SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transaction period from ___________________ to _____________________
Commission File Number: 0-29040
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FIDELITY BANKSHARES, INC.
-------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 65-0717085
- ------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
218 Datura Street, West Palm Beach, Florida 33401
- -------------------------------------------- -------
(Address of Principal Executive Offices) (Zip Code)
(561) 659-9900
------------------------------------------------
(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
---------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of March 3, 2000, there were issued and outstanding 6,835,768 shares of
the Registrant's Common Stock. The aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of the Common Stock as of March 3, 2000 ($14.875) was $36,735,969.
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Stockholders for the fiscal year ended
December 31, 1999 (Parts II and IV).
2. Proxy Statement for the 2000 Annual Meeting of Stockholders (Parts I and
III).
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
- ------------------------------
This Amendment to the Company's Form 10-K is being filed in order to file
the Company's consolidated financial statements.
Independent Auditors' Report
Board of Directors of
Fidelity Bankshares, Inc.:
We have audited the accompanying consolidated statements of financial position
of Fidelity Bankshares, Inc. (the "Company") and its wholly-owned subsidiary,
Fidelity Federal Savings Bank of Florida, as of December 31, 1998 and 1999, and
the related consolidated statements of operations, comprehensive operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fidelity Bankshares, Inc. and
subsidiary at December 31, 1998 and 1999 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, FL
February 14, 2000
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AT DECEMBER 31, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------------------
1998 1999
=========== ===========
ASSETS (In Thousands, except share data) CASH AND CASH EQUIVALENTS:
<S> <C> <C>
Cash and amounts due from depository institutions........................ $ 27,951 $ 41,736
Interest-bearing deposits................................................ 32,075 19,065
----------- -----------
Total cash and cash equivalents...................................... 60,026 60,801
----------- -----------
ASSETS AVAILABLE FOR SALE (At Fair Value):
Municipal bonds and government and agency securities..................... 18,824 29,059
Mortgage-backed securities............................................... 389,263 336,212
Corporate debt securities................................................ 44,488 38,959
----------- -----------
Total assets available for sale...................................... 452,575 404,230
LOANS RECEIVABLE, Net of allowance for loan losses - 1998 $3,226
OFFICE PROPERTIES AND EQUIPMENT............................................... 37,708 44,982
FEDERAL HOME LOAN BANK STOCK, At cost......................................... 15,658 13,354
REAL ESTATE OWNED, Net........................................................ 907 775
ACCRUED INTEREST RECEIVABLE................................................... 7,549 8,330
DEFERRED INCOME TAX ASSET..................................................... 1,443 4,924
OTHER ASSETS 13,895 17,116
----------- -----------
TOTAL ASSETS $ 1,566,927 $ 1,718,933
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS ..................................................................... $ 1,120,746 $ 1,321,510
OTHER BORROWED FUNDS.......................................................... 6,981 14,656
ADVANCES FROM FEDERAL HOME LOAN BANK.......................................... 303,140 247,073
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE................................. 3,081 4,010
DRAFTS PAYABLE................................................................ 9,605 6,533
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
OTHER LIABILITIES............................................................. 9,625 13,097
----------- -----------
TOTAL LIABILITIES........................................................ 1,481,928 1,635,629
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, 2,000,000 shares authorized, none issued..................... - -
COMMON STOCK ($.10 par value) 8,200,000 authorized shares:
ADDITIONAL PAID IN CAPITAL.................................................... 40,535 40,937
RETAINED EARNINGS - substantially restricted.................................. 52,018 57,343
TREASURY STOCK - at cost
394,029 and 488,806 shares at December 31, 1998 and 1999, respectively... (7,258) (9,232)
COMMON STOCK PURCHASED BY:
Employee stock ownership plan............................................ (658) (329)
ACCUMULATED OTHER COMPREHENSIVE LOSS
TOTAL STOCKHOLDERS' EQUITY............................................... 84,999 83,304
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 1,566,927 $ 1,718,933
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
=============================================
(In Thousands, except share data)
Interest income:
<S> <C> <C> <C>
Loans............................................................. $ 58,386 $ 71,996 $ 81,290
Investment securities............................................. 758 1,048 2,215
Other investments................................................. 1,969 3,482 3,109
Mortgage-backed and corporate debt securities..................... 11,159 21,794 24,311
--------- ---------- ----------
Total interest income......................................... 72,272 98,320 110,925
--------- ---------- ----------
Interest expense:
Deposits.......................................................... 33,856 45,128 51,578
Advances from Federal Home Loan Bank and
Total interest expense........................................ 41,606 64,992 72,255
--------- ---------- ----------
Net interest income.................................................... 30,666 33,328 38,670
Provision for loan losses.............................................. 170 77 463
--------- ---------- ----------
Net interest income after provision for loan losses.................... 30,496 33,251 38,207
--------- ---------- ----------
Other income:
Service charges on deposit accounts............................... 2,061 2,519 3,222
Fees for other banking services................................... 1,545 2,079 2,284
Net gain on sale of loans, mortgage-backed securities and 190 2,502 420
Gain on sale of property.......................................... - - 5,100
Miscellaneous..................................................... 1,114 1,590 1,901
--------- ---------- ----------
Total other income............................................ 4,910 8,690 12,927
--------- ---------- ----------
Operating expense:
Employee compensation and benefits................................ 13,900 16,422 21,214
Occupancy and equipment........................................... 4,908 6,231 7,256
Gain on real estate owned......................................... (153) (72) (234)
Marketing......................................................... 633 767 916
Federal deposit insurance premium................................. 464 556 672
Miscellaneous..................................................... 4,483 5,783 6,530
--------- ---------- ----------
Total operating expense....................................... 24,235 29,687 36,354
--------- ---------- ----------
Income before provision for income taxes............................... 11,171 12,254 14,780
--------- ---------- ----------
Provision (benefit) for income taxes:
Current........................................................... 5,573 5,579 5,604
Deferred.......................................................... (820) (737) 62
--------- ---------- ----------
Total provision for income taxes.............................. 4,753 4,842 5,666
--------- ---------- ----------
Net income............................................... $ 6,418 $ 7,412 $ 9,114
========= ========== ==========
Earnings per share:
Basic............................................................. $ .96 $ 1.12 $ 1.42
========= ========== ==========
Diluted........................................................... $ .95 $ 1.10 $ 1.40
========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------------------------------------------------
1997 1998 1999
==================================================
(In Thousands)
<S> <C> <C> <C>
Net Income............................................................... $ 6,418 $ 7,412 $ 9,114
Other comprehensive income, net of tax:
Unrealized gains (losses) on assets available for sale:
Unrealized holding gains (losses) arising during period......... 623 (910) (5,689)
Less: reclassification adjustment for gains realized in - (813) (91)
----------- ----------- -----------
Comprehensive income..................................................... $ 7,041 $ 5,689 $ 3,334
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- -------------------------------------------------------------------------------------------------------------------
Accumulated
Retained Employee Other
Additional Earnings- Stock Comprehen
Common Paid In Substantially Treasury Ownership -sive Income
Stock Capital Restricted Stock Plan (Loss) Total
===========================================================================
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996........ $ 675 $37,397 $44,184 $ - $(1,315) $ 782 $81,723
Net Income for the year ended
December 31, 1997............. - - 6,418 - - - 6,418
Stock Options exercised............ 4 525 - - - - 529
Common Stock retired............... (1) (142) - - - - (143)
Recognition of unrealized increase in fair
Amortization of deferred compensation -
Cash dividends declared............ - - (2,659) - - - (2,659)
---------------------------------------------------------------------------
Balance - December 31, 1997........ 678 38,347 47,943 - (986) 1,405 87,387
Net Income for the year ended
December 31, 1998............. - - 7,412 - - - 7,412
Stock Options exercised............ 2 323 - - - - 325
Common Stock retired............... - (115) - - - - (115)
Purchase of treasury stock......... - - - (5,752) - - (5,752)
Reclassification of common stock held
Recognition of unrealized decrease in fair
Amortization of deferred compensation -
Cash dividends declared............ - - (3,337) - - - (3,337)
---------------------------------------------------------------------------
Balance - December 31, 1998........ 680 40,535 52,018 (7,258) (658) (318) 84,999
Net Income for the year ended
December 31, 1999............. - - 9,114 - - - 9,114
Stock Options exercised............ 3 190 - - - - 193
Common Stock retired............... - (22) - - - - (22)
Purchase of treasury stock......... - - - (1,906) - - (1,906)
Reclassification of common stock held
Recognition of unrealized decrease in fair
Amortization of deferred compensation -
Cash dividends declared............ - - (3,789) - - - (3,789)
---------------------------------------------------------------------------
Balance - December 31, 1999........ $ 683 $40,937 $57,343 $(9,232) $ (329) $(6,098) $83,304
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999
============================================
(In Thousands)
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income............................................................. $ 6,418 $ 7,412 $ 9,114
Adjustments to reconcile net income to net cash provided by (used for)
Depreciation........................................................ 1,258 1,796 2,301
ESOP and Recognition and Retention Plan compensation expense........ 765 803 487
Accretion of discounts, amortization of premiums and goodwill, and (414) 1,405 1,558
Provision for loan losses........................................... 170 77 463
Provisions for losses and net (gains) losses on sales of real estate (189) (48) (230)
Net (gain) loss on sale of:
Loans......................................................... (190) (1,147) (273)
Corporate debt securities..................................... - (109) (5)
Mortgage-backed securities.................................... - (1,246) (140)
Office properties and equipment............................... - 43 (5,053)
Other assets.................................................. (702) - -
Increase in accrued interest receivable................................ (1,507) (1,145) (780)
Increase in other assets............................................... (3,409) (1,654) (2,942)
Increase (decrease) in drafts payable.................................. 2,392 4,256 (3,072)
Increase (decrease) in deferred income taxes........................... (387) 673 (41)
Increase in other liabilities.......................................... 661 566 2,918
-------- -------- --------
Net cash from operating activities............................ 4,866 11,682 4,305
-------- -------- --------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans...................... (125,911) (125,997) (175,275)
Principal payments received on mortgage-backed securities.............. 22,325 125,105 89,810
Purchases of:
Loans............................................................... (35,647) (45,157) (28,401)
Mortgage-backed securities.......................................... (131,956) (310,581) (57,285)
Corporate debt securities........................................... - (55,343) -
Federal Home Loan Bank stock........................................ (13,566) (5,347) (687)
Investment securities............................................... (5,283) (4,974) (40,837)
Office properties and equipment..................................... (4,724) (18,277) (11,335)
Proceeds from sales of:
Loans............................................................... 11,824 54,850 16,006
Federal Home Loan Bank stock........................................ - 1,271 2,991
Corporate debt securities........................................... - 9,843 4,958
Real estate acquired in settlement of loans and held for investment. 1,647 1,470 2,127
Mortgage-backed securities available for sale....................... - 27,290 10,054
Office properties and equipment..................................... - - 6,675
Other assets........................................................ 798 - -
Proceeds from maturities of investment securities...................... 7,000 2,660 29,890
Cash used to purchase BankBoynton, a Federal Savings Bank
net of cash received relating to purchase..................... (4,367) - -
Other.................................................................. 2,004 1,465 (117)
-------- -------- --------
Net cash used for investing activities........................ (275,856) (341,722) (151,426)
--------- -------- - --------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Gross proceeds from the sale of common stock........................... 308 79 274
Purchase of treasury stock............................................. - (5,752) (1,906)
Sale of subordinated debentures, net................................... - 27,277 -
Cash dividends paid.................................................... (2,566) (3,316) (3,773)
Net increase (decrease) in:
NOW accounts, demand deposits and savings accounts.................. 27,858 58,568 109,143
Certificates of deposit............................................. 108,033 189,838 91,621
Advances from Federal Home Loan Bank................................ 147,874 64,049 (56,067)
Other borrowed funds................................................ 3,780 3,201 7,675
ESOP Loan........................................................... (1,104) - -
Advances by borrowers for taxes and insurance....................... 211 298 929
-------- -------- --------
Net cash from financing activities............................ 284,394 334,242 147,896
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............................. 13,404 4,202 775
CASH AND CASH EQUIVALENTS, Beginning of year........................... 42,420 55,824 60,026
-------- -------- --------
CASH AND CASH EQUIVALENTS, End of year................................. $ 55,824 $ 60,026 $ 60,801
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fidelity Bankshares, Inc. (the "Company") became the parent of Fidelity Federal
Savings Bank of Florida (the "Bank") on January 29, 1997, as a result of a
tax-free reorganization, accounted for in the same manner as a pooling of
interests merger. Consequently, the Bank is now a wholly-owned subsidiary of the
Company.
The Bank's lending markets are primarily concentrated in Palm Beach, Martin and
St. Lucie counties in Southeast Florida.
The accounting and reporting policies of the Company and its subsidiary conform,
in all material respects, to generally accepted accounting principles. The
following summarizes the more significant of these policies:
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company, the Bank and the Bank's wholly-owned subsidiaries,
Fidelity Realty and Appraisal Services, Inc. ("FRAS") and Florida Consolidated
Agency, Inc. ("Fidelity Insurance"). All significant intercompany balances and
transactions have been eliminated. Neither the Bank nor its subsidiaries are or
have been involved in any joint ventures during any periods presented.
FRAS, principally, performs appraisals for and sells real estate owned by the
Bank. Fidelity Insurance, an insurance agency, sells a full line of insurance
products.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents - For presentation purposes in both the consolidated statements
of financial position and the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Assets Available for Sale - Securities available for sale are carried at fair
value, based upon market quotations. Deferred income taxes are provided on any
unrealized appreciation or decline in value. Such appreciation or decline in
value, net of deferred taxes is reflected as an adjustment of equity. Gain or
loss on sale of such securities is based on the specific identification method.
Debt securities are classified as either available for sale or held for
investment based on management's intent.
Interest Rate Risk - The Bank is engaged principally in providing first mortgage
loans (both adjustable rate and fixed rate mortgage loans) to individuals (See
Note 5 for the composition of the mortgage loan portfolio at December 31, 1998
and 1999). Mortgage loans and investment securities are funded primarily with
short-term liabilities which have interest rates that vary with market rates
over time. Net interest income and the market value of net interest-earning
assets will fluctuate based on changes in interest rates and changes in the
levels of interest-sensitive assets and liabilities. The actual duration of
interest-earning assets and interest-bearing liabilities may differ
significantly from the stated duration as a result of prepayment, early
withdrawals, and similar factors.
Provisions for Loan Losses - Provisions for loan losses, which increase the
allowance for loan losses, are established by charges to income. Such allowance
represents the amounts which, in management's judgment, are adequate to absorb
charge-offs of existing loans which may become uncollectible. The adequacy of
the allowance is determined by management's continuing evaluation of the loan
portfolio in light of past loss experience,
<PAGE>
present economic conditions, and other factors considered relevant by management
at the financial statement date. Anticipated changes in economic factors which
may influence the level of the allowance are considered in the evaluation by
management when the likelihood of the changes can be reasonably determined. In
estimating the allowance for possible losses, consideration is given to asset
performance, the financial condition of borrowers or guarantors, additional
collateral provided, current and anticipated economic conditions, appraisals,
cost of disposal, and holding costs. While management uses the best information
available to make such evaluations, future adjustments to the allowance may be
necessary, which may be material, if economic conditions differ substantially
from the assumptions used in the evaluation. If additions to the original
estimate of the allowance for loan losses are deemed necessary, they will be
reported in earnings in the period in which they become reasonably estimable.
The Bank considers that a loan is impaired when, based on current information
and events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan agreement. Individually
identified impaired loans are measured based on the present value of payments
expected to be received, using the historical effective loan rates as the
discount rate. Alternatively, measurement may also be based on observable market
prices, or for loans that are solely dependent on the collateral for repayment,
measurement may be based on the fair value of the collateral. Loans that are to
be foreclosed are measured based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation is required as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the provision for loan
losses.
Uncollected Interest - The Bank reverses all accrued interest against interest
income when a loan is more than 90 days delinquent and ceases accruing interest
thereafter. Such interest ultimately collected is credited to income in the
period of recovery.
Real Estate Owned - Properties acquired through foreclosure, or a deed in lieu
of foreclosure are carried at the lower of fair value less estimated costs to
sell, or cost. If the fair value less the estimated cost to sell an individual
property declines below the cost of such property, a provision for losses is
charged to operations.
Subsequent costs relating to the improvement of property are capitalized in
amounts not to exceed the property's fair value. Costs relating to holding the
property are charged to expense when incurred.
The amounts the Bank could ultimately recover from property acquired by
foreclosure or deed in lieu of foreclosure, could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Bank's control or changes in the Bank's
strategy for recovering its investment.
Office Properties and Equipment - Office properties and equipment are carried at
cost less accumulated depreciation. Land is carried at cost. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets, which range from three to fifty years for buildings and improvements and
three to ten years for furniture and equipment.
Goodwill - Goodwill resulting from the acquisition of deposits from the
Resolution Trust Corporation ("RTC") is being amortized on a straight-line basis
over five years. Goodwill resulting from the acquisition of BankBoynton in 1997
is being amortized on a straight-line basis over fifteen years, while goodwill
arising for the acquisition of Dunn & Noel in 1999, which became Fidelity
Insurance, is being amortized on a straight-line basis over ten years. The
balance of goodwill, included in other assets at December 31, 1998 and 1999 was
$ 2,394,000 and $ 2,758,000, respectively.
Drafts Payable - Drafts payable represent checks drawn by the Bank on a third
party payer, for savings account withdrawals and payment of the Bank's expenses.
Under the agreement between the Bank and its third party payer, the Bank funds
the checks written on the day following their issuance.
<PAGE>
Loan Origination Fees and Costs - Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loan. Deferred loan fees and costs are amortized to income over
the estimated life of the loans using the interest method.
Unearned discounts on consumer loans are amortized to income using the interest
method.
Commitment Fees - Non-refundable fees received for commitments to make or
purchase loans in the future, net of direct costs of underwriting the
commitments, are deferred and, if the commitment is exercised, recognized over
the life of the loan as an adjustment of yield. If the commitment expires
unexercised, income is recognized upon expiration of the commitment. Direct loan
origination costs incurred to make a commitment to originate a loan are offset
against any related commitment fee and the net amount recognized.
Pension and Retirement Plans - Benefits are accounted for in accordance with
SFAS No. 87, entitled "Employers' Accounting for Pensions." Net periodic pension
costs (income) are actuarially determined.
Income Taxes - The Company and its subsidiary file consolidated federal and
state income tax returns (See Note 12).
Deferred income taxes are provided on items recognized for financial reporting
purposes in periods different than such items are recognized for income tax
purposes.
Earnings Per Common Share - Basic earnings per common share is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period less the weighted average
unallocated ESOP shares of common stock.
The computation of diluted earnings per share is similar to the computation of
basic earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
Impact of New Accounting Issues - In June 1998, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Statement requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
If certain conditions are met, a derivative may be specifically designated as a
fair value hedge, a cash flow hedge, or a foreign currency hedge. Entities may
reclassify securities from the held-to-maturity category to the
available-for-sale category at the time adopting SFAS No. 133. In June of 1999,
FASB issued SFAS No. 137 "Deferral of the Effective Date of FASB Statement No.
133," which makes SFAS 133 effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and, accordingly, would apply to the Company
beginning on April 1, 2001. The Company plans to adopt the standard at that time
and does not presently intend to reclassify securities between categories. The
Company has not engaged in derivatives and hedging activities covered by the new
standard and does not expect to do so in the foreseeable future. Accordingly,
SFAS No. 133 is not expected to have a material impact on the Company's
financial statements.
Reclassifications - Certain amounts in the 1997 and 1998 consolidated financial
statements have been reclassified to conform to the 1999 presentation.
<PAGE>
2. MUNICIPAL BONDS AND GOVERNMENT AND AGENCY SECURITIES
AVAILABLE FOR SALE
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
=============================================================
(Dollars in Thousands)
December 31, 1998:
<S> <C> <C> <C> <C>
Municipal Bonds................................ $ 2,883 $ 25 $ 8 $ 2,900
United States Government and agency securities. 15,795 129 - 15,924
-------- -------- --------- ---------
Total.......................................... $ 18,678 $ 154 $ 8 $ 18,824
======== ======== ========= =========
Weighted average interest rate................. 6.02%
========
December 31, 1999:
Municipal Bonds................................ $ 2,786 $ - $ 44 $ 2,742
United States Government and agency securities. 26,832 - 515 26,317
-------- -------- --------- ---------
Total.......................................... $ 29,618 $ - $ 559 $ 29,059
======== ======== ========= =========
Weighted average interest rate................. 5.94%
========
</TABLE>
The following table sets forth the contractual maturity of the Bank's securities
available for sale at December 31, 1998 and 1999.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
-----------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
===========================================================
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 12,897 $13,006 $ 2,666 $ 2,665
Due after one year.................................. 5,781 5,818 26,952 26,394
-------- ------- -------- --------
Total.......................................... $ 18,678 $18,824 $ 29,618 $ 29,059
======== ======= ======== ========
</TABLE>
The Bank had total Government and Agency securities available for sale pledged
at December 31, 1998 and 1999 of $ 15.4 million and $ 19.0 million,
respectively. Of the $ 19.0 million of securities pledged at December 31, 1999,
$ 2.0 million was pledged for customer accounts that exceeded $ 100,000, $ 2.0
million was pledged as collateral for Treasury Tax and Loan ("TT&L") accounts
held for the benefit of the federal government, and the remaining $ 15.0 million
was pledged as collateral to secure borrowings from the Federal Reserve Bank for
year 2000 contingency purposes, although no borrowings were drawn by the Bank
for such purposes.
There were no sales of government and agency securities during the years ended
December 31, 1997, 1998 and 1999.
<PAGE>
3. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale at December 31, 1998 and 1999 are
summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
=============== ====== ============== ====== ============= ======= =============
(In Thousands)
December 31, 1998:
<S> <C> <C> <C> <C>
FHLMC-fixed rate................. $ 64,255 $ 378 $ 412 $ 64,221
FNMA-fixed rate.................. 64,115 577 141 64,551
GNMA-fixed rate.................. 20,311 112 29 20,394
FHLMC CMO-fixed rate............. 58,243 29 29 58,243
FHLMC-adjustable rate............ 11,213 151 57 11,307
FNMA-adjustable rate............. 11,485 157 13 11,629
GNMA-adjustable rate............. 996 - 1 995
FNMA CMO-adjustable rate......... 44,867 246 253 44,860
FHLMC CMO-adjustable rate........ 91,630 387 569 91,448
FHLMC CMO-fixed rate............. 21,642 38 65 21,615
--------- --------- -------- ---------
Total......................... $ 388,757 $ 2,075 $ 1,569 $ 389,263
========= ========= ======== =========
December 31, 1999:
FHLMC-fixed rate................. $ 44,540 $ 15 $ 1,252 $ 43,303
FNMA-fixed rate.................. 52,312 8 1,542 50,778
GNMA-fixed rate.................. 14,371 - 486 13,885
FHLMC CMO-fixed rate............. 70,522 - 3,081 67,441
FHLMC-adjustable rate............ 4,147 2 35 4,114
FNMA-adjustable rate............. 4,565 - 105 4,460
GNMA-adjustable rate............. 11,187 - 104 11,083
FNMA CMO-fixed rate.............. 35,083 - 1,261 33,822
FHLMC CMO-adjustable rate........ 69,167 776 340 69,603
FNMA CMO-adjustable rate......... 37,636 319 232 37,723
--------- --------- -------- ---------
Total......................... $ 343,530 $ 1,120 $ 8,438 $ 336,212
========= ========= ======== =========
</TABLE>
There were no sales of mortgage-backed securities classified as available for
sale during 1997. There were $ 26.0 million in sales of mortgage-backed
securities classified as available for sale during the year ended December 31,
1998 resulting in proceeds of $ 27.3 million, gross realized gains of $ 1.2
million and no gross realized losses. There were $ 9.9 million in sales of
mortgage-backed securities classified as available for sale during the year
ended December 31, 1999 resulting in proceeds of $ 10.0 million, gross realized
gains of $ 142,000 and gross realized losses of $ 2,000.
At December 31, 1999 the Bank had $ 108.3 million of mortgage-backed securities
pledged to the State of Florida as collateral for certificates of deposit.
<PAGE>
4. CORPORATE DEBT SECURITIES AVAILABLE FOR SALE
Investment grade, adjustable rate and trust preferred securities of other
financial institutions at December 31, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
=============================================================
(Dollars in Thousands)
December 31, 1998
<S> <C> <C> <C> <C>
Total.......................................... $ 45,653 $ - $ 1,165 $ 44,488
======== ======== ========= =========
Weighted average interest rate................. 6.34%
========
</TABLE>
<TABLE>
<CAPTION>
----------- ---- ----------- --- ------------ --- -----------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
=========== ==== =========== === ============ === ===========
(Dollars in Thousands)
December 31, 1999
<S> <C> <C> <C> <C>
Total.......................................... $ 40,741 $ - $ 1,782 $ 38,959
======== ======== ========= =========
Weighted average interest rate................. 6.83%
========
</TABLE>
All of the corporate debt securities available for sale contractually mature in
the years 2027 or 2028.
During 1997 there were no sales of corporate debt securities.
During 1998 there were $ 9.7 million in sales of corporate debt securities
classified as available for sale resulting in gross proceeds of $ 9.8 million,
gross realized gains of $ 109,000 and no gross realized losses.
During 1999 there were $ 5.0 million in sales of corporate debt securities
classified as available for sale resulting in gross proceeds of $ 5.0 million,
gross realized gains of $ 5,000 and no gross realized losses.
At December 31, 1999, the Bank's entire investment of $ 39.0 million of
corporate debt securities was pledged as collateral for other borrowed funds.
During 1998, the Bank began to diversify its investments in mortgage-backed
securities by purchasing investment grade rated, floating rate trust preferred
securities of other financial institutions. In doing so, the Bank was relying on
regulations which permit an investment of up to 35% of its assets in "commercial
paper and corporate debt securities." In November of 1998, the Office of Thrift
Supervision ("OTS") issued TB-73, which among other matters stated concerns over
institutions' investment in trust preferred securities, citing increased
interest rate risks as a result of the predominant fixed rate nature of such
securities and that some of these securities could have their maturities
extended at the issuer's option. As a result, the OTS adopted limitations on the
investment of such securities to 15% of a regulated institution's equity, but
adopted a method by which an institution could appeal the limitation. At
December 31, 1999, the Bank's investment in trust preferred securities was 2.3%
of its assets and 35.1% of its regulatory capital. The Bank appealed to the OTS
to permit it to continue its investment at current levels. The OTS has approved
the Bank maintaining its current investment in these securities but not to
increase its investment.
<PAGE>
5. LOANS RECEIVABLE
Loans receivable at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
===============================
(In Thousands)
<S> <C> <C>
One-to-four single family, residential real estate mortgages......... $ 828,929 $ 925,384
Commercial and multi-family real estate mortgages.................... 74,671 118,262
Real estate construction-primarily residential....................... 53,515 63,589
Land loans-primarily residential..................................... 8,583 9,763
---------- ----------
Total first mortgage loans........................................... 965,698 1,116,998
Consumer Loans....................................................... 48,270 60,281
Commercial business loans............................................ 46,958 94,157
---------- ----------
Total gross loans.................................................... 1,060,926 1,271,436
Less:
Undisbursed portion of loans in process......................... 84,155 106,232
Unearned discounts, premiums and deferred loan fees (costs), net (3,621) (2,826)
Allowance for loan losses....................................... 3,226 3,609
---------- ----------
Loans receivable-net................................................. $ 977,166 $1,164,421
========== ==========
</TABLE>
The amount of loans on which the Bank has ceased accruing interest or does not
charge interest aggregated approximately $ 3,845,000 and $ 2,743,000, net of
specific valuation allowances of $ 162,000 and $ 101,000, at December 31, 1998
and 1999, respectively. The amount of interest not accrued relating to non
accrual loans was approximately $ 168,000, $ 203,000 and $ 123,000 at December
31, 1997, 1998 and 1999, respectively. Management believes the allowance for
possible loan losses is adequate.
An analysis of the changes in the allowance for loan losses for the years ended
December 31, 1997, 1998 and 1999 is as follows. There were no recoveries during
the years presented.
<TABLE>
<CAPTION>
1997 1998 1999
====================================================
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of period.............................. $ 2,263 $ 3,294 $ 3,226
Increase in allowance due to purchase of BankBoynton........ 1,167 - -
Current provision........................................... 170 77 463
Charge-offs................................................. (306) (145) (80)
----------- ----------- -----------
Ending balance.............................................. $ 3,294 $ 3,226 $ 3,609
=========== =========== ===========
</TABLE>
The Bank originates both adjustable and fixed rate mortgage loans. The Bank had
no loans held for sale at December 31, 1999. Loans held for sale at December 31,
1998 amounted to $ 5.5 million. These loans held for sale are recorded at the
lower of cost or market.
<PAGE>
A loan is considered impaired when, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan agreement. An analysis of the recorded
investment in impaired loans owned by the Bank at December 31, 1997, 1998 and
1999 and the related allowance for those loans is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
======================================================================
(In Thousands)
Loan Related Loan Related Loan Related
Balance Allowance Balance Allowance Balance Allowance
Impaired loan balances and related allowances:
<S> <C> <C> <C> <C> <C> <C>
Loans with related allowance for loan losses..... $ 500 $ 235 $ 324 $ 162 $ 569 $ 101
Loans without related allowance for loan losses.. 2,730 - 3,685 - 3,726 -
----- --------- --------- --------- -------- --------
$ 3,230 $ 235 $ 4,009 $ 162 $ 4,295 $ 101
========= ========= ========= ========= ======== ========
Average balance of impaired loans................ $ 3,301 $ 3,620 $ 4,152
========= ========= ========
</TABLE>
No interest income was recorded on impaired loans during the impairment periods
shown.
The Bank's policy on interest income on impaired loans is to reverse all accrued
interest against interest income if a loan becomes more than 90 days delinquent
and cease accruing interest thereafter. Any interest ultimately collected is
credited to income in the period of recovery.
At December 31, 1999, the composition and maturity or repricing of the loan
portfolio, net of the undisbursed portion of loans in process is presented
below:
<TABLE>
<CAPTION>
..........................Fixed Rate........................ ........................Adjustable Rate..................
Term of Maturity Book Value Term to Rate Adjustment Book Value
(In Thousands) (In Thousands)
<S> <C> <C> <C>
1 year or less $ 6,669 1 year or less $ 387,242
1 year-3 years 21,275 1 year-3 years 92,035
3 years-5 years 26,844 3 years-5 years 64,162
5 years-10 years 64,999 5 years-10 years 63,112
10 years-20 years 199,596 10 years-20 years -
Over 20 years 239,270 Over 20 years -
----------- ----------
Total $ 558,653 Total $ 606,551
=========== ==========
</TABLE>
<PAGE>
Commercial Real Estate Lending - The Bank originates and purchases commercial
real estate loans, which totaled $ 74,671,000 and $ 118,262,000 at December 31,
1998 and 1999, respectively. These loans are considered by management to be of
somewhat greater risk of uncollectibility due to the dependency on income
production or future development of the real estate. Accordingly, Bank
management establishes greater provisions for probable but not yet identified
losses on these loans than on less risky residential mortgage loans. The
composition of commercial real estate loans and its primary collateral at
December 31, 1998 and 1999 are approximately as follows:
<TABLE>
<CAPTION>
1998 1999
===========================
(In Thousands)
<S> <C> <C>
Office buildings............................... $ 8,756 $ 15,477
Retail buildings............................... 8,749 7,898
Warehouses..................................... 10,043 7,338
Multi family................................... 15,653 23,772
Hotels and motels.............................. 404 2,077
Land........................................... 16,261 17,713
Other property improvements.................... 14,805 43,987
----------- ------------
Total.......................................... $ 74,671 $ 118,262
=========== ============
</TABLE>
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a federally chartered savings and loan association's aggregate
commercial real estate loans may not exceed 400% of its capital as determined
under the capital standards provisions of FIRREA. The Bank is federally
chartered and subject to this limitation. FIRREA does not require divestiture of
any loan that was lawful when it was originated. At December 31, 1999, the Bank
estimates that, while complying with this limitation, it could originate an
additional $ 214 million of commercial real estate loans, though the Bank's
current business plan indicates no intentions to do so.
Loans to One Borrower Limitation - The Bank may not make real estate loans to
one borrower in excess of 15% of its unimpaired capital and surplus. This 15%
limitation results in a dollar limitation of approximately $ 16.6 million at
December 31, 1999. At December 31, 1999, the Bank was in compliance with the
loans to one borrower limitation under currently existing regulations.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial position. The unpaid balances of these
loans at December 31, 1998 and 1999 were $ 72.1 million and $ 74.1 million,
respectively. Custodial escrow balances maintained in connection with the
foregoing loan servicing were $ 339,800 and $ 395,600 at December 31, 1998 and
1999, respectively.
The Bank offers loans to its employees, including Directors and Senior
Management at prevailing market interest rates. These loans are made in the
ordinary course of business and on substantially the same terms and collateral
requirements as those of comparable transactions prevailing at the time.
The loans to Directors, Executive Officers, and associates of such persons
amounted to $ 2,525,000 and $ 3,064,000 at December 31, 1998 and 1999,
respectively, which did not exceed 5% of stockholders' equity.
Collateral for Advances from the Federal Home Loan Bank - The terms of a
security agreement with the FHLB include a blanket floating lien that requires
the Bank to maintain qualifying first mortgage loans as pledged collateral in an
amount equal to the advances, when discounted at 75% of the unpaid principal
balances (See Note 10).
<PAGE>
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1998 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1999
==========================
(In Thousands)
<S> <C> <C>
Land..................................................... $ 8,534 $ 9,624
Buildings and improvements............................... 29,386 34,043
Furniture and equipment.................................. 10,963 13,371
--------- ---------
Total.................................................... 48,883 57,038
Less accumulated depreciation............................ 11,175 12,056
--------- ---------
Office properties and equipment - net.................... $ 37,708 $ 44,982
========= =========
</TABLE>
During the year ended December 31, 1999 the Bank sold its downtown West Palm
Beach property with a carrying value of $ 1.6 million, for a sale price, net of
selling cost, of $ 6.7 million resulting in a gain of $ 5.1 million.
7. REAL ESTATE OWNED
Real estate owned at December 31, 1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
1998 1999
============================
(In Thousands)
<S> <C> <C>
Real estate owned........................................ $ 907 $ 775
Valuation allowance...................................... - -
---------- ------------
Real estate owned - net.................................. $ 907 $ 775
========== ============
</TABLE>
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1998 and 1999 consists of the
following:
<TABLE>
<CAPTION>
1998 1999
=================================
(In Thousands)
<S> <C> <C>
Loans.............................................. 4,649 5,444
Investments........................................ 584 804
Mortgage-backed securities......................... 2,316 2,082
----- -----
Accrued interest receivable........................ 7,549 8,330
===== =====
</TABLE>
<PAGE>
9. DEPOSITS
The weighted-average interest rates on deposits at December 31, 1998 and 1999
were 4.42% and 4.30%, respectively. Deposit accounts, by type and range of rates
at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
Account Type and Rate 1998 1999
========================
(In Thousands)
<S> <C> <C>
Non-interest-bearing NOW accounts.......................... $ 57,002 $ 65,203
NOW, Super NOW and funds transfer accounts
Passbook and statement accounts
Variable-rate money market accounts
Total non-certificate accounts............................. 323,825 432,968
-------- --------
Certificates:
1.01% - 2.00%......................................... 1,018 663
2.01% - 3.00%......................................... - -
3.01% - 4.00%......................................... 6 -
4.01% - 5.00%......................................... 125,019 199,817
5.01% - 6.00%......................................... 564,002 573,903
6.01% - 7.00%......................................... 106,719 114,007
7.01% - 8.00%......................................... 157 152
-------- --------
Total certificates......................................... 796,921 888,542
-------- --------
Total...................................................... $1,120,746 $1,321,510
========== ==========
</TABLE>
Individual deposits greater than $ 100,000 at December 31, 1998 and 1999
aggregated approximately $ 237.3 million and $ 255.5 million, respectively.
Interest on deposit accounts, presented in the consolidated statements of
operations, is net of interest forfeited by depositors on early withdrawal of
certificate accounts of approximately $ 128,000, $ 160,000 and $ 133,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
Scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1999
------------------ ----------------
Amount Percent Amount Percent
===============================================================
Maturity (Dollars in Thousands)
<S> <C> <C> <C> <C>
Less than 1 year................. $ 254,281 31.91% $ 698,415 78.60%
1 year-2 years................... 257,954 32.37 115,848 13.04
2 years-3 years.................. 175,171 21.98 52,333 5.89
3 years-4 years.................. 18,207 2.28 15,500 1.74
4 years-5 years.................. 90,120 11.31 5,321 .60
Thereafter....................... 1,188 .15 1,125 .13
---------- ------- ---------- -------
Total............................ $ 796,921 100.00% $ 888,542 100.00%
========== ======= ========== =======
</TABLE>
<PAGE>
Under FIRREA, any insured depository institution that does not meet its
applicable minimum capital requirements may not accept brokered deposits after
December 7, 1992. This prohibition includes renewals and rollovers of existing
brokered deposits and deposit solicitations at higher than prevailing interest
rates paid by institutions in the Bank's normal market area. Even though the
Bank meets all of the applicable minimum capital requirements at December 31,
1999, the Bank had no brokered deposits.
Interest expense on deposits consists of the following during the years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
===========================================
(In Thousands)
<S> <C> <C> <C>
Passbook accounts................ $ 1,892 $ 2,184 $ 1,149
NOW accounts..................... 730 3,194 4,929
Money market accounts............ 901 877 734
Certificate accounts............. 30,333 38,873 44,766
--------- --------- ---------
Total............................ $ 33,856 $ 45,128 $ 51,578
========= ========= =========
</TABLE>
10. ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had outstanding advances from the FHLB of $ 303,140,000 with interest
rates ranging from 4.78% to 8.21% and $ 247,073,000 with interest rates ranging
from 5.01% to 7.37% at December 31, 1998 and 1999, respectively. The advances at
December 31, 1999 are repayable as follows:
Years Ending
December 31, Amount
==================== ==================
(In Thousands)
2000 $ 65,008
2001 3,368
2002 112,500
2003 5,111
2004 11,086
Thereafter 50,000
-------------
Total $ 247,073
11. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY DEBENTURES
On January 21, 1998 the Company issued $ 28.75 million of mandatorily
redeemable, Preferred Securities out of a grantor trust, Fidelity Capital Trust
I, a Delaware statutory trust, which was created by the Company for this sole
purpose. As its only asset, the trust owns $ 28.75 million of Guaranteed
Preferred Beneficial Interests in the Company's Debentures due January 31, 2028,
purchased with the proceeds of the preferred securities issuance. Interest from
the Company's debentures is payable quarterly at a rate of 8.375%, annually. The
interest will be used to fund distributions on the preferred securities. As a
result of the above, the Preferred Securities of the trust are considered fully
and unconditionally guaranteed by the Company.
Distributions on the preferred securities are cumulative and are payable at the
same rate as the Company's debentures described above. The Company's debentures
are redeemable in whole, in the event the Company's mutual holding company
parent converts to stock form beginning January 31, 2000 at 107% of principal
amount and in any event the debentures are redeemable at 100% of principal
amount in whole or in part, commencing
<PAGE>
January 31, 2003. The preferred securities are subject to mandatory redemption,
in whole or in part as applicable, upon the repayment of the debentures. The
proceeds from the securities, to the extent invested in common stock of the
Bank, are considered to be Tier 1 capital for regulatory purposes. Of the net
proceeds of $ 27.3 million from the sale of the preferred securities, the
Company invested $ 25 million in common stock of the Bank. The preferred
securities are traded on the Nasdaq National Market system under the symbol
"FFFLP."
12. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period adjusted for the change during the
period in deferred tax assets and liabilities.
The components of the provisions for income taxes for the years ended December
31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
==========================================
(In Thousands)
<S> <C> <C> <C>
Current - federal................................... $ 4,872 $ 4,902 $ 5,103
Current - state..................................... 701 677 501
-------- ------- -------
Total current....................................... 5,573 5,579 5,604
Deferred - federal and state........................ (820) (737) 62
-------- ------- -------
Total............................................... $ 4,753 $ 4,842 $ 5,666
======== ======= =======
</TABLE>
The Company's provision for income taxes differs from the amounts determined by
applying the statutory federal income tax rate to income before income taxes for
the following reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
-------------------- --------------------- -------------------
Amount % Amount % Amount %
===========================================================================
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate............ $ 3,910 35.0% $ 4,289 35.0% $ 5,173 35.0%
State income taxes, net of federal
Benefit of graduated rates......... (101) (0.9) (92) (0.8) (87) (0.6)
Employee stock ownership plan...... 190 1.7 184 1.5 74 0.5
Other.............................. 379 3.4 111 0.9 175 1.2
--------- ------- --------- ------- --------- -------
Total provision and effective tax $ 4,753 42.5% $ 4,842 39.5% $ 5,666 38.3%
rate ========= ======= ========= ======= ========= =======
</TABLE>
<PAGE>
The tax effect of temporary differences which give rise to deferred tax assets
and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
========= =================
(In Thousands)
Deferred tax liabilities:
<S> <C> <C>
Depreciation........................................................ $ 878 $ 1,007
Loan fee income..................................................... 1,515 1,565
FHLB stock dividends................................................ 1,160 952
Excess of tax bad debt reserve over book reserve.................... 227 -
Deferred state taxes................................................ 62 84
-------- --------
Gross deferred tax liabilities...................................... 3,842 3,608
-------- --------
Deferred tax assets:
Excess of tax bad debt reserve over book reserve.................... - 184
Executive death benefit............................................. 461 430
Amortization........................................................ 368 388
Retirement plan..................................................... 3,131 2,368
Deferred compensation............................................... 939 1,178
Unrealized depreciation in securities............................... 195 3,738
Other............................................................... 191 246
-------- --------
Gross deferred tax assets........................................... 5,285 8,532
Less valuation allowances for deferred tax assets................... - -
-------- --------
Gross deferred tax assets........................................... 5,285 8,532
-------- --------
Net deferred tax liabilities (assets)............................... $ (1,443) $ (4,924)
======== ========
</TABLE>
During 1996, a law was enacted that repealed Section 593 of the Internal Revenue
Code for taxable years beginning after December 31, 1995. Section 593 allowed
thrift institutions, including the Bank, to use the percentage-of-taxable income
bad debt accounting method, if more favorable than the specific charge-off
method, for Federal income tax purposes. The excess reserves (deduction based on
the percentage-of-taxable income less the deduction based on the specific
charge-off method) accumulated post-1987 are required to be recaptured ratably
over a six year period beginning in 1996. The recapture has no effect on the
Company's statement of operations as taxes were provided for in prior years in
accordance with SFAS No. 109, "Accounting for Income Taxes." The timing of this
recapture may be delayed for a one or two year period to the extent that the
Bank originates more residential loans than the average originations in the past
six years. The Bank met the origination requirement for 1996 and 1997 and,
therefore, delayed the recapture until the six year period beginning in 1998.
The recapture amount of $ 3.7 million will result in payments to the IRS
totaling $ 1.4 million which has been previously accrued. The same legislation
forgave the tax liability on pre-1987 accumulated bad debt reserves which would
have penalized any thrift choosing to adopt a bank charter because the tax would
have become due and payable. The unrecorded potential liability that was
forgiven approximated $ 2.9 million.
13. PENSION AND EMPLOYEE BENEFIT PLANS
Pension Plan - The Bank's employees participate in the Bank's qualified defined
benefit pension plan covering substantially all employees. The plan calls for
benefits to be paid to eligible employees at retirement based primarily upon
years of service with the Bank and compensation rates during those years. The
Bank's policy is to fund the qualified retirement plan in an amount that falls
between the minimum contribution required by the Employee Retirement Income
Security Act and the maximum tax deductible contribution. Plan assets consist
primarily of common stock, U.S. Government obligations and certificates of
deposit.
<PAGE>
PENSION AND EMPLOYEE BENEFIT PLANS (continued)
Components of the Bank's Pension Plan are as follows:
<TABLE>
<CAPTION>
1998 1999
=====================================
(In Thousands)
CHANGE IN BENEFIT OBLIGATIONS
<S> <C> <C>
Benefit obligation, beginning of period.................................. $ 7,967 $ 10,140
Service cost............................................................. 552 795
Interest cost............................................................ 582 720
Actuarial loss........................................................... 1,132 564
Benefit paid............................................................. (93) (559)
----------- -----------
Benefit obligation, end of period........................................ $ 10,140 $ 11,660
=========== ===========
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of period........................... $ 7,804 $ 9,672
Actual return on plan assets............................................. 978 590
Employer's contribution.................................................. 983 1,441
Benefits paid............................................................ (93) (559)
----------- -----------
Fair value of plan assets, end of period................................. $ 9,672 $ 11,144
=========== ===========
FUNDED STATUS
Funded status............................................................ $ (468) $ (516)
Unrecognized net actuarial loss.......................................... 737 1,568
Unrecognized prior service cost.......................................... (184) (154)
----------- -----------
Net amount recognized.................................................... $ 85 $ 898
=========== ===========
</TABLE>
Components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1997 1998 1999
==================================
(In Thousands)
<S> <C> <C> <C>
Service cost........................................... $ 498 $ 552 $ 795
Interest cost.......................................... 575 582 720
Return on assets....................................... (1,154) (978) (590)
Amortization of prior service cost..................... (30) (30) (30)
Recognition of net actuarial loss/(gain)............... 681 345 (267)
------ ------ ------
Net periodic benefit cost.............................. $ 570 $ 471 $ 628
====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1998 and 1999, pension expense amounts
were based upon actuarial computations.
The assumptions used in computing the present value of the projected benefit
obligation and the net periodic pension expense are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
=================================
<S> <C> <C> <C>
Discount rate in determining benefit obligation........ 7.25% 6.75% 7.75%
Rate of increase in future compensation levels for
Expected return on plan assets......................... 8.00% 8.00% 9.00%
</TABLE>
The Bank funded $ 405,000, $ 983,000 and $ 1,441,000 as required for the 1997,
1998 and 1999 plan years.
<PAGE>
Savings Plan - Effective January 1, 1988, the Board of Directors approved a
401(k) deferred savings plan for all Bank employees who are 21 years of age with
one or more years of service. The 401(k) deferred savings plan allows qualified
employees to save from 1% to 15% of their income. Presently, one-half of an
employee's contribution is matched by the Bank, up to 3% of the employee's
salary. The Bank's matching percentage will be determined annually by the Board
of Directors after taking into consideration such factors as profit performance
and ability to meet capital requirements. The Bank's contribution to the plan
totaled $ 183,000, $ 210,000 and $ 291,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Retirement Plans - During 1989, the Bank established non-qualified defined
benefit plans for certain officers and directors. The director's plan became
effective on January 1, 1991. For the years ended December 31, 1997, 1998 and
1999, the net periodic pension expense for the Supplemental Executive Retirement
Plan for Officers totaled $ 951,000, $ 1,090,000 and $ 1,104,000, respectively.
The projected benefit obligation as of December 31, 1998 and 1999, was estimated
at $ 6,560,000 and $ 7,113,000, respectively. For 1997, 1998 and 1999,
respectively, the discount rates used to measure the projected benefit
obligation were 7.25%, 6.75% and 7.75%. The rate of increase in future
compensation levels in 1997 was 5.00%, in 1998 was 4.50% and 1999 was 5.50%.
For the years ended December 31, 1997, 1998 and 1999, the net periodic pension
expense for the Retirement Plan for the Directors totaled $ 227,000, $ 171,000
and $ 106,000, respectively. The projected benefit obligation for the Retirement
Plan for Directors as of December 31, 1998 and 1999 was estimated at $ 1,503,000
and $ 1,525,000, respectively. For 1997, 1998 and 1999, the discount rates used
to measure that projected benefit obligation were 7.25%, 6.75% and 7.75%,
respectively. For the years ended December 31, 1997, 1998 and 1999, the rate of
increase in future compensation levels for the Retirement Plan for Directors was
5.00%, 4.50% and 5.50%, respectively. The provisions of SFAS No. 87 require
recognition in the statement of financial position of the additional minimum
liability and related intangible asset for a retirement plan with accumulated
benefits in excess of plan assets. This resulted in the recognition at December
31, 1998 and 1999, of an additional liability and an intangible asset of $
25,000 and $ 0, respectively. There was no material effect on earnings or cash
requirements to fund the retirement plans. These additional liability and
intangible asset amounts as of December 31, 1998 and 1999 are recorded in the
account balances captioned other liabilities and other assets, respectively, in
the accompanying consolidated statements of financial position.
Incentive Program - The Bank also has a Senior Management Performance Incentive
Award Program ("SMPIAP") to provide the opportunity for those executives to be
rewarded in future earnings growth. A designated percentage of income at
December 31 of each year is used to determine the award fund contribution. This
percentage will be determined annually by the Board of Directors after taking
into consideration such factors as profit performance and ability to meet
capital requirements. Awards amounting to $ 229,000, $ 252,000 and $ 310,000,
were made during the years 1997, 1998 and 1999, respectively, for distribution
in subsequent years. The assets of the SMPIAP are held in a Rabbi trust for the
benefit of senior management. The SMPIAP participants may elect to invest their
awards in either Company stock or other third party investment options. Pursuant
to the provisions of Emerging Issues Task Force Issue No. 97-14 ("EITF 97-14")
which became effective during 1998, the assets of the Rabbi trust are included
in the accompanying financial statements and are accounted as follows: (1)
Assets, other than Company stock, (primarily trading securities) are included in
other assets at fair value ($ 885,000 at December 31, 1999) with the
corresponding obligation to the employees of a like amount included in other
liabilities. Changes in the fair value of the assets and changes in the amount
of the liability are included in earnings; and (2) Company stock (148,806 shares
at December 31, 1999) is carried at cost ($ 1.6 million at December 31, 1999)
and included in treasury stock with the corresponding obligation to the
employees (which can only be settled through delivery of the shares) of a like
amount included in additional paid-in capital. Prior to the adoption of EITF
97-14, the assets of the Rabbi trust and the corresponding obligations were
carried at cost and included in other assets and other liabilities,
respectively. The changes in accounting as a result of the adoption of EITF
97-14 had no effect on net income or earnings per share.
<PAGE>
Employee Stock Ownership Plan - On January 7, 1994, in connection with the
Bank's Plan of Reorganization into a Mutual Holding Company, the Bank adopted a
tax qualified Employee Stock Ownership Plan ("ESOP") for all eligible employees.
The ESOP purchased 193,200 shares of the Bank's stock at the date of the
Reorganization. The funds used to purchase the shares were borrowed from a third
party lender. Effective June 30, 1997, the loan was purchased and is now held by
Fidelity Bankshares, Inc. and therefore has been eliminated in consolidation at
December 31, 1998 and 1999. The Bank will contribute to the ESOP sufficient
funds to pay the principal and interest on this loan over seven years. Benefits
generally become 100% vested after five years of credited service. However,
contributions to the ESOP and shares allocated among participants proportional
to repayment of the seven year ESOP loan will be allocated among participants on
the basis of compensation in the year of allocation, subject to regulatory
maximum limitations. The Bank recognized $ 765,000, $ 802,000 and $ 495,000, by
a charge against income in 1997, 1998 and 1999, respectively, under this plan.
14. STOCK OPTION PLAN
The Bank has adopted stock option plans which granted options with an exercise
price equal to the market value of the stock at the date of grant, to Directors
and officers. The Directors may exercise their options at any time up to ten
years, while officer's options are exercisable at a rate of twenty percent per
year, not to exceed ten years. Under these plans the Bank reserved 303,600
shares of authorized but unissued common stock for future issuance. The
following table shows a summary of transactions.
<TABLE>
<CAPTION>
Options Price
--------------------------------------------
Average
Number of Exercise
Options Price Per Aggregate
Outstanding Share Price
=============== ============= ==============
Options Outstanding
<S> <C> <C> <C>
Balance - December 31, 1996........................ 222,533 $ 9.09 $ 2,022,824
--------- ----------- -----------
Granted....................................... - - -
Exercised..................................... (47,101) 9.09 (428,148)
Canceled...................................... (1,595) 9.09 (14,499)
--------- ----------- ------------
Balance - December 31, 1997........................ 173,837 9.09 1,580,177
--------- ----------- ------------
Granted....................................... - - -
Exercised..................................... (21,414) 9.09 (194,653)
Canceled...................................... (440) 9.09 (4,000)
--------- ----------- ------------
Balance - December 31, 1998........................ 151,983 9.09 1,381,524
--------- ----------- ------------
Granted....................................... - - -
Exercised..................................... (32,576) 9.09 (296,116)
Canceled...................................... - - -
--------- ----------- ------------
Balance - December 31, 1999........................ 119,407 $ 9.09 $ 1,085,408
========= =========== ===========
</TABLE>
<PAGE>
15. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the Office of Thrift Supervision ("OTS"). Failure to meet minimum capital
requirements can initiate certain mandatory and possible discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank'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 Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by regulators about components, risk-weighting
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Tangible capital of
not less than 1.5% of adjusted total assets, Total capital to risk-weighted
assets of not less than 8%, Tier I capital of not less than 3.0% of adjusted
total assets, and Tier I capital to risk-weighted assets of 4.0% (as defined in
the regulations). As of December 31, 1999, the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the most recent notification from the OTS categorized
the Bank as "Well Capitalized" under the framework for prompt corrective action.
To be considered well capitalized under Prompt Corrective Action Provisions, the
Bank must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Bank's
categorization.
As reported in the Company's 1998 Annual Report, in November of 1988 the OTS
issued TB-73, which among other matters, stated concerns over institution's
investment in trust preferred securities, citing increased interest rate risks
due to the fixed rate nature of such securities and that some of these
securities could have their maturities extended at the option of the issuer. The
OTS adopted limitations on the investment of such securities to 15% of a
regulated institution's equity, but adopted a method by which an institution
could appeal the limitation. The Bank appealed to the OTS to permit it to
continue its investment at current levels and noted in its appeal that its
investments had floating rates and the issuer did not have the option to extend
the maturities. The OTS has approved the Bank maintaining its current investment
in these securities but not to increase its investment. These securities are
shown on the Company's Consolidated Statements of Financial Position as
Corporate Debt Securities.
<PAGE>
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
------------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
------------------------------------------------------------------------------------
(Dollars in Thousands)
As of December 31, 1998 Stockholders'
<S> <C> <C> <C> <C> <C> <C>
Equity and ratio to total assets 6.8% $106,244
========
Unrealized increase in market value
of assets available for sale (net
of applicable income taxes)..... 318
Goodwill............................. (2,394)
Disallowed servicing assets.......... (53)
--------
Tangible capital and ratio to
adjusted total assets........... 6.7% $104,115 1.5% $ 23,472
======== ========== ====== =========
Tier I (core) capital and ratio to
adjusted total assets........... 6.7% $104,115 3.0% $ 46,943 5.0% $ 78,239
======== ======== ====== ========= ====== =========
Tier I (core) capital and ratio to
risk-weighted total assets...... 12.0% $104,115 4.0% $ 34,814 6.0% $ 52,221
======== ====== ========= ====== =========
Allowable Tier 2 capital:
General loan valuation allowances ... 2,352
Equity investments................... -
--------
Total risk-based capital and ratio to
risk-weighted total assets...... 12.2% $106,467 8.0% $ 69,628 10.0% $ 87,036
======== ======== ===== ========= ====== ========
Total assets......................... $1,566,900
==========
Adjusted total assets................ $1,564,771
==========
Risk-weighted assets................. $870,355
========
As of December 31, 1999 Stockholders'
Equity and ratio to total assets 6.5% $110,972
========
Unrealized decrease in market value of
assets available for sale (net
applicable income taxes).......... 6,098
Goodwill............................. (2,758)
Disallowed servicing assets.......... (52)
--------
Tangible capital and ratio to
adjusted total assets........... 6.6% $114,260 1.5% $ 25,867
======== ========== ====== =========
Tier I (core) capital and ratio to
adjusted total assets........... 6.6% $114,260 3.0% $ 51,734 5.0% $ 86,224
======== ======== ====== ========= ====== =========
Tier I (core) capital and ratio to
risk-weighted total assets...... 11.9% $114,260 4.0% $ 38,397 6.0% $ 57,595
======== ====== ========= ====== =========
Allowable Tier 2 capital:
General loan valuation allowances ... 2,797
Equity investments................... -
--------
Total risk-based capital and ratio to
risk-weighted total assets...... 12.2% $117,057 8.0% $ 76,794 10.0% $ 95,992
======== ======== ====== ========= ====== =========
Total assets......................... $1,717,452
==========
Adjusted total assets................ $1,724,478
==========
Risk-weighted assets................. $959,923
========
</TABLE>
<PAGE>
At periodic intervals, both the OTS and the FDIC routinely examine the Company's
and the Bank's financial statements as part of their legally proscribed
oversight of the savings and loan industry. Based on these examinations, the
regulators can direct that the financial statements be adjusted in accordance
with their findings.
During the year ended December 31, 1999, an OTS examination resulted in no
significant adjustments to the consolidated financial statements.
16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes commitments to extend credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. The interest
rates on both fixed and variable rate mortgage loans are generally based on the
market rates in effect on the date the loan application is taken. Commitments
generally have fixed expiration dates of no longer than 60 days and other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained by the Bank upon extension of credit is based on
management's credit evaluation of the customer. Collateral held varies but may
include single-family homes, marketable securities and income-producing
residential and commercial properties. Credit losses may occur when one of the
parties fails to perform in accordance with the terms of the contract. The
Bank's exposure to credit risk is represented by the contractual amount of the
commitments to extend credit. At December 31, 1999, the Bank had commitments to
extend credit for or purchase loans of $ 73.0 million ($ 8.0 million in fixed
rate commitments and the balance of commitments in either variable rate or for
which rates had not yet been set). The Bank also has a pre-approval program
which commits dollar amounts to potential loan customers based on their credit
history. This program, however, does not commit to locked in rates. No fees are
received in connection with such commitments.
<PAGE>
The Bank leases various property for original periods ranging from one to
fifty-one years. Rent expense for the years ended December 31, 1997, 1998 and
1999, was approximately $ 638,000, $ 658,000 and $ 830,000, respectively. At
December 31, 1999, future minimum lease payments under these operating leases
are as follows:
Years Ending December 31, Amount
- -------------------------------------------------------------------------
(In Thousands)
2000 $ 1,126
2001 939
2002 911
2003 939
2004 555
Thereafter 2,284
-----------
Total $ 6,754
===========
The Bank has entered into a three year employment agreement with its Chief
Executive Officer. This agreement, among other matters, would provide for
severance payments of up to three years salary in the event of termination for
reasons other than cause. In addition, the Bank has entered into severance
agreements with four of its executive officers. The severance agreements would
provide for payments of up to three years salary for these executives, but only
in the event of change of control of the Bank.
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1997 1998 1999
============================================
(In Thousands)
Supplemental Disclosure of Cash Flow Information:
<S> <C> <C> <C>
Cash paid for income taxes................................. $ 5,016 $ 5,916 $ 3,508
======== ======== ========
Cash paid for interest on deposits and other borrowings.... $ 41,782 $ 63,196 $ 72,686
======== ======== ========
Supplemental Schedule of Noncash Investing and Financing
Real estate acquired in settlement of loans................ $ 2,403 $ 1,542 $ 1,678
======== ======== ========
</TABLE>
18. EARNINGS PER SHARE
The weighted-average number of shares used to calculate basic and diluted
earnings per share, including the adjustments for the Bank's ESOP and stock
options for the years ended December 31, 1997, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
For the Year Ended December For the Year Ended December For the Year Ended December
31, 1997 31, 1998 31, 1999
---------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(1) (2) Amount (1) (2) Amount (1) (2) Amount
==============================================================================================
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income................. $6,418,000 $7,412,000 $9,114,000
Basic EPS:
Income available to
common stockholders... $6,418,000 6,661,401 $ 0.96 $7,412,000 6,644,096 $ 1.12 $9,114,000 6,435,357 $ 1.42
========== ========= ============
Effect of diluted shares:
Common stock options.. 104,760 91,881 56,451
--------- --------- ---------
Diluted EPS:
Income available to
common stockholders... $6,418,000 6,766,161 $ 0.95 $7,412,000 6,735,977 $ 1.10 $9,114,000 6,491,808 $ 1.40
========== ========= ===================== ========= =============================== ============
</TABLE>
(1) Numerator
(2) Denominator
<PAGE>
Weighted average shares outstanding for the year ended December 31, 1999 were
reduced for treasury shares held by the Bank's SMPIAP and increased for the
corresponding liability for settlement to the Bank's employees. (See Note 13).
19. OTHER COMPREHENSIVE INCOME
An analysis of the changes in Accumulated Other Comprehensive Income for the
years ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1998 1999
------------------------------------------------------
Unrealized
Gains (Losses)
on Securities
======================================================
(In Thousands)
<S> <C> <C> <C>
Beginning Balance................................... $ 782 $ 1,405 $ (318)
Current-period change............................... 623 (1,723) (5,780)
--------- --------- ---------
Ending balance...................................... $ 1,405 $ (318) $ (6,098)
========= ========= =========
</TABLE>
An analysis of the related tax effects allocated to Other Comprehensive Income
is as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 December 31, 1999
------------------------------- -------------------------------- -------------------------------
Tax Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
======================================================================================================
(In Thousands)
Unrealized gain (loss) on
assets available for sale:
Unrealized holding gains
(losses) arising during
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
period...................... $ 1,055 $ (432) $ 623 $(1,539) $ 629 $ (910) $(9,176) $ 3,487 $(5,689)
Less: reclassification
adjustment for gains
realized in net income...... - - - (1,355) 542 (813) (147) 56 (91)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive income.... $ 1,055 $ (432) $ 623 $(2,894) $ 1,171 $(1,723) $(9,323) $ 3,543 $(5,780)
======= ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
20. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments - The fair value of the Bank's financial
instruments at December 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
---------------------------- --- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
=========== ==== =========== === ============ === ===========
(In Thousands)
Assets:
<S> <C> <C> <C> <C>
Cash and amounts due from depository institutions. $ 27,951 $ 27,951 $ 41,736 $ 41,736
Interest-bearing deposits......................... 32,075 32,075 19,065 19,065
Assets available for sale......................... 452,575 452,575 404,230 404,230
Loans receivable (net)............................ 977,166 1,152,248 1,164,421 1,128,620
Liabilities:
Deposits.......................................... 1,120,746 1,130,266 1,321,510 1,315,118
Other borrowed funds.............................. 6,981 6,977 14,656 14,647
Advances from the Federal Home Loan Bank.......... 303,140 306,989 247,073 243,315
Guaranteed Preferred Beneficial Interests
in Company's Debentures........................ 28,750 31,268 28,750 26,995
</TABLE>
<PAGE>
The following methods and assumptions were used to estimate fair value of each
major class of financial instrument at December 31, 1998 and 1999.
Cash and Amounts due from Depository Institutions and Interest-Bearing Deposits
- - The carrying amount of these assets is a reasonable estimate of their fair
value.
Assets Available for Sale - The fair value of these securities are based on
quoted market prices.
Loans Receivable - The fair value of loans is estimated by discounting the
future cash flows of the loans using the current rates at which similar loans
would be made to borrowers with similar credit rating for the same remaining
maturities.
Deposits - The fair value of demand deposits, savings accounts and money market
accounts are equal to the amount payable on demand at the reporting date. The
fair values of fixed maturity certificate accounts are estimated by discounting
the future cash flows of the certificates using the current rates for advances
from the Federal Home Loan Bank with similar maturities.
Other Borrowed Funds - Fair value is estimated using rates currently offered for
advances from the Federal Home Loan Bank with similar maturities.
Advances from the Federal Home Loan Bank - The fair value of these advances is
estimated by discounting the future cash flows of these advances using the
current rates at which similar term advances could be obtained.
Guaranteed Preferred Beneficial Interests in Company's Debentures - The fair
value is estimated by discounting the future cash flows of these debentures
using the yield for 30 year Treasury Bond plus 250 basis points.
Commitments to Extend Credit and Standby Letters of Credit - The fair value of
these commitments is insignificant.
Although management uses its best judgment in estimating the fair value of these
financial instruments, there are inherent limitations in any estimation
technique. Therefore, the fair value estimates presented herein are not
necessarily indicative of the amounts which the Bank could realize in a current
transaction.
<PAGE>
21. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial position as of December 31,
1998, and 1999 and the condensed statement of operations and statement of cash
flows for the three years then ended should be read in conjunction with the
consolidated financial statements and related notes. Since the organization of
the parent company was accounted for in a manner similar to a pooling of
interests, these statements have been presented as if the parent company was in
existence for all periods covered by the consolidated financial statements.
December 31,
---------------------
1998 1999
=====================
(In Thousands)
STATEMENT OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents.................... $ 6,122 $ 141
ESOP loan receivable......................... 509 276
Investment in and advances to Bank........... 106,482 110,972
Other assets................................. 1,437 1,884
--------- -----------
Total assets $ 114,55$ 113,273
=====================
Liabilities..................................... $ 29,551$ 29,969
Stockholders' equity............................ 84,999 83,304
---------------------
Total liabilities and stockholders' equity...... $ 114,55$ 113,273
=====================
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1997 1998 1999
=================================================================
(In Thousands)
STATEMENT OF OPERATIONS
Income:
<S> <C> <C> <C>
Income........................................... $ 42 $ 173 $ 85
Expenses......................................... 541 2,753 2,896
----------- ----------- -----------
Loss before income taxes and equity in earnings of (499) (2,580) (2,811)
Income tax benefit............................... 204 983 1,068
----------- ----------- -----------
Loss before equity in earnings of Bank........... (295) (1,597) (1,743)
Equity in earnings of Bank....................... 6,713 9,009 10,857
----------- ----------- -----------
Net income....................................... $ 6,418 $ 7,412 $ 9,114
=========== =========== ===========
STATEMENT OF CASH FLOWS
Cash flow from (for) operating activities:
Net income.......................................... $ 6,418 $ 7,412 $ 9,114
Adjustments to reconcile net income to
net cash used for operating activities
Equity in earnings of Bank.................... (6,713) (9,009) (10,857)
Other............................................... (148) 1,024 301
----------- ----------- -----------
Net cash used for operating activities.............. (443) (573) (1,442)
----------- ----------- -----------
Cash flow from (for) investing activities:
Dividends received from Bank........................ 3,554 11,600 350
Purchase of ESOP loan............................... (966) - -
Principal payments on ESOP loan..................... 138 319 233
Investment in subsidiary............................ - (25,000) -
Other............................................... 386 1,077 283
----------- ----------- -----------
Net cash from (used for) investing activities....... 3,112 (12,004) 866
----------- ----------- -----------
Cash flow from (for) financing activities:
Proceeds from the sale of stock..................... 308 79 274
Purchase of treasury stock.......................... - (5,752) (1,906)
Sale of Guaranteed Preferred Beneficial
Cash dividends paid................................. (2,566) (3,316) (3,773)
----------- ----------- -----------
Net cash (used for) from financing activities....... (2,258) 18,288 (5,405)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 411 5,711 (5,981)
Cash and cash equivalents, Beginning of year........ - 411 6,122
----------- ----------- -----------
Cash and cash equivalents, End of year.............. $ 411 $ 6,122 $ 141
=========== =========== ===========
</TABLE>
<PAGE>
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
==============================================================
(In Thousands)
Year ended December 31, 1998:
<S> <C> <C> <C> <C>
Interest income............................... $ 22,820 $ 24,461 $ 25,502 $ 25,537
Interest expense.............................. 14,280 16,110 17,055 17,547
--------- -------- --------- --------
Net interest income....................... 8,540 8,351 8,447 7,990
--------- -------- --------- --------
Provision for loan losses..................... (69) 20 6 120
Non-interest income........................... 1,914 2,287 2,426 2,063
Non-interest expenses......................... 7,013 7,333 7,369 7,972
Income taxes.................................. 1,417 1,292 1,358 775
--------- -------- --------- --------
Net Income................................ $ 2,093 $ 1,993 $ 2,140 $ 1,186
========= ======== ========= ========
First Second Third Fourth
Quarter Quarter Quarter Quarter
===============================================================
(In Thousands)
Year ended December 31, 1999:
Interest income............................... $ 26,054 $ 26,970 $ 28,622 $ 29,279
Interest expense.............................. 17,426 17,597 18,515 18,717
--------- -------- --------- --------
Net interest income....................... 8,628 9,373 10,107 10,562
--------- -------- --------- --------
Provision for loan losses..................... 34 73 161 195
Non-interest income........................... 1,811 1,900 1,912 7,304
Non-interest expenses......................... 8,418 8,706 9,199 10,031
Income taxes.................................. 770 957 1,019 2,920
--------- -------- --------- --------
Net Income................................ $ 1,217 $ 1,537 $ 1,640 $ 4,720
========= ======== ========= ========
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
- ---------------------------------------------------------------
The exhibits and financial statement schedules filed as a part of this
Form 10-K/A are as follows:
(a)(1) Financial Statements
--------------------
o Independent Auditors' Report
o Consolidated Statements of Financial Condition,
December 31, 1998 and 1999
o Consolidated Statements of Operations,
Years Ended December 31, 1997, 1998 and 1999
o Consolidated Statements of Changes in Stockholders' equity,
Years Ended December 31, 1997, 1998 and 1999
o Consolidated Statements of Cash Flows,
Years Ended December 31, 1997, 1998 and 1999
o Notes to Consolidated Financial Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 BANKSHARES, INC.
Date: April 4, 2000 By: /s/Vince A. Elhilow
-------------------
Vince A. Elhilow
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/Vince A. Elhilow By: /s/Richard D. Aldred
-------------------------------- ------------------------------------
Vince A. Elhilow, President Richard D. Aldred, Executive
and Chief Executive Officer Vice President, Chief Financial
(Principal Executive Officer) Officer and Treasurer
(Principal Financial and
Accounting Officer)
Date: April 4, 2000 Date: April 4, 2000
By: /s/Joseph B. Shearouse, Jr. By: /s/Keith D. Beaty
-------------------------------- ------------------------------------
Joseph B. Shearouse, Jr., Keith D. Beaty, Director
Chairman of the Board
Date: April 4, 2000 Date: April 4, 2000
By: /s/F. Ted Brown, Jr. By: /s/Donald E. Warren
-------------------------------- ------------------------------------
F. Ted Brown, Jr., Director Donald E. Warren, Director
Date: April 4, 2000 Date: April 4, 2000
