense increased to $5.6 million for the six months ended March 31, 2002, compared with $4.8 million in the same period in 2001, up 16.5%. Employee benefits, including higher group health insurance premiums, accelerated depreciation for obsolescence in the Company's computer hardware and software and increased advertising expenses contributed to the increase. INCOME TAXES. Income taxes increased $1.3 million for the six-months ended March 31, 2002 to $2.3 million compared to $1.0 million for the prior year. The Company's effective income tax rate increased to 37.3% from 35.1% for the six-month period ended March 31, 2001. The lower effective income tax rate in the prior year was due 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 investment. 19 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 contract 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. 20 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 December 31, 2001.
Net Portfolio Value as a % Net Portfolio Value of Present Value of Assets ------------------------------ -------------------------- Changes in Rates $ Amount $ Change % Change NPV Ratio Change - ---------- --------- -------- -------- --------- --------- + 300 bp 40,217 (38,917) (49)% 6.20% - 510 bp + 200 bp 52,744 (26,391) (33)% 7.93% - 337 bp + 100 bp 65,607 (13,527) (17)% 9.62% - 169 bp 0 bp 79,134 11.30% - 100 bp 87,759 8,624 11 % 12.30% + 100 bp - 200 bp -- -- -- % 9.98% -- bp - 300 bp -- -- -- % 10.57% -- bp - -------------------------------------------------------------------------------
21 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 (a) The Company held its annual meeting of stockholders on January 23, 2002. (b) The directors whose terms of office continued after the annual meeting are as follows: For Against Edward J. Burda 1,325,375 289,382 Patrick J. Flynn 1,343,157 271,600 The directors whose terms of office continued after the annual meeting are as follows: Thomas E. Bentel Raymond S. Stolarczyk Paul J. Bielat Richard J. Kasten (c) A brief description of each other matter voted on and the number of votes cast: (i) Ratification of Crowe Chizek and Company LLP as independent auditors for the fiscal year ending September 30, 2002. For Against Abstain 1,611,557 1,000 2,200 ITEM 5. OTHER INFORMATION None 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K 1. Form 8-K dated January 22, 2002. Registrant issued a press release dated January 22, 2002 regarding a three-for-two stock split. 2. Form 8-K dated January 23, 2002. Registrant submitted a script prepared for use on January 23, 2002 by Mr. Raymond Stolarczyk and Mr. Thomas Bentel, discussing financial results for the fiscal year ended September 30, 2001, and financial and strategic goals for fiscal year 2002. 23 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: May 15, 2002 /s/ RAYMOND S. STOLARCZYK ----------------------------- Raymond S. Stolarczyk Chairman and Chief Executive Officer Dated: May 15, 2002 /s/ ELIZABETH A. DOOLAN ----------------------------- Elizabeth A. DOOLAN Sr. V. P. and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----