U.S. Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________________ to ____________________
Commission file number 0-22288
Fidelity Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1705405
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1009 Perry Highway, Pittsburgh, Pennsylvania 15237
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
412-367-3300
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,369,511 shares, par value $0.01, at
June 30, 1996
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Index
Part I - Financial
Information
Page
Item 1. Financial Statements
Statements of Financial Condition as of September 30, 1995
and June 30, 1996 (Unaudited)
Statements of Income (Unaudited) for the Three and Nine Month Periods
Ended June 30, 1995 and 1996
Statements of Cash Flows (Unaudited) for the Nine months Ended
June 30, 1995 and 1996
Statement of Changes in Stockholders' Equity (Unaudited) for the Nine
Months Ended June 30, 1995 and 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
Part I - Financial Information
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Financial Condition
<TABLE>
<CAPTION>
Assets September 30, 1995 June 30, 1996
------ ------------------ -------------
(Unaudited)
<S> <C> <C>
Cash and amounts due from
depository institutions ...................................................... $ 4,689,505 $ 4,832,669
Interest-earning demand deposits with
other institutions: ........................................................... 353,975 5,036,957
Investment securities .......................................................... 15,275,697 5,565,834
Investment securities available-for-sale ....................................... 29,141,311 50,385,297
Loans receivable, net .......................................................... 120,903,690 144,460,520
Mortgage-backed securities, net ................................................ 92,324,135 32,104,711
Mortgage-backed securities available-for-sale .................................. 9,187,379 63,893,401
Loans held-for-sale ............................................................ -0- -0-
Real estate owned, net ......................................................... 1,061,550 400,000
Federal Home Loan Bank stock - at cost ........................................ 1,752,200 2,577,500
Accrued interest receivable, net:
Loans ...................................................................... 705,778 827,243
Mortgage-backed securities ................................................. 588,276 598,686
Investments ................................................................ 608,413 950,011
Office premises and equipment, net ............................................. 3,480,907 3,334,025
Deferred tax asset ............................................................. 765,800 1,624,132
Goodwill and other intangible assets ........................................... 308,104 110,037
Prepaid income taxes ........................................................... 66,640 66,641
Prepaid expenses and sundry assets ............................................. 596,860 547,162
------------- -------------
Total Assets ..................................................... $ 281,810,220 $ 317,314,826
============= =============
Liabilities and Net Worth
Liabilities:
Savings deposits ........................................................... $ 244,082,596 $ 240,026,101
Federal Home Loan Bank advances ............................................ 8,550,000 51,550,000
Reverse repurchase agreements .............................................. 4,541,951 336,235
Advance deposits by borrowers for
taxes and insurance ...................................................... 1,198,166 2,693,498
Accrued interest on savings and
other deposits ........................................................... 258,196 127,686
Accrued income taxes payable ............................................... -0- -0-
Other accrued expenses and sundry liabilities .............................. 1,046,985 1,037,519
------------- -------------
Total Liabilities .................................................. 259,677,894 295,771,039
============= =============
<PAGE>
Part I - Financial Information
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Financial Condition (continued)
<CAPTION>
September 30, 1995 June 30, 1996
------------------ -------------
(Unaudited)
<S> <C> <C>
Stockholders' equity (Notes 4 & 5):
Common Stock, $0.01 par value per share;
10,000,000 shares authorized; 1,235,734
and 1,369,511 shares issued and outstanding,
repectively .............................................................. 12,357 13,695
Additional paid-in capital ................................................. 8,138,525 10,393,555
Retained earnings - substantially restricted ............................... 13,788,652 12,868,495
Unrealized gain (loss) on securities available-for-sale ........................ 192,792 (1,731,958)
------------- -------------
Total stockholders' equity ..................................................... 22,132,326 21,543,787
------------- -------------
Total Liabilities and Stockholders' Equity ..................................... $ 281,810,220 $ 317,314,826
============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Loans .................................................... $ 2,545,290 $ 2,978,424 $ 7,249,007 $ 8,307,061
Mortgage-backed securities ............................... 1,694,228 1,561,996 5,107,652 4,617,686
Investment securities .................................... 648,535 862,130 1,752,028 2,449,645
Deposits with other institutions ......................... 36,902 3,687 53,805 20,022
------------ ------------ ------------ ------------
Total interest income ................................ 4,924,955 5,406,237 14,162,492 15,394,414
------------ ------------ ------------ ------------
Interest Expense:
Savings deposits ......................................... 2,673,333 2,442,092 7,190,478 7,682,382
Borrowed funds ........................................... 263,604 534,780 964,731 1,056,679
------------ ------------ ------------ ------------
Total interest expense ............................... 2,936,937 2,976,872 8,155,209 8,739,061
------------ ------------ ------------ ------------
Net interest income before provision for loan losses .......... 1,988,018 2,429,365 6,007,283 6,655,353
Provision for loan losses ..................................... 60,000 90,000 220,000 180,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses ........... 1,928,018 2,339,365 5,787,283 6,475,353
------------ ------------ ------------ ------------
Other income:
Service fee income ....................................... 18,374 34,221 56,821 69,729
Gain (loss) on sale of investment securities &
mortgage-backed securities, net ...................... 8,196 9,617 (56,876) 26,620
Gain on sale of loans .................................... 3,170 3,360 11,012 8,912
Other operating income ................................... 133,825 161,226 434,530 453,034
------------ ------------ ------------ ------------
Total other income ................................... 163,565 208,424 445,487 558,295
------------ ------------ ------------ ------------
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
(continued)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating expenses:
Compensation, payroll taxes and fringe benefits .......... 764,796 813,916 2,307,359 2,403,590
Occupancy and equipment expense .......................... 139,163 139,552 401,266 418,049
Depreciation and amortization ............................ 99,165 110,190 319,706 332,221
Federal insurance premiums ............................... 129,611 140,343 392,474 420,292
Loss on real estate owned, net ........................... -- 39,539 -- 40,936
Amortization of intangibles .............................. 66,022 66,022 198,067 198,067
Other operating expenses ................................. 315,881 357,782 917,511 1,021,200
------------ ------------ ------------ ------------
Total operating expenses ............................. 1,514,638 1,667,344 4,536,383 4,834,355
------------ ------------ ------------ ------------
Income before income tax provision ............................ 576,945 880,445 1,696,387 2,199,293
Income tax provision .......................................... 170,000 263,000 543,000 646,000
------------ ------------ ------------ ------------
Net Income ........................................... $ 406,945 $ 617,445 $ 1,153,387 $ 1,553,293
============ ============ ============ ============
Primary earnings per common share
(Notes 3 & 5) ............................................ $ 0.29 $ 0.44 $ .83 $ 1.11
============ ============ ============ ============
Dividends per common share .................................... $ 0.08 $ 0.08 $ 0.23 $ 0.24
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Operating Activities:
Net income: .................................................................... $ 1,553,293 $ 1,153,387
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses ...................................................... 180,000 220,000
Depreciation and amortization .................................................. 332,221 319,706
Deferred loan fee amortization ................................................. (221,021) (35,629)
Amortization of investment and mortgage-
backed securities discounts/premiums, net .................................... 234,052 345,158
Amortization of intangibles .................................................... 198,067 198,067
Net (gain) loss on sale of investment securities ............................... (10,344) 128,256
Net (gain) loss on sale of mortgage-backed securities .......................... (16,276) (71,380)
Net (gain) loss on sale of loans ............................................... (8,912) (11,012)
Origination of loans held-for-sale ............................................. (134,400) (331,200)
Proceeds from sale of loans held-for-sale ...................................... 143,312 330,311
(Increase) decrease in interest receivable ..................................... (473,473) (167,786)
(Increase) decrease in deferred tax asset ...................................... (858,332) (244,480)
Increase (decrease) in accrued income taxes .................................... (1) (18,650)
Increase (decrease) in interest payable ........................................ (130,510) (191,296)
Other changes - net ............................................................ 774,426 1,209
------------ ------------
Net cash provided (used) by operating activities ............................... 1,562,102 1,624,661
------------ ------------
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
(continued)
<CAPTION>
Nine Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Investing Activities:
Proceeds from sales of investment securities
available-for-sale ......................................................... 5,555,628 18,208,800
Proceeds from sales of mortgage-backed securities
available-for-sale ........................................................ 4,128,581 6,207,690
Proceeds from maturities and principal repayments
of investment securities available-for-sale ................................ 5,000,000 4,200,000
Proceeds from maturities and principal repayments
of mortgage-backed securities available-for-sale ........................... 5,200,000 2,050,688
Purchases of investment securities available-for-sale .......................... (24,504,255) (27,931,434)
Purchases of mortgage-backed securities available-for-sale ..................... (12,289,521) (7,079,103)
Proceeds from maturities and principal repayments of
investment securities ...................................................... 1,483,769 2,834,973
Purchases of investment securities ............................................. -- (196,142)
Purchases of mortgage-backed securities ........................................ (33,165) (847,445)
Proceeds from sales of mortgage-backed securities .............................. 1,376,497 --
Proceeds from mortgage-backed securities
principal repayments ........................................................ 5,121,233 6,983,949
Net (increase) decrease in other interest-earning deposits with
other institutions .......................................................... -- 297,000
Principal repayments on first mortgage loans ................................... 11,159,662 9,595,906
Principal repayments on other loans ............................................ 12,573,125 7,605,517
First mortgage loans originated and disbursed .................................. (24,323,379) (11,427,829)
Proceeds from sale of other loans .............................................. 521,127 1,223,566
Other loans originated ......................................................... (23,535,958) (15,780,243)
Additions to office premises and equipment ..................................... (185,339) (557,140)
------------ ------------
Net cash provided (used) by investing activities ............................... (32,751,995) (4,611,247)
------------ ------------
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
(continued)
<CAPTION>
Nine Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in savings deposits .................................... (4,056,495) 17,226,252
Increase in advance payments by borrowers for taxes
and insurance ................................................................ 1,495,332 1,488,247
Increase (decrease) in reverse repurchase agreements ........................... (4,205,716) (571,883)
FHLB advance repayments ........................................................ (881,975,000) (30,150,000)
FHLB advances .................................................................. 924,975,000 16,050,000
Cash dividends paid ............................................................ (300,090) (283,412)
Stock options exercised ........................................................ 42,611 32,310
Proceeds from sale of stock .................................................... 40,397 41,115
------------ ------------
Net cash provided (used) by financing activities ............................... 36,016,039 3,832,629
-------------- ----------
Increase (decrease) in cash and cash equivalents ............................... 4,826,146 846,043
Cash and cash equivalents at beginning of period ............................... 5,043,480 4,120,355
------------- ------------
Cash and cash equivalents at end of period ..................................... $ 9,869,626 $ 4,966,398
============= ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and other borrowings .................................... $ 8,825,394 $ 7,966,325
Income Taxes ................................................................. 650,000 888,488
Transfer of investment and mortgage-backed securities
from investment to available-for-sale ........................................ $ 61,864,252 $ 21,481,176
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY -
Statement of Changes in Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------------ ------------ ------------
<S> <C> <C> <C>
Balance at September 30, 1994 ................................. $ 12,266 $ 8,050,958 $ 12,655,533
Net income ................................................ 1,153,387
Cash dividends paid at $.23
per share ........................................... (283,412)
Effect of change in accounting
for certain debt and equity
securities at date of adoption,
net of deferred taxes (Note 4)
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes
Employee stock ownership plan
debt repayment
Sale of Stock ............................................ 28 41,087
Stock options exercised .................................. 55 32,255
------------ ------------ ------------
Balance at June 30, 1995 ...................................... $ 12,349 $ 8,124,300 $ 13,525,508
============ ============ ============
Balance at September 30, 1995 ................................. $ 12,357 $ 8,138,525 $ 13,788,652
Net income ............................................... 1,553,293
Cash dividends paid at $.08
per share ........................................... (297,682)
10% Stock Dividend on Common
Stock ............................................... 1,242 2,172,118 (2,173,360)
Cash paid on stock dividend in lieu
of fractional shares ................................. (2,408)
Effect of change in accounting
for certain debt and equity
securities at date of adoption,
net of deferred taxes (Note 4) ......................
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes ..............................
Sale of stock ............................................ 24 40,373
Stock options exercised .................................. 72 42,539
------------ ------------ ------------
Balance at June 30, 1996 ...................................... $ 13,695 $ 10,393,555 $ 12,868,495
============ ============ ============
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY -
Statement of Changes in Stockholders' Equity (Unaudited)
(continued)
Unrealised Gain Employee Stock
(Loss) on Securities Ownership
Available-for-Sale Plan Debt Total
-------------------- -------------- ------------
<S> <C> <C> <C>
Balance at September 30, 1994 ............................ $ (54,137) ($ 18,627) $ 20,645,993
Net income ........................................... 1,153,387
Cash dividends paid at $.23
per share ...................................... (283,412)
Effect of change in accounting
for certain debt and equity
securities at date of adoption,
net of deferred taxes (Note 4) ................. (208,000) (208,000)
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes ......................... 402,598 402,598
Employee stock ownership plan
debt repayment ................................. 18,627 18,627
Sale of Stock ....................................... 41,115
Stock options exercised ............................. 32,310
------------ ------------ ------------
Balance at June 30, 1995 ................................. $ 140,461 $ -0- $ 21,802,618
============ ============ ============
Balance at September 30, 1995 ............................ $ 192,792 $ -0- $ 22,132,326
Net income .......................................... 1,553,293
Cash dividends paid at $.08
per share ...................................... (297,682)
10% Stock Dividend on Common
Stock .......................................... -0-
Cash paid on stock dividend in lieu
of fractional shares ............................ (2,408)
Effect of change in accounting
for certain debt and equity
securities at date of adoption,
net of deferred taxes (Note 4) ................. (539,414) (539,414)
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes ......................... (1,385,336) (1,385,336)
Sale of stock ....................................... 40,397
Stock options exercised ............................. 42,611
------------ ------------ ------------
Balance at June 30, 1996 ................................. $ (1,731,958) $ -0- $ 21,543,787
============ ============ ============
</TABLE>
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
September 30, 1995 and June 30, 1996
(1) Consolidation
The consolidated financial statements include the accounts of Fidelity Bancorp,
Inc. (the Company) and its wholly-owned subsidiary Fidelity Savings Bank (the
Bank). Intercompany transactions have been eliminated in consolidation.
(2) Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not include all the
information or footnotes necessary for a complete presentation of financial
condition, results of operations, changes in shareholders' equity, and changes
in cash flow in conformity with generally accepted accounting principles.
However, all adjustments, consisting only of normal recurring adjustments which,
in the opinion of management, are necessary for a fair presentation have been
included. The results of operations for the three and nine month periods ended
June 30, 1996 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
Cash and cash equivalents include cash and amounts due from depository
institutions, fed funds sold and the demand deposits portion of interest-earning
deposits with other institutions.
(3) Earnings Per Share
Earnings per share for the three and nine months ended June 30, 1995 and 1996
are calculated by dividing net income by the weighted average number of common
shares outstanding. Outstanding shares also include common stock equivalents
which consist of certain outstanding stock options. The average number of shares
outstanding (including common stock equivalents) for the three month period
ended June 30, 1995 and 1996 were 1,391,498 and 1,409,501 respectively. The
average number of shares outstanding (including common stock equivalents) for
the nine month periods ended June 30, 1995 and 1996 were 1,391,498 and
1,404,054, respectively. The average number of shares for fiscal 1995 and 1996
have been restated to reflect the 10% stock dividend discussed in Note 5.
(4) In May 1993, the Financial Accounting Standards Board (FASB) issued FAS No.
115, "Accounting for Certain Investments in Debt and Equity securities." FAS No.
115 requires that investment securities be classified into three categories: (1)
Securities Held to Maturity -- reported at amortized cost, (2) Trading
Securities -- reported at fair value, and (3) Securities Available for Sale --
reported at fair value. Unrealized holding gains and losses for trading
securities will be included in earnings while unrealized holding gains and
losses for securities available for sale are reported as a separate component of
equity. FAS No. 115 is effective for fiscal years beginning after December 15,
1993, and initial adoption is required to be reflected prospectively. The Bank
adopted FAS No. 115 as of October 1, 1994. At that date approximately $21.5
million of investment securities and mortgage-backed securities were
reclassified as available-for-sale.
<PAGE>
On November 15, 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (Guide). The Guide provided a one-time opportunity for
companies to reassess the classification of securities under FAS No. 115. The
one-time reclassification could be made without calling into question the
propriety of a company's stated intent in prior or subsequent periods. The
reclassification had to occur between November 15, 1995 and December 31, 1995.
As a result of the above, approximately $61.9 million of investment and
mortgage-backed securities were transferred to available-for-sale in December
1995.
(5) On April 16, 1996, the Board of Directors declared a 10% stock dividend
payable on May 31, 1996 to stockholders of record on May 15, 1996. All per share
amounts have been restated to reflect this stock dividend.
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 1995 and June 30, 1996
Total assets of the Bank increased $35.5 million or 12.6% to $317.3 million at
June 30, 1996 from $281.8 million at September 30, 1995. Significant changes in
individual categories were increases in loans receivable of $23.6 million,
investment securities available-for-sale of $21.2 million, and mortgage-backed
securities available-for-sale of $54.7 million, and decreases in investment
securities of $9.7 million and mortgage-backed securities of $60.2 million. On
November 15, 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities" (the Guide). The Guide provided a
one-time opportunity, from November 15, 1995 to December 31, 1995, to reassess
the classification of securities under Statement 115. As a result, approximately
$61.9 million of investment securities and mortgage-backed securities were
reclassified as available-for-sale.
Total liabilities of the Bank increased by $36.1 million or 13.9% to $295.8
million at June 30, 1996 from $259.7 million at September 30, 1995. The increase
reflects a $43.0 million increase in Federal Home Loan Bank advances outstanding
and a $1.5 million increase in advance deposits by borrowers for taxes and
insurance, partially offset by a $4.2 million decrease in reverse repurchase
agreements and a $4.1 million decrease in savings deposits.
Stockholders' equity decreased $589,000 or 2.7% to $21.5 million at June 30,
1996, compared to September 30, 1995. The net decrease reflects net income for
the nine month period ended June 30, 1996 of $1.6 million, proceeds from stock
options exercised of $43,000, and proceeds from the Dividend Reinvestment Plan
of $40,000, offset by an increase in unrealized holding losses on securities
available-for-sale of $1.9 million and common stock cash dividends paid of
$300,000.
<PAGE>
Non-Performing Assets
The following table sets forth information regarding non-accrual loans and real
estate owned by the Bank at the dates indicated. The Bank did not have any
accruing loans which were 90 days or more overdue or any loans which were
classified as troubled debt restructuring during the periods presented.
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1996
------------------ -------------
<S> <C> <C>
Non-accrual residential real
estate loans (one-to-four-family) ............................................ $ 227,000 $ 484,000
Non-accrual construction, multi-family
residential and commercial real estate loans ................................. -- 367,000
Non-accrual installment and
commercial business loans .................................................... 85,000 101,000
---------- ----------
Total non-performing loans ..................................................... $ 312,000 $ 952,000
========== ==========
Total non-performing loans as
a percent of net loans receivable ............................................ .26% .66%
========== ==========
Total real estate owned and in-substance
foreclosures, net of related reserves ........................................ $1,062,000 $ 400,000
========== ==========
Total non-performing loans and real estate
owned as a percent of total assets ........................................... .49% .43%
========== ==========
</TABLE>
Included in non-performing loans at June 30, 1996 are 12 single-family
residential real estate loans totaling $484,000, two construction loans totaling
$367,000, two commercial business loans totaling $20,000, and 25 installment and
credit card loans totaling $81,000. Of the 12 non-performing single-family
residential real estate loans, the largest amounted to $176,000 and the
remaining loans averaged approximately $28,000. The two construction loans are
for single family residences and are obligations of the contractor, who is
building the homes as unsold spec houses. The two commercial business loans
include a $16,000 loan on a retail business and a $4,000 line of credit on a day
care center. The 25 installment and credit card loans total $81,000 and consist
of various secured and unsecured consumer loans.
At June 30, 1996, the Bank had an allowance for possible loan losses of $1.5
million or 1.00% of loans receivable, as compared to an allowance of $1.4
million or 1.14% of loans receivable at September 30, 1995. The allowance for
possible loan losses equaled 154.5% of non-performing loans at June 30, 1996.
Management has evaluated these non-performing loans and the overall allowance
for possible loan losses and is satisfied that the allowance for possible losses
on loans at June 30, 1996 is adequate. In that regard, consideration was given
to the relatively stable level of the allowance from September 30, 1995 to June
30, 1996, as well as the coverage of non-performing loans the allowance provides
at June 30, 1996.
<PAGE>
Real estate owned at June 30, 1996 consists of one single-family residential
property and an adjoining lot located in Pittsburgh, Pennsylvania totaling
$400,000. The residential property has been appraised in 1996 at $425,000.
Management believes that the carrying value of real estate owned at June 30,
1996 approximates the net realizable value of the properties. However, while
management uses the best information available to make such determinations,
future adjustments may become necessary.
Comparison of Results of Operations
for the Three and Nine Months Ended June 30, 1996 and 1995
Net Income
Net income for the three months ended June 30, 1996 was $617,000 compared to
$407,000 for the same period in 1995, an increase of $210,000 or 51.7%. The
increase reflects an increase in net interest income of $441,000 or 22.2% and an
increase in other income of $45,000 or 27.4%. Partially offsetting these factors
was an increase in the provision for loan losses of $30,000 or 50.0%, an
increase in other operating expenses of $153,000 or 10.1% and an increase in the
provision for income taxes of $93,000 or 54.7%.
Net income for the nine months ended June 30, 1996 was $1.6 million compared to
$1.2 million for the same period in 1995, an increase of $400,000 or 34.7%. The
increase reflects an increase in net interest income of $648,000 or 10.8%, a
decrease in the provision for loan losses of $40,000 or 18.2%, and an increase
in other income of $113,000 or 25.3%. Partially offsetting these factors were an
increase in operating expenses of $298,000 or 6.6% and an increase in the
provision for income taxes of $103,000 or 19.0%.
<PAGE>
Interest Rate Spread
The Bank's interest rate spread, the difference between yields on
interest-earning assets and the cost of funds, increased to 3.27% in the three
months ended June 30, 1996 from 2.76% in the same period in 1995. The following
table shows the average yields earned on the Bank's interest-earning assets and
the average rates paid on its interest-bearing liabilities for the periods
indicated, the resulting interest rate spreads, and the net yields on
interest-earning assets.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Average yield on:
Mortgage loans ..................................... 8.62% 8.12%
Mortgage-backed securities ......................... 6.40 6.29
Installment loans .................................. 7.99 8.59
Commercial business loans .......................... 9.57 10.02
Interest-earning deposits with other
institutions, investment securities,
and FHLB stock (1) ............................... 6.70 6.83
---- -----
Total interest-earning assets ...................... 7.46 7.29
---- -----
Average rates paid on:
Savings deposits ................................... 4.06 4.45
Borrowed funds ..................................... 4.88 5.45
---- -----
Total interest-bearing liabilities ................. 4.19 4.52
---- -----
Average interest rate spread .......................... 3.27% 2.76%
==== =====
Net yield on interest-earning assets .................. 3.46% 2.98%
==== =====
</TABLE>
(1) Interest income on tax free investments has been adjusted for federal income
tax purposes using a rate of 34%.
<PAGE>
The Bank's interest rate spread increased to 3.10% in the nine months ended June
30, 1996 from 2.86% in the same period in fiscal 1995. The following table shows
the average yields earned on the Bank's interest-earning assets and the average
rates paid on its interest-bearing liabilities for the periods indicated, the
resulting interest rate spreads, and the net yields on interest-earning assets.
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1996 1995
---- ----
Average yield on:
<S> <C> <C>
Mortgage loans 8.34% 8.09%
Mortgage-backed securities 6.27 6.14
Installment loans 8.31 8.11
Commercial business loans 9.81 9.72
Interest-earning deposits with other
institutions, investment securities,
and FHLB stock (1) 6.92 6.63
---- ----
Total interest-earning assets 7.39 7.10
---- ----
Average rates paid on:
Savings deposits 4.23 4.14
Borrowed funds 4.77 5.31
---- ----
Total interest-bearing liabilities 4.29 4.25
---- ----
Average interest rate spread 3.10% 2.86%
===== =====
Net yield on interest-earning assets 3.28% 3.06%
===== =====
</TABLE>
(1) Interest income on tax free investments has been adjusted for federal income
tax purposes using a rate of 34%.
Interest Income
Interest on loans increased $433,000 or 17.0% to $3.0 million for the three
months ended June 30, 1996, compared to the same period in 1995. The increase is
attributable to an increase in the average loan balance outstanding during the
1996 period as well as an increase in the yield earned on these assets in the
1996 period as compared to the same period in 1995.
Interest on loans increased $1.1 million or 14.6% to $8.3 million for the nine
months ended June 30, 1996, compared to the same period in 1995. The increase is
attributable to an increase in the average loan balance outstanding during the
1996 period, as well as an increase in the yield earned on these assets in the
fiscal 1996 period as compared to the same period in fiscal 1995.
Interest on mortgage-backed securities decreased $132,000 or 7.8% to $1.6
million and $490,000 or 9.6% to $4.6 million for the three and nine month
periods ended June 30, 1996, respectively, as compared to the same periods in
1995. The decrease for both the three and nine month periods reflects a decrease
in the average balance of mortgage-backed securities held in the 1996 period,
partially offset by an increase in the yield earned on the securities.
<PAGE>
Interest on interest-earning deposits with other institutions and investment
securities increased $180,000 or 26.3% to $866,000 for the three month period
ended June 30, 1996, as compared to the same period in 1995. The increase
reflects an increase in the average balance of such securities and deposits,
partially offset by a decrease in the yield earned on these investments. For the
nine month period ended June 30, 1996, interest on interest-earning deposits
with other institutions and investment securities increased $664,000 or 36.8% to
$2.5 million, as compared to the same period in the prior year. The increase
reflects both an increase in the average balance of such securities and
deposits, as well as an increase in the yield earned on these investments.
Interest Expense
Interest on savings deposits decreased $231,000 or 8.6% to $2.4 million and
increased $492,000 or 6.8% to $7.7 million for the three and nine month periods
ended June 30, 1996, respectively, as compared to the same periods in fiscal
1995. The decrease for the three month period in fiscal 1996 as compared to
fiscal 1995 primarily reflects a decrease in the average cost of deposits. The
increase for the nine month period in fiscal 1996, as compared to fiscal 1995,
reflects both an increase in the average balance of deposits, as well as an
increase in the average cost of deposits.
Interest on borrowed funds increased $272,000 or 102.9% to $535,000 and $92,000
or 9.5% to $1.1 million for the three and nine month periods ended June 30,
1996, respectively, as compared to the same periods in fiscal 1995. The
increases for both the three and nine month periods in fiscal 1996 as compared
to fiscal 1995 primarily reflect an increase in the average balance of funds
borrowed during the 1996 periods. This was partially offset by a decrease in the
average cost of borrowing during the 1996 periods. The Bank relied more on these
wholesale funding sources throughout much of fiscal 1996 to fund growth.
Net Interest Income Before Provision for Loan Losses
The Bank's net interest income before provision for loan losses increased
$441,000 or 22.2% to $2.4 million for the three months ended June 30, 1996, as
compared to the same period in 1995. The increase is attributable to an
increased spread in the 1996 period, as well as an increase in the ratio of
interest-earning assets to interest-bearing liabilities. Net interest income
before provision for loan losses increased $648,000 or 10.8% to $6.7 million for
the nine months ended June 30, 1996, as compared to the same period in fiscal
1995. The increase reflects both an increased spread in the fiscal 1996 period
as compared to fiscal 1995, as well as an increase in the ratio of
interest-earning assets to interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses increased $30,000 or 50.0% to $90,000 and
decreased $40,000 or 18.2% to $180,000 for the three and nine month periods
ended June 30, 1996, respectively, as compared to the same periods in fiscal
1995. The provision for both years reflects a continued systematic provision for
loan losses based on management's evaluation of the loan portfolio and current
economic conditions. Also, management considers the historical loss experience
of the Bank and evaluates the current level of the allowance for possible loan
losses when establishing the provision.
<PAGE>
Other Income
Total non-interest or other income increased $45,000 or 27.4% to $208,000 and
$113,000 or 25.3% to $558,000 for the three and nine month periods ended June
30, 1996, respectively, as compared to the same periods in fiscal 1995.
Service fee income, which includes late charges on loans, fees for loans
serviced for others and other miscellaneous loan fees, increased $16,000 or
86.4% to $34,000 and $13,000 or 22.7% to $70,000 for the three and nine month
periods ended June 30, 1996, respectively, as compared to the same periods in
fiscal 1995. For both periods, the increase primarily represents increased late
charges on loans, as well as increases in certain fees related to commercial
loans and lines of credit.
Gain on the sale of investment and mortgage-backed securities increased $1,000
or 17.3% for the three month period ended June 30, 1996, as compared to the same
period in 1995. For the nine month period ended June 30, 1996, a gain of $27,000
was recorded, as compared to a loss of $57,000 for the same period in fiscal
1995. Sales made from the available-for-sale portfolio in fiscal 1995 were
primarily done to partially reposition the portfolio to reflect the higher
interest rate environment that existed. Funds from the sales were reinvested in
securities earning current market rates, however losses were realized on some
sales in the implementation of this strategy. The gains in fiscal 1996 also
resulted from the sale of securities available-for-sale and were also done to
reposition portions of the portfolio as conditions and interest rates changed.
Gain on sale of loans was unchanged at $3,000 for the three month periods ended
June 30, 1996 and 1995. The gain on sale of loans decreased by $2,000 or 19.1%
to $9,000 for the nine months ended June 30, 1996, as compared to the same
period in the prior year. The Bank is an approved seller/servicer of Federal
National Mortgage Association ("FNMA") loans, and sells a portion of the
fixed-rate residential mortgage loans it originates, generally those with terms
greater than 15 years. Results for both the three and nine month periods ended
June 30, 1996 generally reflect a reduced volume of mortgage loans sold in the
secondary market. Additionally, the Bank began selling education loans to the
Student Loan Marketing Association ("SLMA") in fiscal 1995. Such sales generally
result in only a small gain or loss being realized and are being done to reduce
the Bank's position in these loans, which are generally low yielding and subject
to extensive and costly government regulation. The Bank does not intend to
originate additional loans for its portfolio, except those that will be serviced
by SLMA.
Other operating income includes miscellaneous sources of income which consist
primarily of various fees related to checking accounts, fees from the sale of
cashiers checks and money orders, and safe deposit box rental income. Other
operating income increased $27,000 or 20.5% to $161,000 and $19,000 or 4.3% to
$453,000 for the three and nine month periods ended June 30, 1996, as compared
to the same periods in fiscal 1995. The increase for both periods is primarily
due to increases in checking account service charges and fees related to
automatic teller machine usage. In addition, for the nine month period ended
June 30, 1995, a gain on the sale of the building housing the Bank's former East
Ohio Street branch, which was closed in March 1994, was recorded.
Other Expenses
Total operating expenses increased $153,000 or 10.1% to $1.7 million and
$298,000 or 6.6% to $4.8 million for the three and nine month periods ended June
30, 1996, respectively, as compared to the same period in fiscal 1995.
<PAGE>
Compensation, payroll taxes and fringe benefits, the largest component of
operating expenses, increased $49,000 or 6.4% to $814,000 and $96,000 or 4.2% to
$2.4 million for the three and nine month periods ended June 30, 1996,
respectively, compared to the same periods in fiscal 1995. Factors contributing
to the increase were salary increases for employees and higher fringe benefit
costs, primarily related to the Employee Stock Ownership Plan.
Office occupancy and equipment expense was unchanged at $139,000 and increased
$17,000 or 4.2% to $418,000 for the three and nine month periods ended June 30,
1996, respectively, compared to the same periods in fiscal 1995. For the three
month period there were no significant variations between years. For the nine
month period ended June 30, 1996, as compared to the same period in the prior
year, the main factor causing the increase was increased utility costs and
equipment maintenance expenditures, partially offset by a reduction in property
tax expense.
Depreciation and amortization increased $11,000 or 11.1% to $110,000 and $13,000
or 3.9% to $332,000 for the three and nine month periods ended June 30, 1996,
respectively, compared to the same periods in fiscal 1995. The results reflect
the commencement of depreciation on renovations completed at the Zelionople and
Bloomfield branches of the bank, partially offset by some equipment becoming
fully depreciated.
Federal insurance premiums increased $11,000 or 8.3% to $140,000 and $28,000 or
7.1% to $420,000 for the three and nine month periods ended June 30, 1996,
respectively, compared to the same periods in fiscal 1995. The increase reflects
higher deposit balances on which the premium was calculated.
There was no net loss or gain on real estate owned in the fiscal 1995 periods,
as compared to net losses of $40,000 and $41,000 for the three and nine month
periods ended June 30, 1996, respectively. The activity in the fiscal 1996
periods reflected the write down to fair value of an REO property, partially
offset by a gain recorded on the sale of an REO property. No similar write down
or sale was made in the fiscal 1995 periods.
Amortization of intangibles was $66,000 and $198,000 for both the three and nine
month periods ended June 30, 1996 and 1995, respectively. The intangibles
generated by the three branch acquisitions that occurred in November 1991 are
being amortized on a straight-line basis over five years.
Other operating expenses, which consists of check processing costs, consulting
fees, legal and audit fees, advertising, bank charges, expenses for maintaining
real estate owned properties and other administrative expenses, increased
$42,000 or 13.3% to $358,000 and $104,000 or 11.3% to $1.0 million for the three
and nine month periods ended June 30, 1996, respectively, as compared to the
same periods in fiscal 1995. For the three and nine month periods ended June 30,
1996, as compared to the prior year, significant variations between periods
included increases in expenses to maintain and repair two properties classified
as real estate owned, one of which has now been sold, and fees incurred to
introduce a debit card product to the Bank's customers. In addition, for the
nine month period ended June 30, 1996, increases were experienced in legal costs
primarily related to restating the Bank's Employee Stock Ownership Plan,
stationary and supplies, and postage, partially offset by a decrease in printing
and stockholder related expenses.
<PAGE>
Income Taxes
Income taxes increased $93,000 or 54.7% to $263,000 and $103,000 or 19.0% to
$646,000 for the three and nine month periods ended June 30, 1996, respectively,
compared to the same periods in fiscal 1995. The increase in taxes for both the
three and nine month periods results from an increase in taxable income,
partially offset by a reduction in the effective tax rate.
Capital Requirements
The FDIC has issued regulations that require insured institutions to maintain
minimum levels of capital. In general, current regulations require a leverage
ratio of Tier 1 capital to average total assets of not less than 3% for the most
highly rated institutions and an additional 1% to 2% for all other institutions.
At June 30, 1996, the Bank complied with the minimum leverage ratio having Tier
1 capital of 7.13% of average total assets, as defined.
The Bank is also required to maintain a ratio of qualifying total capital to
risk-weighted assets and off-balance sheet items of a minimum of 8%. At June 30,
1996, the bank's total capital to risk-weighted assets ratio calculated under
the FDIC capital requirement was 15.45%.
A reconciliation of Stockholders' Equity to Regulatory Capital is as follows:
Stockholder's equity at June 30, 1996 (1) $22,292,572
Less: Intangible assets (110,037)
Unrealized loss on marketable equity securities (39,848)
-----------
Tier 1 Capital at June 30, 1996 22,142,687
Plus: Qualifying loan loss allowance 1,470,676
-----------
Total capital at June 30, 1996 $23,613,363
===========
(1) Represents equity capital of the Bank as reported to the FDIC and the
Pennsylvania Department of Banking on Form 033.
Liquidity
The Bank's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB of
Pittsburgh and other sources, including sales of securities and, to a limited
extent, loans. At June 30, 1996, the total of approved loan commitments amounted
to $3.7 million. In addition, the Bank had $5.4 million of undisbursed loan
funds at that date. The amount of savings certificates which mature during the
next twelve months totals approximately $85.7 million, a substantial portion of
which management believes, on the basis of prior experience, will remain in the
Bank.
Recent Regulatory Developments
The deposits of the Bank are currently insured by the Savings Insurance
Association Fund ("SAIF"). Both the SAIF and the BIF, the federal deposit
insurance fund that covers commercial bank deposits, are required by law to
attain and thereafter maintain a reserve ratio of 1.25% of insured deposits. The
BIF has achieved fully funded status, however the SAIF has not attained that
level to date. The FDIC has recently reduced the average deposit insurance
premium paid by commercial banks to zero, while the average premium paid by
savings institutions remains at $0.23 per $100 of insured deposits.
<PAGE>
The underfunded status of the SAIF has resulted in the introduction of federal
legislation intended to, among other things, recapitalize the SAIF and address
the resulting premium disparity. The legislation would require savings
institutions like the Bank to pay a one-time charge of $0.80 to $0.90 for every
$100 of insured deposits to recapitalize the SAIF. Based on deposit balances at
March 31, 1995, the measurement date contained in the original legislation, the
Bank would incur a one-time pre-tax charge of approximately $1.8 million to $2.1
million. Management does not believe that this one-time charge to the Bank, if
incurred, will have a material impact on the Bank's overall financial condition.
The legislation, which was contained in a budget reconciliation bill, was passed
by both the U.S. House and Senate but the President vetoed it. Similar
legislation has since been reintroduced as part of several different bills,
however those bills either have not been voted on to date or have not been
passed with the BIF/SAIF legislation still included. At this time, there can be
no guarantee when or if similar legislation will be introduced or enacted.
The proposed legislation also contemplated the merger of the BIF and SAIF
following the recapitalization of the SAIF. Thereafter, federal deposit
insurance premiums would be assessed similarly for all FDIC institutions.
Further, the legislation proposes the wholesale conversion of savings
institutions into banks. Questions regarding the federal tax consequences of
such conversions and permissible activities of the converted institutions are
currently still unresolved.
<PAGE>
Part II - Other Information
Item. 1 Legal Proceedings
The Bank is not involved in any pending legal proceedings other
than non-material legal proceedings undertaken in the ordinary
course of business.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIDELITY SAVINGS BANK
Date: August 2, 1996 By: /s/ William L. Windisch
-----------------------
William L. Windisch
President and Chief Executive Officer
Date: August 2, 1996 By: /s/ Richard G. Spencer
----------------------
Richard G. Spencer
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,832,669
<INT-BEARING-DEPOSITS> 5,036,957
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 114,278,698
<INVESTMENTS-CARRYING> 37,670,545
<INVESTMENTS-MARKET> 36,968,866
<LOANS> 145,931,196
<ALLOWANCE> 1,470,676
<TOTAL-ASSETS> 317,314,826
<DEPOSITS> 240,026,101
<SHORT-TERM> 48,586,235
<LIABILITIES-OTHER> 3,858,703
<LONG-TERM> 3,300,000
0
0
<COMMON> 13,695
<OTHER-SE> 21,530,092
<TOTAL-LIABILITIES-AND-EQUITY> 317,314,826
<INTEREST-LOAN> 8,307,061
<INTEREST-INVEST> 7,087,353
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,394,414
<INTEREST-DEPOSIT> 7,682,382
<INTEREST-EXPENSE> 8,739,061
<INTEREST-INCOME-NET> 6,655,353
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 26,620
<EXPENSE-OTHER> 4,834,355
<INCOME-PRETAX> 2,199,293
<INCOME-PRE-EXTRAORDINARY> 1,553,293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,553,293
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 3.13
<LOANS-NON> 952,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,429,420
<CHARGE-OFFS> 216,717
<RECOVERIES> 77,973
<ALLOWANCE-CLOSE> 1,470,676
<ALLOWANCE-DOMESTIC> 100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
