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 December 31, 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.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1705405
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1009 Perry Highway, Pittsburgh, Pennsylvania 15237
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(Address of principal executive offices) (Zip code)
412-367-3300
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(Issuer's telephone number)
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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: 1,382,616 shares, par value $0.01, at
January 31, 1997.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Index
Part I - Financial Information
Item 1. Financial Statements
Statements of Financial Condition as of September 30, 1996
and December 31, 1996 (Unaudited)
Statements of Income (Unaudited) for the Three Month Periods
Ended December 31, 1995 and 1996
Statements of Cash Flows (Unaudited) for the Three Months Ended
December 31, 1995 and 1996
Statement of Changes in Stockholders' Equity (Unaudited) for the Three
Months Ended December 31, 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>
<TABLE>
<CAPTION>
Part I - Financial Information
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Financial Condition
Assets September 30, 1996 December 31, 1996
------------------ -----------------
(Unaudited)
<C> <C> <C>
Cash and amounts due from
depository institutions $ 4,616,088 $ 3,964,013
Interest-earning demand deposits with
other institutions 146,010 115,808
Investment securities held-to-maturity 5,401,139 5,272,395
Investment securities available-for-sale 50,928,774 45,152,583
Loans receivable, net 151,263,067 153,509,009
Mortgage-backed securities held-to-maturity 31,274,934 31,889,740
Mortgage-backed securities available-for-sale 62,463,269 68,501,473
Real estate owned, net 369,675 -0-
Federal Home Loan Bank stock - at cost 2,826,300 3,052,500
Accrued interest receivable, net:
Loans 850,006 810,548
Mortgage-backed securities 566,018 598,706
Investments 726,573 808,964
Office premises and equipment, net 3,365,941 3,588,826
Deferred tax asset 1,925,924 1,627,417
Prepaid income taxes 324,414 37,415
Goodwill and other intangible assets 44,015 -0-
Prepaid expenses and sundry assets 781,894 1,406,636
------------- -------------
Total Assets $ 317,874,041 $ 320,336,033
============= =============
Liabilities and Net Worth
Liabilities:
Savings deposits $ 234,275,620 $ 233,641,739
Federal Home Loan Bank advances 56,650,000 60,300,000
Reverse repurchase agreements 493,133 504,514
Advance deposits by borrowers for
taxes and insurance 1,316,683 2,088,287
Accrued interest on savings and
other deposits 176,914 14,011
Other accrued expenses and sundry liabilities 3,183,596 652,307
------------- -------------
Total Liabilities 296,095,946 297,200,858
------------- -------------
<PAGE>
<CAPTION>
Part I - Financial Information
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Financial Condition
(continued)
September 30, 1996 December 31, 1996
(Unaudited)
<C> <C> <C>
Stockholders' equity (Note 4):
Common stock, $0.01 par value per share;
10,000,000 shares authorized; 1,373,151
and 1,380,977 shares issued and outstanding 13,732 13,810
Additional paid-in capital 10,437,133 10,496,369
Retained earnings - substantially restricted 12,522,830 13,035,540
Unrealized gain (loss) on securities available-for-sale (1,195,600) (410,544)
------------- -------------
Total stockholders' equity 21,778,095 23,135,175
------------- -------------
Total Liabilities and Stockholders' Equity $ 317,874,041 $ 320,336,033
============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
Three months ended
December 31,
---------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Interest Income:
Loans $ 2,622,619 $ 3,185,792
Mortgage-backed securities 1,560,269 1,554,579
Investment securities 729,261 859,840
Deposits with other institutions 7,274 2,654
----------- -----------
Total interest income 4,919,423 5,602,865
----------- -----------
Interest Expense:
Savings deposits 2,672,656 2,363,252
Borrowed funds 206,211 788,800
----------- -----------
Total interest expense 2,878,867 3,152,052
----------- -----------
Net interest income before provision for loan losses 2,040,556 2,450,813
Provision for loan losses 30,000 115,000
----------- -----------
Net interest income after provision for loan losses 2,010,556 2,335,813
----------- -----------
Other income:
Service fee income 20,889 19,091
Gain (loss) on sale of investment securities
and mortgage-backed securities, net (12,357) (1,641)
Gain (Loss) on sale of loans 2,054 1,901
Other operating income 135,363 165,070
----------- -----------
Total other income 145,949 184,421
----------- -----------
Operating expenses:
Compensation, payroll taxes and fringe benefits 791,533 909,753
Office occupancy and equipment expense 134,749 144,930
Depreciation and amortization 108,710 112,535
Federal insurance premiums 140,726 -0-
(Gain) loss on real estate owned, net 8,300 6,660
Amortization of intangibles 66,022 44,015
Other operating expenses 313,353 372,068
----------- -----------
Total operating expenses 1,563,393 1,589,961
----------- -----------
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
(continued)
Three months ended
December 31,
---------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Income before income tax provision 593,112 930,273
Income tax provision 180,000 307,500
----------- -----------
Net Income $ 413,112 $ 622,773
=========== ===========
Primary earnings per common share (Note 3) $ .30 $ .44
=========== ===========
Dividends per common share (Note 3) $ .073 $ .08
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
Three Months Ended December 31,
-------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Operating Activities:
Net income: $ 413,112 $ 622,773
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 30,000 105,000
Loss on real estate owned 8,300 6,660
Depreciation and amortization 108,710 112,535
Deferred loan fee amortization (26,685) (57,839)
Amortization of investment and mortgage-
backed securities discounts/premiums, net 73,502 78,689
Amortization of intangibles 66,022 44,015
Net (gain) loss on sale of investment securities -- 1,205
Net (gain) loss on sale of mortgage-backed securities 12,357 436
Net (gain) loss on sale of loans (2,054) (1,901)
Origination of loans held-for-sale (47,800) (66,500)
Proceeds from sale of loans held-for-sale 48,508 67,352
(Increase) decrease in interest receivable (242,684) (75,621)
(Increase) decrease in deferred tax asset (84,126) 298,508
Increase (decrease) in accrued income taxes 198,970 286,999
Increase (decrease) in interest payable (244,011) (162,904)
SAIF assessment -- (1,530,357)
Other changes - net 807,720 (992,344)
----------- -----------
Net cash provided (used) by operating activities 1,119,841 (1,253,294)
----------- -----------
Investing Activities:
Proceeds from sales of investment securities available-for-sale -- 6,735,624
Proceeds from maturities and principal repayments
of investment securities available-for-sale 3,000,000 1,000,000
Proceeds from maturities and principal repayments
of mortgage-backed securities available-for-sale 1,062,804 2,560,620
Purchases of investment securities available-for-sale (8,391,256) (1,522,023)
Purchases of mortgage-backed securities available-for-sale -- (8,006,214)
Proceeds from maturities and principal repayments of
investment securities held-to-maturity 160,017 129,434
Purchases of mortgage-backed securities held-to-maturity (33,165) (2,007,500)
Proceeds from sales of mortgage-backed securities held-to-maturity 1,376,337 --
Proceeds from mortgage-backed securities held-to-maturity
principal repayments 2,227,654 1,365,216
Principal repayments on first mortgage loans 3,024,415 5,360,310
Principal repayments on other loans 3,878,833 4,204,947
First mortgage loans originated and disbursed (5,199,678) (6,141,300)
Proceeds from sale of other loans 182,156 136,538
Other loans originated (6,676,539) (5,884,974)
Additions to office premises and equipment (30,777) (336,412)
----------- -----------
Net cash provided (used) by investing activities (5,419,199) (2,405,734)
----------- -----------
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited) (Cont'd.)
Three Months Ended December 31,
--------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in savings deposits 1,465,139 (633,881)
Increase (decrease) in reverse repurchase agreements (4,541,951) 11,381
FHLB advance repayments (33,100,000) (461,825,000)
FHLB advances 40,400,000 465,475,000
Cash dividends paid (98,981) (110,063)
Stock options exercised 13,057 43,788
Proceeds from sale of stock 9,637 15,526
------------- -------------
Net cash provided (used) by financing activities 4,146,901 2,976,751
------------- -------------
Increase (decrease) in cash and cash equivalents (152,457) (682,277)
Cash and cash equivalents at beginning of period 5,043,480 4,762,098
------------- -------------
Cash and cash equivalents at end of period $ 4,891,023 $ 4,079,821
============= =============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and other borrowings $ 3,038,789 $ 3,312,415
Income taxes 180,000 20,000
Transfer of investment and mortgage-backed securities
from investment to available-for-sale $ 61,864,252 --
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statement of Changes in Stockholders' Equity
Additional Unrealised Gain/
Common Paid-in Retained (Loss) on Securities
Stock Capital Earnings Available-for-Sale Total
----- ------- -------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 12,357 $ 8,138,525 $ 13,788,652 $ 192,792 $ 22,132,326
Net income 413,112 413,112
Cash dividends paid at $.08
per share (98,981) (98,981)
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 811,530 811,530
Sale of stock 8 9,629 9,637
Stock options exercised 15 13,042 $ 13,057
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 $ 12,380 $ 8,161,196 $ 14,102,783 $ 464,908 $ 22,741,267
============ ============ ============ ============ ============
Balance at September 30, 1996 $ 13,732 $ 10,437,133 $ 12,522,830 $ (1,195,600) $ 21,778,095
Net income 622,773 622,773
Cash dividends paid at $.08
per share (110,063) (110,063)
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes 785,056 785,056
Sale of stock 8 15,518 15,526
Stock options exercised 70 43,718 43,788
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 $ 13,810 $ 10,496,369 $ 13,035,540 $ (410,544) $ 23,135,175
============ ============ ============ ============ ============
</TABLE>
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
September 30, 1996 and December 31, 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 month period ended December
31, 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 and interest-earning demand deposits with other institutions.
(3) Earnings Per Share
Earnings per share for the three months ended December 31, 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 December 31, 1995 and 1996 were 1,386,246 and 1,419,228 respectively. The
average number of shares for the 1995 period has 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.
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 $63.2 million of investment and
mortgage-backed securities were transferred to available-for-sale in December
1995.
<PAGE>
(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. -6-
FIDELITY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at September 30, 1996 and December 31, 1996
Total assets of the Bank increased $2.5 million or 0.8% to $320.3 million at
December 31, 1996 from $317.9 million at September 30, 1996. Significant changes
in individual categories were increases in loans receivable of $2.2 million and
mortgage-backed securities available-for-sale of $6.0 million, and a decrease in
investment securities available-for-sale of $5.8 million.
Total liabilities of the Bank increased by $1.1 million or 0.4% to $297.2
million at December 31, 1996 from $296.1 million at September 30, 1996. The
increase primarily reflects a $3.6 million increase in Federal Home Loan Bank
advances outstanding, partially offset by a decrease in savings deposits of
$634,000 and other liabilities of $2.5 million. Included in other liabilities at
September 30, 1996, was the accrual of approximately $1.5 million representing a
one-time charge to recapitalize the Savings Association Insurance Fund ("SAIF")
mandated by the Deposit Insurance Funds Act of 1996. This assessment was paid in
November 1996.
Stockholders' equity increased $1.4 million or 6.2% to $23.1 million at December
31, 1996, compared to September 30, 1996. The increase reflects net income for
the three month period ended December 31, 1996 of $623,000, a decrease in
unrealized holding losses on securities available-for-sale of $785,000, stock
options exercised of $44,000 and stock issued under the Dividend Reinvestment
Plan of $16,000. Partially offsetting these increases were common stock cash
dividends paid of $110,000.
<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 December 31,
1996 1996
---------- ----------
<S> <C> <C>
Non-accrual residential real
estate loans (one-to-four-family) $ 567,000 $ 341,000
Non-accrual construction, multi-family
residential and commercial real estate loans 134,000 891,000
Non-accrual installment and
commercial business loans 457,000 128,000
---------- ----------
Total non-performing loans $1,158,000 $1,360,000
========== ==========
Total non-performing loans as
a percent of net loans receivable .77% .89%
========== ==========
Total real estate owned,
net of related reserves $ 370,000 $ --
========== ==========
Total non-performing loans and real estate
owned as a percent of total assets .48% .42%
========== ==========
</TABLE>
Included in non-performing loans at December 31, 1996 are 9 single-family
residential real estate loans totaling $341,000, one single-family construction
loan for $134,000, one commercial real estate loan for $757,000, 34 installment
loans totaling $113,000, and one commercial business loan for $15,000. Of the 9
non-performing single-family residential real estate loans, the largest amounted
to $92,000. The commercial real estate loan is on a commercial office building
located in Pittsburgh that is currently for sale.
The 34 installment loans total $113,000 and consist of various secured and
unsecured consumer loans and credit card loans.
At December 31, 1996, the Bank had an allowance for possible loan losses of $1.6
million or 1.05% of loans receivable, as compared to an allowance of $1.5
million or 1.00% of loans receivable at September 30, 1996. The allowance for
possible loan losses equals 120% of non-performing loans at December 31, 1996.
<PAGE>
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 December 31, 1996 is adequate. In that regard, consideration was
given to the increase in the level of the allowance from September 30, 1996 to
December 31, 1996, as well as the coverage of non-performing loans the allowance
provides at December 31, 1996.
There was no real estate owned at December 31, 1996.
Comparison of Results of Operations
for the Three Months Ended December 31, 1996 and 1995
Net Income
Net income for the three months ended December 31, 1996 was $623,000 compared to
$413,000 for the same period in 1995, an increase of $210,000 or 50.7%. The
increase reflects an increase in net interest income of $410,000 or 20.1%, an
increase in the provision for possible loan losses of $85,000 or 283.3%, an
increase in other income of $38,000 or 26.4% and an increase in operating
expenses of $27,000 or 1.7%. Additionally, there was an increase in the
provision for income taxes of $128,000 or 70.8%.
Interest Rate Spread
The Bank's interest rate spread, the difference between yields calculated on a
tax-equivalent basis on interest-earning assets and the cost of funds, increased
to 3.18% in the three months ended December 31, 1996 from 3.02% in the same
period in 1995. The following table shows the average tax-equivalent 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1996 1995
----- ----
<S> <C> <C>
Average yield on:
Mortgage loans 8.07% 8.24%
Mortgage-backed securities 6.31 6.32
Installment loans 8.35 8.66
Commercial business loans 10.12 9.80
Interest-earning deposits with other
institutions, investment securities,
and FHLB stock (1) 7.10 7.04
----- ----
Total interest-earning assets 7.44 7.41
----- ----
Average rates paid on:
Savings deposits 4.01 4.36
Borrowed funds 5.22 4.95
----- ----
Total interest-bearing liabilities 4.26 4.39
----- ----
Average interest rate spread 3.18% 3.02%
==== ====
Net yield on interest-earning assets 3.34% 3.17%
==== ====
(1) Interest income on tax free investments has been adjusted for federal income
tax purposes using a rate of 34%.
</TABLE>
Interest Income
Interest on loans increased $563,000 or 21.5% to $3.2 million for the three
months ended December 31, 1996, compared to the same period in 1995. The
increase is attributable to an increase in the average loan portfolio balance
outstanding during the 1996 period, partially offset by a decrease in the
average yield earned on these assets in the 1996 period, as compared to the same
period in 1995. The increase in the average balance of the loan portfolio
reflects management's continued strategy of emphasizing and increasing loan
originations.
Interest on mortgage-backed securities decreased $6,000 or .4% to $1.6 million
for the three months ended December 31, 1996, as compared to the same period in
1995. Both the average yield earned and the average portfolio balance
outstanding were comparable between the 1996 and 1995 periods.
Interest on interest-earning deposits with other institutions and investment
securities increased $126,000 or 17.1% to $862,000 for the three month period
ended December 31, 1996, as compared to the same period in 1995. The increase
reflects both an increase in the yield earned on these investments in the 1996
period, as compared to 1995, as well as an increase in the average balance of
such securities and deposits.
<PAGE>
Interest Expense
Interest on savings deposits decreased $309,000 or 11.6% to $2.4 million for the
three month period ended December 31, 1996, as compared to the same period in
1995. The decrease reflects both a decrease in the average balance of savings
deposits for the 1996 period compared to 1995, as well as a decrease in the
average cost of deposits.
Interest on borrowed funds increased $583,000 or 282.5% to $789,000 for the
three month period ended December 31, 1996, as compared to the same period in
1995. The increase reflects primarily an increase in the Federal Home Loan Bank
("FHLB") advances outstanding during the 1996 period, as well as an increase in
the average cost of borrowing during the 1996 period, as compared to 1995. The
Bank relied more on these wholesale funding sources in 1996 to fund growth due
to the decrease in deposits that was experienced.
Net Interest Income Before Provision for Loan Losses
The Bank's net interest income before provision for loan losses increased
$410,000 or 20.1% to $2.5 million for the three months ended December 31, 1996,
as compared to the same period in 1995. This increase is attributable to an
increase in net interest earning assets, as well as an increase in the interest
rate spread, from 3.02% for the three month period ended December 31, 1995, to
3.18% for the same period in 1996.
Provision for Loan Losses
The provision for loan losses increased $85,000 or 283.3% to $115,000 for the
three month period ended December 31, 1996, as compared to the same period in
1995. The variation in the provision reflects management's current evaluation of
economic conditions and other factors described below. The allowance for
possible loan losses has increased from $1.4 million at December 31, 1995 to
$1.6 million at December 31, 1996.
A monthly review is conducted by management to determine that the allowance for
possible loan losses is adequate to absorb estimated loan losses. In determining
the level of allowances for possible loan losses, consideration is given to
general economic conditions, the size of the loan portfolio, the diversification
of the loan portfolio, historical loss experience, identified credit problems,
delinquency levels and the adequacy of collateral. Although management believes
that the current allowance for loan losses is adequate, future additions to the
reserve may be necessary due to changes in economic conditions. In addition,
various regulatory agencies review the adequacy of the allowance for loan losses
as part of their examination process and may require additions to the allowance
based on their judgment.
Other Income
Total non-interest or other income increased $38,000 or 26.4% to $184,000 for
the three months ended December 31, 1996, as compared to the same period in
1995.
Service fee income, which includes late charges on loans and fees for loans
serviced for others, decreased $2,000 or 8.6% to $19,000 for the period ended
December 31, 1996, as compared to the same period in 1995. There were no
individually significant variations between periods.
<PAGE>
Loss on the sale of investment and mortgage-backed securities was $2,000 for the
period ended December 31, 1996, as compared to a loss of $12,000 for the same
period in 1995. Sales in both periods were made from the available-for-sale
category and represented a partial repositioning of the portfolio based upon
current market conditions.
Gain on sale of loans was $2,000 for both the three month periods ended December
31, 1995 and 1996. The Bank sells education loans to the Student Loan Marketing
Association ("SLMA"). Such sales generally result in some gain or loss being
realized and are being done to reduce the Bank's position in these loans, which
are generally lower 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. Sales to SLMA increased
slightly in the period ended December 31, 1996, as compared to 1995, however the
net gains recorded in 1996 and 1995 reflect the timing of the sales.
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 $30,000 or 21.9% to $165,000 for the three month
period ended December 31, 1996, as compared to the same period in 1995. The
increase primarily reflects fees earned on a debit card product introduced by
the Bank in 1996 and increased fees earned on credit and life insurance sales on
loans.
Other Expenses
Total operating expenses increased $27,000 or 1.7% to $1.6 million for the three
months ended December 31, 1996, compared to the same period in 1995.
Compensation, payroll taxes and fringe benefits, the largest component of
operating expenses, increased $118,000 or 14.9% to $910,000 for the three month
period ended December 31, 1996, compared to the same period in 1995. Factors
contributing to the increase were normal salary increases, higher bonuses
awarded in the 1996 period, a small increase in the number of employees on the
payroll, and an increase in retirement expenses.
Office occupancy and equipment expense increased $10,000 or 7.6% to $145,000 for
the three months ended December 31, 1996, compared to the same period in 1995.
The increase primarily reflects increased equipment maintenance expenditures.
Depreciation and amortization increased $4,000 or 3.5% to $113,000 for the 1996
period as compared to 1995. The increase reflects the purchase of new equipment,
primarily for back room operations, as well as depreciation on renovations
completed at the Zelionople and Bloomfield branches of the Bank.
Federal insurance premiums decreased $141,000 or 100.0% to zero for the three
months ended December 31, 1996, compared to the same period in 1995. On
September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the ACT). Among other things, the Act imposed a one time special
assessment on deposits insured by the SAIF designed to fully capitalize the SAIF
to the level required by law. This special assessment was approximately $1.5
million for the Bank and was recorded as an expense in the year ended September
30, 1996, and was paid in November 1996. As a result of the payments by SAIF
<PAGE>
insured institutions, the FDIC subsequently determined that the SAIF was fully
capitalized and that, for the quarter ended December 31, 1996, no deposit
insurance premiums would be due from many institutions, including the Bank. For
the quarter beginning January 1, 1997, deposit insurance for well-capitalized
SAIF insured institutions, including the Bank, will be assessed at a rate of
approximately $.0648 per hundred dollars of deposits. This compares to a rate of
$.23 per hundred that was in effect prior to the recapitalization of SAIF.
Net loss on real estate owned was $7,000 in the 1996 period, as compared to a
net loss of $8,000 for the three months ended December 31, 1995. There were no
individually significant transactions included in the results.
Amortization of intangibles was $44,000 for the three month period ended
December 31, 1996, compared to $66,000 for the comparable period in 1995. The
intangibles generated by the three branch acquisitions that occurred in November
1991 were being amortized on a straight-line basis over five years. These
intangibles were fully amortized in November 1996.
Other operating expenses, which consists of check processing costs, consulting
fees, legal and audit fees, advertising, bank charges and other administrative
expenses, amounted to $372,000 and $313,000 for the three month periods ended
December 31, 1996 and 1995, respectively, an increase of $59,000 or 18.7%.
Significant variations between periods include increases in automatic teller
machine network fees, advertising and consulting fees, partially offset by
reduced telecommunications expenses.
Income Taxes
Income taxes increased $128,000 or 70.8% to $307,000 for the three month period
ended December 31, 1996, compared to the same period in 1995. The increase in
taxes results from an increase in taxable income, as well as an increase in the
effective tax rate to approximately 33.0% in 1996 from approximately 30.3% in
the same period in 1995.
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 December 31, 1996, the Bank complied with the minimum leverage ratio having
Tier 1 capital of 7.05% 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 December
31, 1996, the bank's total capital to risk-weighted assets ratio calculated
under the FDIC capital requirement was 15.43%.
<PAGE>
A reconciliation of Stockholders' Equity to Regulatory Capital is as follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholder's equity at December 31, 1996 (1) $22,056,341
Unrealized securities losses 377,769
-----------
Tier I capital 22,434,110
Plus: Qualifying loan loss allowance 1,632,282
-----------
Total regulatory capital at December 31, 1996 $24,066,392
===========
(1) Represents equity capital of the Bank as reported to the FDIC and the
Pennsylvania Department of Banking on Form 033.
</TABLE>
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 December 31, 1996, the total of approved loan commitments
amounted to $7.5 million. In addition, the Bank had $4.2 million of undisbursed
loan funds at that date. The amount of savings certificates which mature during
the next twelve months totals approximately $86.1 million, a substantial portion
of which management believes, on the basis of prior experience, will remain in
the Bank.
<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.
SIGNATURES
FIDELITY SAVINGS BANK
Date: February 10, 1997 By:/s/ William L. Windisch
-----------------------
William L. Windisch
President and Chief Executive Officer
Date: February 10, 1997 By:/s/ Richard G. Spencer
----------------------
Richard G. Spencer
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,964,013
<INT-BEARING-DEPOSITS> 115,808
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 113,654,056
<INVESTMENTS-CARRYING> 37,162,135
<INVESTMENTS-MARKET> 37,015,356
<LOANS> 155,141,291
<ALLOWANCE> 1,632,282
<TOTAL-ASSETS> 320,336,033
<DEPOSITS> 233,641,739
<SHORT-TERM> 47,804,515
<LIABILITIES-OTHER> 2,754,605
<LONG-TERM> 13,000,000
0
0
<COMMON> 13,810
<OTHER-SE> 23,121,365
<TOTAL-LIABILITIES-AND-EQUITY> 320,336,033
<INTEREST-LOAN> 3,185,792
<INTEREST-INVEST> 2,414,419
<INTEREST-OTHER> 2,654
<INTEREST-TOTAL> 5,602,865
<INTEREST-DEPOSIT> 2,363,252
<INTEREST-EXPENSE> 3,152,052
<INTEREST-INCOME-NET> 2,450,813
<LOAN-LOSSES> 115,000
<SECURITIES-GAINS> (1,641)
<EXPENSE-OTHER> 1,589,961
<INCOME-PRETAX> 930,273
<INCOME-PRE-EXTRAORDINARY> 930,273
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 930,273
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 3.18
<LOANS-NON> 1,359,847
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,530,257
<CHARGE-OFFS> 21,890
<RECOVERIES> 8,915
<ALLOWANCE-CLOSE> 1,632,282
<ALLOWANCE-DOMESTIC> 1,632,282
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
