U.S. Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
[ ] 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 registrant as specified in its charter)
Pennsylvania 25-1705405
------------ ----------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization
1009 Perry Highway, Pittsburgh, Pennsylvania, 15237
---------------------------------------------------
(Address of principal executive offices)
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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,900,248 shares, par value
---------------------------
$0.01, at April 30, 2000
- ------------------------
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
<S> <C> <C>
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of September 30, 1999 and March 31, 2000 1
Consolidated Statements of Income for the Three and Six Months Ended March 31, 1999 and 2000 2
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1999 and 2000 3-4
Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended March 31, 1999 and 5
2000
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II- Other Information
- -------- -----------------
Item l. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17-18
Signatures 19
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (Unaudited)
----------------------------------------------------------
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 2000 1999
------ ----------- ------------
<S> <C> <C>
Cash and amounts due from
depository institutions $6,086 $4,304
Interest-earning demand deposits with
other institutions 794 364
Investment securities held-to-maturity 6,836 3,625
Investment securities available-for-sale 83,281 77,737
Loans receivable, net (Notes 5 and 6) 297,454 275,958
Mortgage-backed securities held-to-maturity 13,973 13,400
Mortgage-backed securities available-for-sale 76,438 82,850
Real estate owned, net 324 107
Federal Home Loan Bank stock - at cost 9,638 8,795
Accrued interest receivable, net 2,972 2,886
Office premises and equipment, net 4,636 4,700
Deferred tax asset 3,728 3,155
Prepaid expenses and other assets 4,991 4,662
---------- ----------
Total Assets $ 511,151 $ 482,543
========== ===========
Liabilities and Net worth
-------------------------
Liabilities:
Savings and time deposits $276,493 $269,118
Federal Home Loan Bank advances 188,724 170,600
Reverse repurchase agreements and other
borrowings 3,954 3,041
Advance deposits by borrowers for
taxes and insurance 2,857 1,298
Accrued interest on savings and other deposits 1,194 1,153
Accrued income taxes payable 428 199
Other accrued expenses and liabilities 1,240 838
Guaranteed preferred beneficial interest in
Company's debentures 10,250 10,250
---------- ----------
Total Liabilities $ 485,140 456,497
---------- ----------
Stockholders' equity (Notes 3 and 4):
Common stock, $0.01 par value per share,
10,000,000 shares authorized; 2,000,945
and 1,989,883 shares issued, respectively 20 20
Treasury stock, at cost - 106,575 and 55,575 shares (1,680) (953)
Additional paid-in capital 14,413 14,305
Retained earnings - substantially restricted 18,432 16,736
Accumulated other comprehensive income (loss), net
of tax (5,174) (4,062)
---------- ----------
Total Stockholders' Equity 26,011 26,046
---------- ----------
Total Liabilities and Stockholders' Equity $ 511,151 $ 482,543
========== ==========
</TABLE>
See accompanying notes to financial statements.
-1-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
---------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans $5,665 $4,612 $11,197 $9,291
Mortgage-backed securities 1,536 1,709 3,084 3,350
Investment securities 1,528 1,123 2,892 2,186
Deposits with other institutions 7 7 17 20
-------- -------- -------- ---------
Total interest income 8,736 7,451 17,190 14,847
-------- -------- -------- ---------
Interest expense:
Savings deposits 2,644 2,621 5,187 5,449
Guaranteed preferred beneficial interest
in subordinated debt 256 256 512 512
Borrowed funds 2,768 1,751 5,202 3,293
-------- -------- -------- ---------
Total interest expense 5,668 4,628 10,901 9,254
-------- -------- -------- ---------
Net interest income before provision
for loan losses 3,068 2,823 6,289 5,593
Provision for loan losses 120 100 240 205
-------- -------- -------- ---------
Net interest income after provision
for loan losses 2,948 2,723 6,049 5,388
-------- -------- -------- ---------
Other income:
Loan service charges and fees 39 28 98 73
Gain (loss) on sale of investment
and mortgage-backed securities, net 86 74 84 74
Gain (loss) on sale of loans 3 1 5 5
Deposit service charges and fees 154 121 325 247
Other operating income 201 194 403 344
-------- -------- -------- ---------
Total other income 483 418 915 743
-------- -------- -------- ---------
Operating expenses:
Compensation and employee benefits 1,200 1,183 2,431 2,375
Occupancy and equipment expense 174 209 344 419
Depreciation and amortization 146 149 287 295
Federal insurance premiums 14 40 54 78
(Gain) loss on real estate owned, net 3 6 24 (39)
Other operating expenses 492 484 938 929
-------- -------- -------- ---------
Total operating expenses 2,029 2,071 4,078 4,057
-------- -------- -------- ---------
Income before income tax provision 1,402 1,070 2,886 2,074
Income tax provision 389 286 808 587
-------- -------- -------- ---------
Net income $ 1,013 $ 784 $ 2,078 $ 1,487
======== ======== ======== =========
Basic earnings per common share (Note 3) $ 0.54 $ 0.40 $ 1.09 $ 0.75
======== ======== ======== =========
Diluted earnings per common share (Note 3) $ 0.53 $ 0.39 $ 1.08 $ 0.73
======== ======== ======== =========
Dividends per common share $ 0.10 $ 0.09 $ 0.20 $ 0.18
======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
2000 1999
---- ----
Operating Activities:
- --------------------
<S> <C> <C>
Net income $ 2,078 $ 1,487
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 240 205
(Gain) loss on real estate owned 24 (39)
Depreciation of premises and equipment 287 295
Deferred loan fee amortization (82) (158)
Amortization of investment and mortgage-backed securities
discounts/premiums, net 97 196
Net (gain) loss on sale of investment securities (84) (127)
Net (gain) loss on sale of mortgage-backed securities - 53
Net (gain) loss on sale of loans (5) (5)
Origination of loans held-for-sale - (477)
Proceeds from sale of loans held-for-sale - 479
(Increase) decrease in interest receivable (86) (94)
Increase (decrease) in accrued income taxes 229 (171)
Increase (decrease) in interest payable 41 (56)
Other changes, net (167) 555
-------- --------
Net cash provided (used) by operating activities 2,572 2,143
-------- --------
Investing Activities:
- --------------------
Proceeds from sales of investment securities available-for-sale 2,223 1,558
Proceeds from maturities and principal repayments of
Investment securities available-for-sale 1,002 9,008
Purchases of investment securities available-for-sale (9,282) (26,375)
Proceeds from sales of mortgage-backed securities available-for-sale - 3,171
Proceeds from maturities and principal repayments of mortgage-
backed securities available-for-sale 5,253 15,342
Purchases of mortgage-backed securities available-for-sale - (33,515)
Proceeds from maturities and principal repayments of investment
securities held-to-maturity - 5,000
Purchases of investment securities held-to-maturity (3,211) (2,004)
Purchases of mortgage-backed securities held-to-maturity (1,974) -
Proceeds from principal repayments of mortgage-backed
securities held-to-maturity 1,375 4,201
Net (increase) decrease in loans (22,347) (21,738)
Proceeds from sale of other loans 698 251
Additions to office premises and equipment (223) (746)
Net purchases of FHLB Stock (843) (2,307)
-------- --------
Net cash provided (used) by investing activities (27,329) (48,154)
-------- --------
</TABLE>
-3-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Cont'd.)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
2000 1999
---- ----
Financing Activities:
- --------------------
<S> <C> <C>
Net increase (decrease) in savings and time deposits 7,375 2,838
Increase (decrease) in reverse repurchase agreements and
other borrowings 912 724
Net increase (decrease) in FHLB advances 18,124 45,300
Increase in advance payments by borrowers for
taxes and insurance 1,559 1,239
Cash dividends paid (382) (357)
Stock options exercised 65 52
Proceeds from sale of stock 43 28
Purchase of treasury stock (727) (89)
-------- --------
Net cash provided (used) by financing activities 26,969 49,735
-------- --------
Increase (decrease) in cash and cash equivalents 2,212 3,724
Cash and cash equivalents at beginning of period 4,668 3,152
-------- --------
Cash and cash equivalents at end of period $ 6,880 $ 6,876
======== ========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest on deposits and other borrowings $ 10,861 $ 9,195
Income taxes $ 579 $ 750
Transfer of loans to real estate owned $ 330 $ -
-------- --------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-in Treasury Retained Income (Loss)
Stock Capital Stock Earnings Net of Tax Total
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 20 $ 14,168 $ 0 $ 14,106 $ 727 $ 29,021
Comprehensive income:
Net income 1,487 1,487
Other comprehensive loss,
net of tax of ($440) (854) (854)
------- -------- ------- -------- ------- --------
Total comprehensive income (loss) - - - 1,487 (854) 633
Cash dividends paid (357) (357)
Treasury stock purchased -
5,000 shares (89) (89)
Sale of stock through Dividend
Reinvestment Plan 28 28
Stock options exercised 52 52
------- -------- ------- -------- ------- --------
Balance at March 31, 1999 $ 20 $ 14,248 $ (89) $ 15,236 $ (127) $ 29,288
======= ======== ======= ======== ======= ========
Balance at September 30, 1999 $ 20 $ 14,305 $ (953) $ 16,736 $(4,062) $ 26,046
Comprehensive income:
Net income 2,078 2,078
Other comprehensive loss,
net of tax of ($572) (1,112) (1,112)
------- -------- ------- -------- ------- --------
Total comprehensive income (loss) - - - 2,078 (1,112) 966
Cash dividends paid (382) (382)
Treasury stock purchased -
51,000 shares (727) (727)
Sale of stock through Dividend
Reinvestment Plan 43 43
Stock options exercised 65 65
------- -------- ------- -------- ------- --------
Balance at March 31, 2000 $ 20 $14,413 $(1,680) $ 18,432 $(5,174) $ 26,011
======= ======== ======== ======== ======= ========
</TABLE>
-5-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Unaudited)
September 30, 1999 and March 31, 2000
(1) Consolidation
-------------
The consolidated financial statements contained herein for Fidelity Bancorp,
Inc. (the "Company") include the accounts of Fidelity Bancorp, Inc. and its
wholly-owned subsidiaries, Fidelity Bank, PaSB (the "Bank") and FB Capital Trust
(the "Trust"). All significant inter-company balances and transactions have been
eliminated.
(2) Basis of Presentation
---------------------
The accompanying consolidated financial statements were prepared in accordance
with instructions to Form 10-Q, and therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, all normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of the financial statements,
have been included. These financial statements should be read in conjunction
with the audited financial statements and the accompanying notes thereto
included in the Company's Annual Report for the fiscal year ended September 30,
1999. The results for the three and six month periods ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2000 or any other period.
(3) Earnings Per Share
------------------
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. The following table sets forth the computation
of basic and diluted earnings per share (amounts in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31
2000 1999 2000 1999
--------------------- -----------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $1,013 $ 784 $2,078 $1,487
------ ------ ------ ------
Numerator for basic and diluted
earnings per share $1,013 $ 784 $2,078 $1,487
------ ------ ------ ------
Denominator:
Denominator for basic earnings per 1,893 1,983 1,907 1,981
share - weighted average shares
Effect of dilutive securities:
Employee stock options 16 47 20 47
------ ------ ------ ------
Denominator for diluted earnings per share -
weighted average
Shares and assumed conversions 1,909 2,030 1,927 2,028
------ ------ ------ ------
Basic earnings per share $ .54 $ .40 $ 1.09 $ .75
------ ------ ------ ------
Diluted earnings per share $ .53 $ .39 $ 1.08 $ .73
------ ------ ------ ------
</TABLE>
-6-
<PAGE>
(4) Securities
----------
The Company accounts for investments in debt and equity securities in accordance
with SFAS No. 115, which requires that investments be classified as either: (1)
Securities Held-to- Maturity - reported at amortized cost, (2) Trading
Securities - reported at fair value, or (3) Securities Available-for-Sale -
reported at fair value. Unrealized gains and losses for securities
available-for-sale are reported as other comprehensive income in stockholders'
equity. Unrealized losses of $5.2 million, net of tax, on investments classified
as available-for-sale are recorded at March 31, 2000.
(5) Loans Receivable
----------------
Loans receivable are comprised of the following (dollar amounts in
thousands):
March 31 September 30,
2000 1999
---------- -----------
First mortgage loans:
Conventional:
1-4 family dwellings $179,232 $156,112
Multi-family dwellings 4,025 4,007
Commercial 25,943 26,513
Construction 14,186 22,689
-------- --------
223,386 209,321
-------- --------
Less:
Loans in process (10,378) (14,696)
Unearned discounts and fees (1,512) (1,453)
-------- --------
211,496 193,172
-------- --------
Installment Loans:
Home equity 52,392 51,316
Consumer loans 1,737 1,802
Credit cards 2,958 2,859
Other 1,765 1,892
-------- --------
58,852 57,869
-------- --------
Commercial business loans and leases:
Commercial business loans 24,025 22,072
Commercial leases 5,648 5,322
-------- --------
29,673 27,394
-------- --------
Less: Allowance for loan losses (2,567) (2,477)
-------- --------
Loans receivable, net $297,454 $275,958
-------- --------
(6) Changes in the allowance for loan losses for the six months ended March 31,
2000 and 1999 are as follows (dollar amounts in thousands):
2000 1999
-------- ------
Balance at beginning of the fiscal year $ 2,477 $2,243
Provision for loan losses 240 205
Charge-offs (171) (113)
Recoveries 21 2
-------- --------
Balance at March 31, $2,567 $2,337
-------- --------
-7-
<PAGE>
The provision for loan losses charged to expense is based upon past loan and
loss experience and an evaluation of probable losses in the current loan
portfolio, including the evaluation of impaired loans under SFAS Nos. 114 and
118. A loan is considered to be impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect all amounts
due according to the contractual terms of the loan. An insignificant shortfall
in payments does not necessarily result in a loan being identified as impaired.
For this purpose, delays less than 90 days are considered to be insignificant.
Impairment losses are included in the provision for loan losses. SFAS Nos. 114
and 118 do not apply to large groups of smaller balance, homogeneous loans that
are collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans, and are not included
in the following data.
At March 31, 2000, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $104,000. Included in this amount is $104,000 of
impaired loans for which the related allowance for loan losses is $10,000, and
no impaired loans that as a result of write-downs do not have an allowance for
loan losses. The average recorded investment in impaired loans during the six
months ended March 31, 2000 was $171,000. For the six months ended March 31,
2000, the Company recognized no interest income on those impaired loans using
the cash basis of income recognition.
(7) Comprehensive Income
--------------------
The Company follows SFAS No. 130, "Reporting Comprehensive Income" which
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. For the six months ended March 31, 2000 and 1999, the
Company's total comprehensive income was $966,000 and $633,000, respectively.
Total comprehensive income is comprised of net income of $2.078 million and
$1.487 million and other comprehensive loss of ($1.112 million) and ($854,000),
net of tax, respectively. Other comprehensive income consists of unrealized
gains and losses on investment securities and mortgage-backed securities
available-for-sale.
(8) Acquisition
-----------
On February 18, 2000, the Company announced the signing of a Definitive
Agreement and Plan of Merger whereby Fidelity Bancorp, Inc. will acquire all the
outstanding common stock of Pennwood Bancorp, Inc. ("Pennwood") for $13.10 per
share in cash or approximately $7.5 million. The acquisition is subject to
several contingencies, including approval by the stockholders of Pennwood and
receipt of regulatory approval, and is expected to be effective in the fourth
quarter of the Company's fiscal year. Subsequently, on May 9, 2000,Fidelity Bank
signed a definitive agreement to sell the real property, furniture, fixtures and
equipment and to transfer the related deposits of the two branch offices of
Pennwood located in Kittanning, Pennsylvania to The Farmers National Bank of
Kittanning. The sale is contingent on the consummation of the Company's
acquisition of Pennwood and receipt of regulatory approval.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIDELITY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of integrating newly
acquired businesses, the ability to control costs and expenses, and general
economic conditions. Fidelity Bancorp, Inc. undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
On February 18, 2000, the Company announced the signing of a Definitive
Agreement and Plan of Merger whereby Fidelity Bancorp, Inc. will acquire all the
outstanding common stock of Pennwood Bancorp, Inc. for $13.10 per share in cash
or approximately $7.5 million. The acquisition is subject to several
contingencies, including approval by the stockholders of Pennwood and receipt of
regulatory approval, and is expected to be effective in the fourth quarter of
the Company's fiscal year. Subsequently, on May 9, 2000, Fidelity Bank signed a
definitive agreement to sell the real property, furniture, fixtures and
equipment and to transfer the related deposits of the two branch offices of
Pennwood located in Kittanning, Pennsylvania to The Farmers National Bank of
Kittanning. The sale is contingent on the consummation of the Company's
acquisition of Pennwood and receipt of regulatory approval.
Comparison of Financial Condition at September 30, 1999 and March 31, 2000
- --------------------------------------------------------------------------
Total assets of the Company increased $28.6 million or 5.9% to $511.2 million at
March 31, 2000 from $482.5 million at September 30, 1999. Significant changes in
individual categories were increases in loans receivable of $21.5 million,
investment securities available-for-sale of $5.5 million, investment securities
held-to-maturity of $3.2 million and a decrease in mortgage-backed securities
available-for-sale of $6.4 million.
Total liabilities of the Bank increased by $28.6 million or 6.3% to $485.1
million at March 31, 2000 from $456.5 million at September 30, 1999. The
increase primarily reflects a $18.1 million increase in Federal Home Loan Bank
advances and a $7.4 million increase in savings and time deposits.
Stockholders' equity decreased $35,000 or .1% to $26.0 million at March 31,
2000, compared to September 30, 1999. This result reflects net income for the
six month period ended March 31, 2000 of $2.078 million, stock options exercised
of $65,000 and stock issued under the Dividend Reinvestment Plan of $43,000.
Offsetting these increases were common stock cash dividends paid of $382,000, an
increase accumulated other comprehensive loss, net of tax, on securities
available-for-sale of $1.1 million, and the purchase of treasury stock at cost
for $727,000.
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. (Dollar
amounts in thousands):
-9-
<PAGE>
March 31, September 30,
2000 1999
-------- ------------
Non-accural residential real estate loans
(one-to-four family) $ 60 $ 250
Non-accrual construction, multi family
residential and commercial real estate loans 188 1,362
Non-accural installment and commercial
business loans 671 773
------ ------
Total non-performing loans $919 $2,385
====== ======
Total non-performing loans as a percent of
net loans receivable .31% .86%
====== ======
Total real estate owned, net of related
reserves $ 324 $ 107
====== ======
Total non-performing loans and real estate
owned as a percent of total assets .24% .52%
====== ======
Included in non-performing loans at March 31, 2000 are two single-family
residential real estate loans totaling $60,000, two commercial real estate loans
totaling $188,000, 18 installment loans totaling $200,000, two commercial
business loans totaling $462,000 and two commercial business leases totaling
$9,000.
At March 31, 2000, the Bank had an allowance for loan losses of $2.6 million or
.86% of net loans receivable, as compared to an allowance of $2.5 million or
.90% of net loans receivable at September 30, 1999. The allowance for loan
losses equals 279.3% of non-performing loans at March 31, 2000.
Management has evaluated its entire loan portfolio, including these
non-performing loans, and the overall allowance for loan losses and is satisfied
that the allowance for losses on loans at March 31, 2000 is appropriate. See
also "Provision for Loan Losses."
Real estate owned at March 31, 2000, consists of one single-family residential
property located in Pittsburgh, Pennsylvania totaling $170,000 and one
commercial building located in Pittsburgh, Pennsylvania totaling $154,000. The
commercial building is currently under agreement for sale and management
believes that the carrying value of the properties at March 31, 2000
approximates the fair value less costs to sell. However, while management uses
the best information available to make such determinations, future adjustments
may become necessary.
-10-
<PAGE>
Comparison of Results of Operations
-----------------------------------
for the Three and Six Months Ended March 31, 2000 and 1999
----------------------------------------------------------
Net Income
- ----------
Net income for the three months ended March 31, 2000 was $1.013 million compared
to $784,000 for the same period in 1999, an increase of $229,000 or 29.2%. The
increase reflects an increase in net interest income of $245,000 or 8.7%, an
increase in other income of $65,000 or 15.6%, and a decrease in other operating
expenses of $42,000 or 2.0%. Partially offsetting these factors was an increase
in the provision for loan losses of $20,000 or 20.0% and an increase in the
provision for income taxes of $103,000 or 36.0%.
Net income for the six months ended March 31, 2000 was $2.078 million compared
to $1.487 million for the same period in 1999, an increase of $591,000 or 39.7%.
The increase reflects an increase in net interest income of $696,000 or 12.4%
and an increase in other income of $172,000 or 23.1%. Partially offsetting these
factors was an increase in the provision for loan losses of $35,000 or 17.1%, an
increase in other operating expenses of $21,000 or .5% and an increase in the
provision for income taxes of $221,000 or 37.6%.
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, decreased
to 2.46% in the three months ended March 31, 2000 from 2.59% in the same period
in 1999. 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.
Three Months Ended
March 31,
2000 1999
---- ----
Average yield on:
Mortgage loans 7.45% 7.55%
Mortgage-backed securities 6.71 6.09
Installment loans 8.11 8.09
Commercial business loans 8.87 8.77
Interest -earning deposits with other
institutions, investment securities, and
FHLB stock (1) 7.27 6.57
---- ----
Total interest-earning assets 7.44 7.12
---- ----
Average rates paid on:
Savings deposits 3.91 3.96
Borrowed funds 6.50 5.58
---- ----
Total interest-bearing liabilities 4.98 4.53
---- ----
Average interest rate spread 2.46% 2.59%
===== =====
Net yield on interest-earning assets 2.73% 2.81%
===== =====
(1) Interest income on tax-free investments has been adjusted for federal
income tax purposes using a rate of 34%.
-11-
<PAGE>
The Bank's tax-equivalent interest rate spread decreased to 2.65% in the six
months ended March 31, 2000 from 2.66% in the same period in fiscal 1999. 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.
Six Months Ended March 31,
2000 1999
---- ----
Average yield on:
Mortgage loans 7.53% 7.80%
Mortgage-backed securities 6.61 6.09
Installment loans 8.11 8.22
Commercial business loans 8.97 9.05
Interest -earning deposits with other
institutions, investment securities, and
FHLB stock (1) 7.05 6.69
---- ----
Total interest-earning assets 7.41 7.27
---- ----
Average rates paid on:
Savings deposits 3.84 4.09
Borrowed funds 6.06 5.64
---- ----
Total interest-bearing liabilities 4.76 4.61
---- ----
Average interest rate spread 2.65% 2.66%
===== =====
Net yield on interest-earning assets 2.83% 2.85%
===== =====
(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 $1.1 million or 22.8% to $5.7 million for the three
months ended March 31, 2000, compared to the same period in 1999. The increase
reflects an increase in the average loan balance outstanding during 2000,
partially offset by a decrease in the yield earned on the loan portfolio.
Interest on loans increased $1.9 million or 20.5% to $11.2 for the six months
ended March 31, 2000, compared to the same period in fiscal 1999. The increase
is attributable to an increase in the average loan balance outstanding during
the 2000 period, partially offset by a decrease in the yield earned on these
assets in the fiscal 2000 period as compared to the same period in fiscal 1999.
The increase in the average balance of the loan portfolio in the fiscal 2000
periods reflects management's continued strategy of emphasizing and increasing
loans. The lower yield earned on the portfolio reflects the lower long term
interest rate environment that existed for much of fiscal 1999, as new loans
originated were at lower rates and more existing borrowers refinanced into lower
rate loans. While interest rates have risen in fiscal 2000, the effect of loans
originated at these higher rates has not been significant as yet.
-12-
<PAGE>
Interest on mortgage-backed securities decreased $173,000 or 10.1% to $1.5
million and $266,000 or 7.9% to $3.1 million for the three and six months ended
March 31, 2000, respectively, as compared to the same periods in 1999. The
decrease for both the three and six month periods ended March 31, 2000, reflects
a decrease in the average balance of mortgage-backed securities owned in the
fiscal 2000 periods, partially offset by an increase in the average yield earned
on the portfolio.
Interest on interest-earning deposits with other institutions and investment
securities increased $405,000 or 35.8% to $1.5 million and $703,000 or 31.9% to
$2.9 million for the three and six month periods ended March 31, 2000, as
compared to the same period in 1999. The increase for both the three and six
month periods ended March 31, 2000, reflects both an increase in the average
balance in the portfolio and an increase in the yield earned on these
investments.
Interest Expense
- ----------------
Interest on savings and time deposits increased $23,000 or .8% to $2.6 million
and decreased $262,000 or 4.8% to $5.2 million for the three and six month
periods ended March 31, 2000, respectively, as compared to the same periods in
fiscal 1999. The increase for the three month period in fiscal 2000 as compared
to fiscal 1999 reflects an increase in the average balance of savings deposits,
partially offset by a decrease in the average cost of deposits. The decrease for
the six month period in fiscal 2000 reflects a decrease in the average cost of
the deposits, partially offset by an increase in the average balance of savings
deposits in the fiscal 2000 period.
Interest on borrowed funds increased $1.0 million or 58.2% to $2.8 million and
$1.9 million or 58.0% to $5.2 million for the three and six month periods ended
March 31, 2000, respectively, as compared to the same periods in fiscal 1999.
The increases for both periods in fiscal 2000 as compared to fiscal 1999 reflect
an increase in the Federal Home Loan Bank ("FHLB") advances and reverse
repurchase agreements outstanding during the fiscal 2000 periods, as well as an
increase in the cost of those borrowings. The Bank continues to rely on these
wholesale funding sources in fiscal 2000 as an additional way to fund growth.
Interest on guaranteed preferred beneficial interest in subordinated debt was
$256,000 and $512,000 for the three and six month periods ended March 31, 2000
and 1999. The Preferred Securities were issued in May 1997.
Net Interest Income Before Provision for Loan Losses
- ----------------------------------------------------
The Bank's net interest income before provision for loan losses increased
$245,000 or 8.7% to $3.1 million, and $696,000 or 12.4% to $6.3 million for the
three and six month periods ended March 31, 2000, respectively, as compared to
the same periods in fiscal 1999. The increase for both periods is primarily
attributable to an increase in net interest-earning assets, partially offset by
a decreased interest rate spread.
Provision for Loan Losses
- -------------------------
The provision for loan losses increased $20,000 or 20.0% to $120,000 and $35,000
or 17.1% to $240,000 for the three and six month periods ended March 31, 2000,
respectively, as compared to the same periods in fiscal 1999. The provision for
both years reflects management's evaluation of the loan portfolio, current
economic conditions, and other factors as described below. Based on this
evaluation, the allowance for loan losses has increased from $2.3 million at
March 31, 1999 to $2.6 million at March 31, 2000. Loan charge-offs, net of
recoveries, were $150,000 and $111,000 for the six months ended March 31, 2000
and 1999, respectively.
-13-
<PAGE>
A monthly review is conducted by management to determine that the allowance for
loan losses is appropriate to absorb estimated loan losses. In determining the
level of allowances for 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 allowance for loan
losses is appropriate, 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 $65,000 or 15.6% to $483,000 and
$172,000 or 23.1% to $915,000 for the three and six month periods ended March
31, 2000, respectively, as compared to the same periods in fiscal 1999.
Loan service charges and fees, which includes late charges on loans, fees for
loans serviced for others, and other miscellaneous loan fees, increased $11,000
or 39.3% to $39,000 and $25,000 or 34.2% to $98,000 for the three and six month
periods ended March 31, 2000, respectively, as compared to the same periods in
the prior fiscal year. The increase for both periods is primarily attributable
to an increase in late charges on loans and the collection of title insurance
fees on mortgages originated, partially offset by a decrease in loan servicing
fee income. The Bank became licensed to collect title insurance fees in late
fiscal 1999.
Gain on the sale of investment and mortgage-backed securities was $86,000 for
the three month period ended March 31, 2000, as compared to a gain of $74,000 in
the same period in 1999. For the six month period ended March 31, 2000, a gain
of $84,000 was recorded, as compared to a gain of $74,000 for the same period in
fiscal 1999. Such sales were made from the available-for-sale portfolio as part
of management's asset/liability management strategies.
Deposit service charges and fees increased $33,000 or 27.3% to $154,000 and
$78,000 or 31.6% to $325,000 for the three and six month periods ended March 31,
2000, respectively, as compared to the same periods in fiscal 1999. The increase
for both periods in fiscal 2000 primarily reflects the Bank's increased service
charge structure for deposit accounts.
Other operating income includes miscellaneous sources of income which consist
primarily of automated teller machine fees, fees from the sale of cashiers
checks and money orders, and safe deposit box rental income. Other operating
income increased $7,000 or 3.6% to $201,000 and increased $59,000 or 17.2% to
$403,000 for the three and six month periods ended March 31, 2000, as compared
to the same periods in fiscal 1999. The increase for both the three and six
month periods is primarily due to increased automated teller machine fees and
fees earned from a program, introduced in July 1998, to sell non-insured
investment products such as mutual funds and annuities to both Bank and non-bank
customers.
Other Expenses
- --------------
Total operating expenses decreased $42,000 or 2.0% to $2.0 million and increased
$21,000 or .5% to $4.1 million for the three and six month periods ended March
31, 2000, respectively, as compared to the same period in fiscal 1999.
-14-
<PAGE>
Office occupancy and equipment expense decreased $35,000 or 16.7% to $174,000
and $75,000 or 17.9% to $344,000 for the three and six month periods ended March
31, 2000, respectively, compared to the same periods in fiscal 1999. In both the
three and six month periods, the decreases partially reflect a decrease in rent
expense, resulting from the Bank purchasing the previously leased Strip District
branch, as well as a decrease in equipment maintenance costs.
Federal deposit insurance premiums decreased $26,000 or 65.0% to $14,000 and
$24,000 or 30.8% to $54,000 for the three and six month periods ended March 31,
2000, respectively, compared to the same periods in fiscal 1999. The insurance
payments reflect the average level of savings and time deposits outstanding and
the decreased premium assessed by the FDIC effective January 1, 2000.
Net loss on real estate owned was $3,000 for the three months ended March 31,
2000, as compared to a net loss of $6,000 in the comparable period in fiscal
1999. Net loss on real estate owned was $24,000 for the six month period ended
March 31, 2000, compared to a net gain of $39,000 in the prior year period.
Results for the periods reflect the sale or write-down to fair value less
estimated costs to sell of property held as real estate owned. At March 31,
2000, the Bank had one single family property and one commercial property
classified as real estate owned.
Other operating expenses, which consists of check processing costs, consulting
fees, legal and audit fees, advertising, bank charges and other administrative
expenses, increased $8,000 or 1.7% to $492,000 and $9,000 or 1.0% to $938,000
for the three and six month periods ended March 31, 2000, respectively, as
compared to the same periods in fiscal 1999. Significant variations between both
the three and six month periods in fiscal 2000, as compared to fiscal 1999,
include increases in bank service charges, legal fees, and losses resulting from
a customer's fraudulent use of a deposit account, partially offset by a decrease
in stationary and supplies expense, telephone expenses and consulting fees.
Income Taxes
- ------------
Income taxes increased $103,000 or 36.0% to $389,000 and $221,000 or 37.6% to
$808,000 for the three and six month periods ended March 31, 2000, respectively,
compared to the same periods in fiscal 1999. The increase in taxes for both the
three and six month periods ended March 31, 2000, as compared to the same
periods in the prior year, primarily results from an increase in taxable income.
Capital Requirements
- --------------------
The Federal Reserve Board measures capital adequacy for bank holding companies
on the basis of a risk-based capital framework and a leverage ratio. The
guidelines include the concept of Tier 1 capital and total capital. Tier 1
capital is essentially common equity, excluding net unrealized gain (loss) on
securities available-for-sale and goodwill, plus certain types of preferred
stock, including the Preferred Securities issued by the Trust in 1997. The
Preferred Securities may comprise up to 25% of the Company's Tier 1 capital.
Total capital includes Tier 1 capital and other forms of capital such as the
allowance for loan losses, subject to limitations, and subordinated debt. The
guidelines establish a minimum standard risk-based target ratio of 8%, of which
at least 4% must be in the form of Tier 1 capital. At March 31, 2000, the
Company had Tier 1 capital as a percentage of risk-weighted assets of 14.15% and
total risk-based capital as a percentage of risk-weighted assets of 15.04%.
-15-
<PAGE>
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines currently provide for a
minimum ratio of Tier 1 capital as a percentage of 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 4% or be subject
to prompt corrective action by the Federal Reserve. At March 31, 2000, the
Company had a Leverage Ratio of 8.27%.
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, 2000, the Bank complied with the minimum
leverage ratio having Tier 1 capital of 6.88% 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, 2000, the Bank's total capital to risk-weighted assets ratio calculated
under the FDIC capital requirement was 12.45%.
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, 2000, the total of approved loan commitments
amounted to $3.4 million. In addition, the Bank had $10.4 million of undisbursed
loan funds at that date. The amount of savings certificates which mature during
the next twelve months totals approximately $89.0 million, a substantial portion
of which management believes, on the basis of prior experience, will remain in
the Bank.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information regarding
quantitative and qualitative disclosures about market risk from the
information presented as of September 30, 1999 (in the Company's Form
10-K) to March 31, 2000.
-16-
<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
On February 8, 2000, the Company held its annual meeting of
stockholders and the following items were presented:
Election of Director Joanne Ross Wilder for a term of three years
ending in 2003 and William L. Windisch for a term of two years
ending in 2002. Ms. Wilder received 1,430,422 votes in favor and
131,684 votes withheld. Mr. Windisch received 1,433,268 votes in
favor and 128,838 withheld.
Ratification of the appointment of KPMG LLP as the Company's
auditors for the 2000 fiscal year. KPMG LLP was ratified as the
Company's auditors with 1,543,566 votes for, 5,193 votes against,
and 13,347 abstentions.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this Report.
2. Agreement and Plan of Reorganization (1)
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4. Common Stock Certificate (1)
10.1 Employee Stock Ownership Plan, as amended (1)
10.2 1988 Employee Stock Compensation Program (1)
10.3 1993 Employee Stock Compensation Program (2)
10.4 1997 Employee Stock Compensation Program (3)
-17-
<PAGE>
10.5 1993 Directors' Stock Option Plan (2)
10.6 Employment Agreement between the Company, the Bank and William
L. Windisch (1)
10.7 1998 Group Term Replacement Plan (4)
10.8 1998 Salary Continuation Plan Agreement by and between
W.L. Windisch, the Company and the Bank (4)
10.9 1998 Salary Continuation Plan Agreement by and between
R.G. Spencer, the Company and the Bank (4)
10.10 1998 Salary Continuation Plan Agreement by and between
M.A. Mooney, the Company and the Bank (4)
10.11 1998 Stock Compensation Plan (5)
20.1 Dividend Reinvestment Plan (6)
27 Financial Data Schedule (in electronic filing only)
(b) Reports on Form 8-K
The Company filed a Form 8-K dated February 18, 2000 to report the
announcement of a Definitive Agreement and Plan of Merger whereby
Fidelity Bancorp, Inc. will acquire all of the outstanding common
stock of Pennwood Bancorp, Inc.
- --------------------------------------------------------------------------------
(1) Incorporated by reference from the exhibits attached to the Prospectus and
Proxy Statement of the Company included in its Registration Statement on
form S-4 (registration No. 33-55384) filed with the SEC on December 3, 1992
(the "Registration Statement").
(2) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
May 2, 1997
(3) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
March 12, 1998.
(4) Incorporated by reference from an exhibit in Form 10-K filed with the SEC
on December 29, 1998.
(5) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
January 25, 1999.
(6) Incorporated by reference from an Exhibit in Form 10-Q on February 14,
2000.
-18-
<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 BANCORP, INC.
Date: May 12, 2000 By: /s/ William L. Windisch
----------------------------
William L. Windisch
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ Richard G.Spencer
----------------------------
Richard G. Spencer
Executive Vice President and
Chief Financial Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,086
<INT-BEARING-DEPOSITS> 794
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 169,357
<INVESTMENTS-CARRYING> 20,809
<INVESTMENTS-MARKET> 20,327
<LOANS> 297,454
<ALLOWANCE> 2,567
<TOTAL-ASSETS> 511,151
<DEPOSITS> 276,493
<SHORT-TERM> 86,296
<LIABILITIES-OTHER> 5,719
<LONG-TERM> 106,382
0
0
<COMMON> 20
<OTHER-SE> 25,991
<TOTAL-LIABILITIES-AND-EQUITY> 511,151
<INTEREST-LOAN> 11,197
<INTEREST-INVEST> 5,976
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 17,190
<INTEREST-DEPOSIT> 5,187
<INTEREST-EXPENSE> 10,901
<INTEREST-INCOME-NET> 6,289
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 84
<EXPENSE-OTHER> 4,078
<INCOME-PRETAX> 2,886
<INCOME-PRE-EXTRAORDINARY> 2,886
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,078
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 2.83
<LOANS-NON> 919
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,477
<CHARGE-OFFS> 171
<RECOVERIES> 21
<ALLOWANCE-CLOSE> 2,567
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</TABLE>
