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 March 31, 1997
[ ] 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
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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)
- --------------------------------------------------------------------------------
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: 1,402,085 shares, par value $0.01, at
April 30, 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 March 31, 1997 (Unaudited)
Statements of Income (Unaudited) for the Three and Six Month Periods
Ended March 31, 1996 and 1997
Statements of Cash Flows (Unaudited) for the Six Months Ended
March 31, 1996 and 1997
Statement of Changes in Stockholders' Equity (Unaudited) for the Six
Months Ended March 31, 1996 and 1997
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
September 30, 1996 March 31, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and amounts due from
depository institutions $ 4,616,088 $ 4,402,978
Interest-earning demand deposits with
other institutions 146,010 141,868
Investment securities held-to-maturity 5,401,139 5,159,915
Investment securities available-for-sale 50,928,774 45,066,033
Loans receivable, net 151,263,067 156,209,920
Mortgage-backed securities held-to-maturity 31,274,934 30,417,702
Mortgage-backed securities available-for-sale 62,463,269 74,398,509
Real estate owned, net 369,675 -0-
Federal Home Loan Bank stock - at cost 2,826,300 3,355,000
Accrued interest receivable, net:
Loans 850,006 831,487
Mortgage-backed securities 566,018 635,005
Investments 726,573 632,165
Office premises and equipment, net 3,365,941 3,175,139
Deferred tax asset 1,925,924 2,201,345
Goodwill and other intangible assets 44,015 - 0 -
Prepaid income taxes 324,414 - 0 -
Prepaid expenses and sundry assets 781,894 1,269,365
------------- -------------
Total Assets $ 317,874,041 $ 327,896,431
============= =============
Liabilities and Net Worth
Liabilities:
Savings deposits $ 234,275,620 $ 234,661,489
Federal Home Loan Bank advances 56,650,000 66,425,000
Reverse repurchase agreements 493,133 631,317
Advance deposits by borrowers for
taxes and insurance 1,316,683 1,939,026
Accrued interest on savings and
other deposits 176,914 68,377
Accrued income taxes -0- 1,011,166
Other accrued expenses and sundry liabilities 3,183,596 337,366
------------- -------------
Total Liabilities 296,095,946 305,073,741
------------- -------------
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Financial Condition
(continued)
September 30, 1996 March 31, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Stockholders' equity (Notes 4 and 5):
Common stock, $0.01 par value per share;
10,000,000 shares authorized; 1,373,151
and 1,400,594 shares issued and outstanding,
respectively 13,732 14,006
Additional paid-in capital 10,437,133 10,670,684
Retained earnings - substantially restricted 12,522,830 13,547,383
Unrealized gain (loss) on securities
available-for-sale (1,195,600) (1,409,383)
------------- -------------
Total stockholders' equity 21,778,095 22,822,690
------------- -------------
Total Liabilities and Stockholders' Equity $ 317,874,041 $ 327,896,431
============= =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 2,706,018 $ 3,211,203 $ 5,328,637 $ 6,396,995
Mortgage-backed securities 1,495,421 1,612,213 3,055,690 3,166,792
Investment securities 858,253 854,796 1,587,514 1,714,637
Deposits with other institutions 9,062 2,251 16,336 4,914
----------- ----------- ----------- -----------
Total interest income 5,068,754 5,680,463 9,988,177 11,283,338
----------- ----------- ----------- -----------
Interest Expense:
Savings deposits 2,567,633 2,309,690 5,240,289 4,672,950
Borrowed funds 315,688 884,778 521,899 1,673,578
----------- ----------- ----------- -----------
Total interest expense 2,883,321 3,194,468 5,762,188 6,346,528
----------- ----------- ----------- -----------
Net interest income before provision for loan losses 2,185,433 2,485,995 4,225,989 4,936,810
Provision for loan losses 60,000 120,000 90,000 235,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,125,433 2,365,995 4,135,989 4,701,810
----------- ----------- ----------- -----------
Other income:
Service fee income 14,602 16,547 35,491 35,638
Gain on sale of investment securities and
mortgage-backed securities, net 29,360 22,163 17,003 20,523
Gain on sale of loans 3,497 3,386 5,551 5,286
Other operating income 156,462 181,903 291,826 346,973
----------- ----------- ----------- -----------
Total other income 203,921 223,999 349,871 408,420
----------- ----------- ----------- -----------
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Income (Unaudited)
(continued)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating expenses:
Compensation and employee benefits 798,140 853,235 1,589,673 1,762,987
Occupancy and equipment expense 143,749 143,575 278,498 288,505
Depreciation and amortization 113,321 122,962 222,031 235,498
Federal insurance premiums 139,224 37,741 279,950 37,742
Loss on real estate owned, net 13,149 25,887 21,449 32,547
Amortization of intangibles 66,023 -0- 132,045 44,015
Other operating expenses 330,012 383,525 643,366 755,593
----------- ----------- ----------- -----------
Total operating expenses 1,603,618 1,566,925 3,167,012 3,156,887
----------- ----------- ----------- -----------
Income before income tax provision 725,736 1,023,069 1,318,848 1,953,343
Income tax provision 203,000 385,500 383,000 693,000
----------- ----------- ----------- -----------
Net income $ 522.736 637,569 $ 935,848 $ 1,260,343
----------- ----------- ----------- -----------
Primary earnings per common share $ 0.37 $ 0.44 $ 0.66 $ 0.88
(Notes 3&5)
Dividends per common share (Notes 3&5) $ 0.073 $ 0.09 $ 0.146 $ 0.17
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
Six Months Ended March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating Activities:
Net income: $ 1,260,343 $ 935,848
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 235,000 90,000
Depreciation and amortization 235,498 222,031
Deferred loan fee amortization (96,577) (77,391)
Amortization of investment and mortgage-backed
discounts/premiums, net 158,680 159,948
Amortization of intangibles 44,015 132,045
Net (gain) loss on sale of investment securities (10,143) (723)
Net (gain) loss on sale of mortgage-backed securities (10,380) (16,280)
Net (gain) loss on sale of loans (5,286) (5,551)
Origination of loans held-for-sale (320,000) (134.400)
Proceeds from sale of loans held-for-sale 324,238 139,951
(Increase) decrease in interest receivable 43,940 (235,951)
(Increase) decrease in deferred tax asset (275,421) (412,073)
Increase (decrease) in accrued income taxes 661,780 (174,001)
Increase (decrease) in interest payable (108,537) (178,240)
SAIF assessment (1,530,357) -0-
Other changes, net (887,666) 2,393,954
------------ ------------
Net cash provided (used) by operating activities (248,327) 2,839,167
------------ ------------
<PAGE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
(continued)
Six Months Ended March 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Investing Activities:
Proceeds from sales of investment securities available-for-sale 7,773,972 3,493,672
Proceeds from maturities and principal repayments of
investment securities available-for-sale 2,000,000 5,000,000
Purchases of investment securities available-for-sale (4,251,435) (21,980,491)
Proceeds from sales of mortgage-backed securities available-for-sale 4,157,936 5,505,078
Proceeds from maturities and principal repayments of mortgage-
backed securities available-for-sale 3,358,363 3,074,814
Purchases of mortgage-backed securities available-for-sale (19,683,569) (11,290,146)
Proceeds from maturities and principal repayments of investment
securities held-to-maturity 1,242,492 1,307,892
Purchases of investment securities held-to-maturity (1,000,000) -0-
Proceeds from principal repayments of mortgage-backed
securities held to maturity 2,,808,334 3,591,509
Purchases of mortgage-backed securities held-to-maturity (2,007,500) (33,165)
Principal repayments on first mortgage loans 8,098,463 7,437,537
Principal repayments on other loans 8.878,654 7,588,368
First mortgage loans originated and disbursed (10,404,950) (13,842,100)
Other loans originated (11,675,595) (12,985,902)
Proceeds from sale of other loans 197,297 271,663
Additions to office premises and equipment (380,818) (154,819)
------------ ------------
Net cash provided (used) by investing activities (10,888,356) (23,016,090)
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Statements of Cash Flows (Unaudited)
(continued)
Six Months Ended March 31,
------------------------------
1997 1996
------------ -------------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in savings deposits 385,869 (679,012)
Increase in advance payments by borrowers for taxes and insurance 622,343 (4,254,766)
Increase (decrease) in reverse repurchase agreements 138,184 764, 119
FHLB advance repayments (840,800,000) (386,900,000)
FHLB advances 850,575,000 411,050,000
Cash dividends paid (235,790) (198,219)
Stock options exercised 201,922 31,342
Proceeds from sale of stock 31,903 27,955
------------- -------------
Net cash provided (used) by financing activities 10,919,431 19,841,419
------------- -------------
Increase (decrease) in cash and cash equivalents (217,252) (335,504)
Cash and cash equivalents at beginning of period 4,762,098 5,043,480
------------- -------------
Cash and cash equivalents at end of period $ 4,544,846 $ 4,707,976
============ =============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and other borrowings $ 6,315,792 $ 5,896,131
Income taxes $ 27,953 $ 560,000
------------- -------------
Transfer of investment and mortgage-backed securities from
investment to available-for-sale $ -0- $ 61,864,252
------------- -------------
</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 935,848 935,848
Cash dividends paid at $.08
per share (198,219) (198,219)
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 (438,344) (438,344)
Sale of stock 16 27,939 27,955
Stock options exercised 50 31,292 $ 31,342
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1996 $ 12,423 $ 8,197,756 $ 14,526,281 $ (784,966) $ 21,951,494
============ ============ ============ ============ ============
Balance at September 30, 1996 $ 13,732 $ 10,437,133 $ 12,522,830 $ (1,195,600) $ 21,778,095
Net income 1,260,343 1,260,343
Cash dividends paid at $.08
per share (235,790) (235,790)
Net change in unrealized gain
(loss) on securities available-
for-sale, net of taxes (213,783) (213,783)
Sale of stock 15 31,888 31,903
Stock options exercised 259 201,663 201,922
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1997 $ 14,006 $ 10,670,684 $ 13,547,383 $ (1,409,383) $ 22,822,690
============ ============ ============ ============ ============
</TABLE>
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
September 30, 1996 and March 31, 1997
(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 six month periods ended
March 31, 1997 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 the demand deposits portion of interest-earning deposits with
other institutions.
(3) Earnings Per Share
Earnings per share for the three and six months ended March 31, 1996 and 1997
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 March 31, 1996 and 1997 were 1,403,684 and 1,446,954, respectively. The
average number of shares outstanding (including common stock equivalents) for
the six months periods ended March 31, 1996 and 1997 were 1,401,812 and
1,429,557, respectively. The average number of shares for the fiscal 1997
periods 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.
<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 $63.2 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, 1996 and March 31, 1997
Total assets of the Bank increased $10.0 million or 3.2% to $327.9 million at
March 31, 1997 from $317.9 million at September 30, 1996. Significant changes in
individual categories were increases in loans receivable of $4.9 million and
mortgage-backed securities available-for-sale of $11.9 million, and a decrease
in investment securities available-for-sale of $5.9 million.
Total liabilities of the Bank increased by $9.0 million or 3.0% to $305.1
million at March 31, 1997 from $296.1 million at September 30, 1996. The
increase reflects a $9.8 million increase in Federal Home Loan Bank advances
outstanding, partially offset by a $2.2 million decrease in other liabilities.
Stockholders' equity increased $1.0 million or 4.8% to $22.8 million at March
31, 1997, compared to September 30, 1996. The net increase reflects net income
for the six month period ended March 31, 1997 of $1.3 million, proceeds from
stock options exercised of $203,000, and proceeds from the Dividend Reinvestment
Plan of $32,000, partially offset by an increase in unrealized holding losses on
securities available-for-sale of $214,000 and common stock cash dividends paid
of $236,000.
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, March 31,
1996 1997
---------- ----------
<S> <C> <C>
Non-accrual residential real
estate loans (one-to-four- family) $ 567,000 $ 170,000
Non-accrual construction, multi-family
residential and commercial real estate loans 134,000 905,000
Non-accrual installment and
commercial business loans 457,000 44,000
---------- ----------
Total non-performing loans $1,158,000 $1,119,000
========== ==========
Total non-performing loans as
a percent of net loans receivable .77% .72%
========== ==========
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% .34%
========== ==========
</TABLE>
<PAGE>
Included in non-performing loans at March 31, 1997 are 7 single-family
residential real estate loans totaling $170,000, one single-family construction
loan for $148,000, one commercial real estate loan totaling $757,000, 18
installment loans totaling $29,000 and one commercial business loan totaling
$15,000. Of the 7 non-performing single-family residential real estate loans,
the largest amounted to $92,000. The commercial real estate loan is on an office
building located in Pittsburgh that is currently for sale
The 18 installment loans total $29,000 and consist of various secured and
unsecured consumer loans and credit card loans.
At March 31, 1997, the Bank had an allowance for possible loan losses of $1.7
million or 1.03% 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 equaled 148% of non-performing loans at March 31, 1997.
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 March 31, 1997 is adequate. In that regard, consideration was given
to the increase in the level of the allowance from September 30, 1996 to March
31, 1997, as well as the coverage of non-performing loans the allowance provides
at March 31, 1997.
There was no real estate owned at March 31, 1997.
Comparison of Results of Operations
for the Three and Six Months Ended March 31, 1997 and 1996
Net Income
Net income for the three months ended March 31, 1997 was $638,000 compared to
$523,000 for the same period in 1996, an increase of $115,000 or 22.0%. The
increase reflects an increase in net interest income of $301,000 or 13.8%, an
increase in other income of $20,000 or 9.8%, and a decrease in operating
expenses of $37,000 or 2.3%. Partially offsetting these factors was an increase
in the provision for loan losses of $60,000 or 100% and an increase in the
provision for income taxes of $182,000 or 89.9%.
Net income for the six months ended March 31, 1997 was $1.3 million compared to
$936,000 for the same period in 1996, an increase of $324,000 or 34.7%. The
increase reflects an increase in net interest income of $711,000 or 16.8%, an
increase in other income of $59,000 or 16.7%, and a decrease in operating
expenses of $10,000 or .3%. Partially offsetting these factors was an increase
in the provision for loan losses of $145,000 or 161.1% and an increase in the
provision for income taxes of $310,000 or 80.9%.
Interest Rate Spread
The Bank's interest rate spread, the difference between yields on
interest-earning assets and the cost of funds, decreased to 3.08% in the three
months ended March 31, 1997 from 3.11% in the same period in 1996. 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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----- -----
<S> <C> <C>
Average yield on:
Mortgage loans 8.04% 8.21%
Mortgage-backed securities 6.32 6.09
Installment loans 8.11 8.41
Commercial business loans 10.17 10.00
Interest-earning deposits with other
institutions, investment securities,
and FHLB stock (1) 7.09 7.47
----- -----
Total interest-earning assets 7.40 7.40
----- -----
Average rates paid on:
Savings deposits 4.02 4.23
Borrowed funds 5.41 4.75
----- -----
Total interest-bearing liabilities 4.32 4.29
----- -----
Average interest rate spread 3.08% 3.11%
===== =====
Net yield on interest-earning assets 3.32% 3.29%
===== =====
(1) Interest income on tax free investments has been adjusted for federal income
tax purposes using a rate of 34%.
</TABLE>
<PAGE>
The Bank's interest rate spread increased to 3.13% in the six months ended March
31, 1997 from 3.05% in the same period in fiscal 1996. 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>
Six Months Ended March 31,
1997 1996
----- ----
<S> <C> <C>
Average yield on:
Mortgage loans 8.06% 8.23%
Mortgage-backed securities 6.31 6.19
Installment loans 8.23 8.53
Commercial business loans 10.15 9.92
Interest-earning deposits with other
institutions, investment securities,
and FHLB stock (1) 7.08 7.23
----- ----
Total interest-earning assets 7.42 7.39
----- ----
Average rates paid on:
Savings deposits 4.01 4.31
Borrowed funds 5.31 4.72
----- ----
Total interest-bearing liabilities 4.29 4.34
----- ----
Average interest rate spread 3.13% 3.05%
===== ====
Net yield on interest-earning assets 3.33% 3.23%
===== ====
(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 $505,000 or 18.7% to $3.2 million for the three
months ended March 31, 1997, compared to the same period in 1996. The increase
is attributable to an increase in the average loan balance outstanding during
the 1997 period, partially offset by a decrease in the yield earned on these
assets in the 1997 period as compared to the same period in 1996. Interest on
loans increased $1.1 million 20.0% to $6.4 for the six months ended March 31,
1997, compared to the same period in 1996. The increase is attributable to an
increase in the average loan balance outstanding during the 1997 period,
partially offset by a decrease in the yield earned on these assets in the fiscal
1997 period as compared to the same period in fiscal 1996. The increase in the
average balance of the loan portfolio in the fiscal 1997 periods reflects
management's continued strategy of emphasizing and increasing loans.
Interest on mortgage-backed securities increased $117,000 or 7.8% to $1.6
million and $111,000 or 3.6% to $3.2 million for the three and six months ended
March 31, 1997, respectively, as compared to the same periods in 1996. The
increase for both the three and six month periods ended March 31, 1997, reflects
both an increase in the average balance of mortgage-backed securities owned in
the fiscal 1997 periods, as compared to fiscal 1996, and an increase in the
average yield earned on the portfolio.
<PAGE>
Interest on interest-earning deposits with other institutions and investment
securities decreased $10,000 or 1.2% to $857,000 for the three month period
ended March 31, 1997, as compared to the same period in 1996. The decrease
reflects a decrease in the yield earned on these investments, partially offset
by an increase in the average balance in the portfolio. For the six month period
ended March 31, 1997, interest on interest-earning deposits with other
institutions and investment securities increased $116,000 or 7.2% to $1.7
million, as compared to the same period in the prior year. 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.
Interest Expense
Interest on savings deposits decreased $258,000 or 10.0% to $2.3 million and
$567,000 or 10.8% to $4.7 million for the three and six month periods ended
March 31, 1997, respectively, as compared to the same periods in fiscal 1996.
The decrease for both the three and six month periods in fiscal 1997 as compared
to fiscal 1996 reflects a decrease in the average cost of deposits, as well as a
decrease in the average balance of savings deposits for the fiscal 1997 periods.
Interest on borrowed funds increased $569,000 or 180.3% to $885,000 and $1.2
million or 220.7% to $1.7 million for the three and six month periods ended
March 31, 1997, respectively, as compared to the same periods in fiscal 1996.
The increases for both periods in fiscal 1997 as compared to fiscal 1996 reflect
both an increase in the average cost of borrowing during the 1997 periods, as
compared to 1996, as well as an increase in the Federal Home Loan Bank ("FHLB")
advances and reverse repurchase agreements outstanding during the fiscal 1997
periods. The Bank continues to rely on these wholesale funding sources in fiscal
1997 to fund growth as average deposit balances remained flat during the
periods.
Net Interest Income Before Provision for Loan Losses
The Bank's net interest income before provision for loan losses increased
$301,000 or 13.8% to $2.5 million, and $711,000 or 16.8% to $4.9 million for the
three and six month periods ended March 31, 1997, respectively, as compared to
the same periods in fiscal 1996. The increase for both periods is primarily
attributable to an increase in net interest earning assets.
Provision for Loan Losses
The provision for loan losses increased $60,000 or 100.0% to $120,000 and
$145,000 or 161.1% to $235,000 for the three and six month periods ended March
31, 1997, respectively, as compared to the same periods in fiscal 1996. The
provision for both years reflects management's evaluation of the loan portfolio,
current economic conditions, and other factors as described below. The allowance
for possible loan losses has increased from $1.3 million at March 31, 1996 to
$1.7 million at March 31, 1997.
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 diversification of the loan portfolio,
historical loss experience, identified credit problems, delinquency levels and
the adequacy of collateral. Although management believes that the current
<PAGE>
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 $20,000 or 9.8% to $224,000 and
$59,000 or 16.7% to $408,000 for the three and six month periods ended March 31,
1997, respectively, as compared to the same periods in fiscal 1996.
Service fee income, which includes late charges on loans and fees for loans
serviced for others, increased $2,000 or 13.3% to $17,000 for the three month
period ended March 31, 1997, as compared to the same period in the prior year.
Service fee income was comparable at $35,000 for both the six month periods
ended March 31, 1997 and 1996. In both the three and six month periods ended
March 31, 1997, increases in late charges on loans were wholly or partially
offset by reduced service fee income, as compared to the same periods in the
prior fiscal year.
Gain on the sale of investment and mortgage-backed securities decreased $7,000
or 24.5% to $22,000 for the three month period ended March 31, 1997, as compared
to the same period in 1996. For the six month period ended March 31, 1997, a
gain of $21,000 was recorded, as compared to a gain of $17,000 for the same
period in fiscal 1996. All sales were made from the available-for-sale portfolio
in the periods and were done to reflect current economic conditions and
asset/liability management strategies, as well as changing market conditions.
Gain on sale of loans was $3,000 and $5,000 for both the three and six month
periods ended March 31, 1996 and 1997, respectively. 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 student loans for its portfolio, except those that will be
serviced by SLMA. Results generally reflect the timing of such sales. The volume
of loans sold is comparable between periods.
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 $25,000 or 16.3% to $182,000 and increased $55,000 or
18.9% to $347,000 for the three and six month periods ended March 31, 1997, as
compared to the same periods in fiscal 1996. The increase for both the three and
six month periods is primarily due to increases in checking account service
charges and fees related to a debit card product the Bank introduced in fiscal
1996.
Other Expenses
Total operating expenses decreased $37,000 or 2.3% to $1.6 million and $10,000
or .3% to $3.2 million for the three and six month periods ended March 31, 1997,
respectively, as compared to the same period in fiscal 1996.
<PAGE>
Compensation, payroll taxes and fringe benefits, the largest component of
operating expenses, increased $55,000 or 6.9% to $853,000 and $173,000 or 10.9%
to $1.8 million for the three and six month periods ended March 31, 1997,
respectively, compared to the same periods in fiscal 1996. Factors contributing
to the increase were normal salary increases, higher bonuses awarded in fiscal
1997, a small increase in the number of employees on the payroll, and an
increase in retirement and health care expenses.
Office occupancy and equipment expense was comparable at $144,000 for the three
month periods ended March 31, 1997 and 1996, and increased $10,000 or 3.6% to
$289,000 for the six month period ended March 31, 1997, compared to the same
period in fiscal 1996. In both the three and six month periods, increases in
equipment maintenance costs were partially offset by lower utility expenses and
property taxes.
Depreciation and amortization increased $10,000 or 8.5% to $123,000 and $13,000
or 6.1% to $235,000 for the three and six month periods ended March 31, 1997,
respectively, compared to the same periods in fiscal 1996. The results reflect
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 $101,000 or 72.9% to $38,000 and $242,000
or 86.5% to $38,000 for the three and six month periods ended March 31, 1997,
respectively, compared to the same periods in fiscal 1996. 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 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, were 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 $26,000 for the three months ended March 31,
1997, as compared to a net gain of $7,000 in the comparable period in fiscal
1996. Net loss on real estate owned was $33,000 and $1,000 for the six month
periods ended March 31, 1997 and 1996, respectively. Results for the periods
reflect the sale of property held as real estate owned. At March 31, 1997, the
Bank has no real estate owned.
Amortization of intangibles was zero for the three month period ended March 31,
1997, and $66,000 for the comparable period in fiscal 1996. Amortization of
intangibles was $44,000 and $132,000 for the six month periods ended March 31,
1997 and 1996, respectively. 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.
<PAGE>
Other operating expenses, which consists of check processing costs, consulting
fees, legal and audit fees, advertising, bank charges and other administrative
expenses, increased $33,000 or 9.6% to $384,000 and $92,000 or 13.9% to $756,000
for the three and six month periods ended March 31, 1997, respectively, as
compared to the same periods in fiscal 1996. Significant variations between both
the three and six month periods in fiscal 1997, as compared to fiscal 1996,
include increases in automatic teller machine network fees, stationary and
supplies, advertising and consulting fees, and Federal Reserve Bank service
charges related to the Bank's implementation of check imaging.
Income Taxes
Income taxes increased $182,000 or 89.9% to $386,000 and $310,000 or 80.9% to
$693,000 for the three and six month periods ended March 31, 1997, respectively,
compared to the same periods in fiscal 1996. The increase in taxes for both the
three and six month periods ended March 31, 1997, reflects increased taxable
income in the 1997 periods, as well as an increase in the effective tax rate to
37.6% and 35.5% for the three and six month periods ended March 31, 1997,
respectively, as compared to 28.0% and 29.0% for the comparable periods in the
prior year. The increased effective tax rate primarily results from the Bank's
increased pre-tax income as well as the sale of tax-free investments and the
reinvestment of those proceeds into taxable instruments.
Capital Requirements
The Federal Reserve Board measures capital adequacy for bank holding companies,
such as the Company, on the basis of a risk-based capital framework and a
leverage ratio. The minimum ratio of total risk-based capital to risk-weighted
assets is 8%. At least half of the total capital must be common stockholders'
equity (not inclusive of net unrealized gains and losses on available-for-sale
securities) and perpetual preferred stock, less goodwill and other nonqualifying
intangible assets ("Tier 1 capital"). The remainder (i.e. , the "Tier 2
risk-based capital") may consist of hybrid capital instruments, perpetual debt,
term subordinated debt, other preferred stock and a limited amount of the
allowance for loan losses. At March 31, 1997, the Company had Tier 1 capital as
a percentage of risk-weighted assets of 14.61% and total risk-based capital as a
percentage of risk-weighted assets of 15.62%.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines currently provide for a
minimum ratio or Tier 1 capital as a percentage of average total assets (the
"Leverage Ratio") of 3% for bank holding companies that meet certain criteria,
including that they maintain the highest regulatory rating. all other bank
holding companies are required to maintain a leverage ratio of at least 100 to
200 basis points above the minimum. At March 31, 1997, the Company had a
leverage ratio of 7.45%.
The FDIC has issued regulations that require insured institutions, such as the
Bank, 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 March 31, 1997, the Bank complied with the minimum
leverage ratio having Tier 1 capital of 7.10% 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 March
31, 1997, the Bank's total capital to risk-weighted assets ratio calculated
under the FDIC capital requirement was 14.90%.
<PAGE>
A reconciliation of Stockholders' Equity to Regulatory Capital is as follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholder's equity at March 31, 1997 (1) $21,591,377
Unrealized securities losses 1,347,496
-----------
Tier 1 Capital at March 31, 1997 22,938,873
Plus: Qualifying loan loss allowance 1,677,358
-----------
Total capital at March 31, 1997 $24,616,231
===========
(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 March 31, 1997, the total of approved loan commitments
amounted to $4.9 million. In addition, the Bank had $4.0 million of undisbursed
loan funds at that date. The amount of savings certificates which mature during
the next twelve months totals approximately $84.7 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
A. The Annual Meeting of Stockholders was held on February 4, 1997.
B. The election of directors and ratification of auditors were
submitted for approval to the stockholders of Fidelity Bancorp,
Inc. and were approved thereby by the requisite vote required.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIDELITY SAVINGS BANK
Date: May 12, 1997 By: /s/ William L. Windisch
-----------------------
William L. Windisch
President and Chief Executive Officer
Date: May 12, 1997 By: /s/ Richard G. Spencer
----------------------
Richard G. Spencer
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,402,978
<INT-BEARING-DEPOSITS> 141,868
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,464,542
<INVESTMENTS-CARRYING> 35,577,617
<INVESTMENTS-MARKET> 34,861,629
<LOANS> 157,887,278
<ALLOWANCE> 1,677,358
<TOTAL-ASSETS> 327,896,431
<DEPOSITS> 234,661,489
<SHORT-TERM> 54,056,317
<LIABILITIES-OTHER> 3,355,935
<LONG-TERM> 13,000,000
0
0
<COMMON> 14,006
<OTHER-SE> 22,808,684
<TOTAL-LIABILITIES-AND-EQUITY> 327,896,431
<INTEREST-LOAN> 6,396,995
<INTEREST-INVEST> 4,881,429
<INTEREST-OTHER> 4,914
<INTEREST-TOTAL> 11,283,338
<INTEREST-DEPOSIT> 4,672,950
<INTEREST-EXPENSE> 6,346,528
<INTEREST-INCOME-NET> 4,936,810
<LOAN-LOSSES> 235,000
<SECURITIES-GAINS> 20,523
<EXPENSE-OTHER> 3,156,887
<INCOME-PRETAX> 1,953,343
<INCOME-PRE-EXTRAORDINARY> 1,953,343
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260,343
<EPS-PRIMARY> .88
<EPS-DILUTED> .87
<YIELD-ACTUAL> 3.23
<LOANS-NON> 1,118,877
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,530,257
<CHARGE-OFFS> (104,606)
<RECOVERIES> 16,707
<ALLOWANCE-CLOSE> 1,677,358
<ALLOWANCE-DOMESTIC> 1,677,358
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
