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 June 30, 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 (IRS Employer Identification No.)
incorporation 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: 1,901,702 shares, par value
$0.01, at July 20, 2000 ---------------------------
-----------------------
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Part I - Financial Information Page
------------------------------ ----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of June 30, 2000 and September 30, 1999 1
Consolidated Statements of Income for the Three and Nine Months Ended June 30, 1999 and 2000 2
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2000 and 1999 3-4
Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended June 30, 2000 5
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 15
Part II- Other Information
Item l. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16-17
Signatures 18
</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>
June 30, September 30,
Assets 2000 1999
------ ---- ----
<S> <C> <C>
Cash and amounts due from
depository institutions $ 7,176 $ 4,304
Interest-earning demand deposits with
other institutions 929 364
Investment securities held-to-maturity 9,931 3,625
Investment securities available-for-sale 77,276 77,737
Loans receivable, net (Notes 5 and 6) 309,314 275,958
Mortgage-backed securities held-to-maturity 13,254 13,400
Mortgage-backed securities available-for-sale 74,084 82,850
Real estate owned, net 324 107
Federal Home Loan Bank stock - at cost 10,018 8,795
Accrued interest receivable, net 3,113 2,886
Office premises and equipment, net 4,582 4,700
Deferred tax asset 3,552 3,155
Prepaid expenses and other assets 4,807 4,662
--------- ---------
Total Assets $ 518,360 $ 482,543
========= =========
Liabilities and Net worth
Liabilities:
Savings and time deposits $ 275,617 $ 269,118
Federal Home Loan Bank advances 193,817 170,600
Reverse repurchase agreements and other
borrowings 5,260 3,041
Advance deposits by borrowers for
taxes and insurance 3,858 1,298
Accrued interest on savings and other deposits 1,055 1,153
Accrued income taxes payable 181 199
Other accrued expenses and liabilities 1,102 838
Guaranteed preferred beneficial interest in
Company's debentures 10,250 10,250
--------- ---------
Total Liabilities 491,140 456,497
--------- ---------
Stockholders' equity (Notes 3 and 4):
Common stock, $0.01 par value per share,
10,000,000 shares authorized; 2,008,317
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 14,492 14,305
Retained earnings - substantially restricted 19,220 16,736
Accumulated other comprehensive income (loss), net
of tax (4,832) (4,062)
--------- ---------
Total Stockholders' Equity 27,220 26,046
--------- ---------
Total Liabilities and Stockholders' Equity $ 518,360 $ 482,543
========= =========
</TABLE>
See accompanying notes to consolidated 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 Nine Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 5,926 $ 4,862 $ 17,123 $ 14,152
Mortgage-backed securities 1,515 1,727 4,599 5,077
Investment securities 1,601 1,248 4,493 3,434
Deposits with other institutions 8 7 25 27
-------- -------- -------- --------
Total interest income 9,050 7,844 26,240 22,690
-------- -------- -------- --------
Interest expense:
Savings deposits 2,668 2,527 7,855 7,975
Guaranteed preferred beneficial interest
in subordinated debt 256 263 768 775
Borrowed funds 3,051 2,025 8,253 5,319
-------- -------- -------- --------
Total interest expense 5,975 4,815 16,876 14,069
-------- -------- -------- --------
Net interest income before provision
for loan losses 3,075 3,029 9,364 8,621
Provision for loan losses 120 155 360 360
-------- -------- -------- --------
Net interest income after provision
for loan losses 2,955 2,874 9,004 8,261
-------- -------- -------- --------
Other income:
Loan service charges and fees 53 34 151 106
Gain (loss) on sale of investment
and mortgage-backed securities, net 16 -- 100 74
Gain (loss) on sale of loans 3 1 8 6
Deposit service charges and fees 157 151 482 398
Other operating income 207 186 610 530
-------- -------- -------- --------
Total other income 436 372 1,351 1,114
-------- -------- -------- --------
Operating expenses:
Compensation and employee benefits 1,218 1,165 3,649 3,540
Occupancy and equipment expense 181 216 525 635
Depreciation and amortization 149 139 436 434
Federal insurance premiums 15 40 69 118
(Gain) loss on real estate owned, net 2 (1) 26 (40)
Other operating expenses 453 471 1,391 1,399
-------- -------- -------- --------
Total operating expenses 2,018 2,030 6,096 6,086
-------- -------- -------- --------
Income before income tax provision 1,373 1,216 4,259 3,289
Income tax provision 395 334 1,203 921
-------- -------- -------- --------
Net income $ 978 $ 882 $ 3,056 $ 2,368
======== ======== ======== ========
Basic earnings per common share (Note 3) $ 0.52 $ 0.45 $ 1.60 $ 1.20
======== ======== ======== ========
Diluted earnings per common share (Note 3) $ 0.51 $ 0.44 $ 1.59 $ 1.17
======== ======== ======== ========
Dividends per common share $ 0.10 $ 0.10 $ 0.30 $ 0.28
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
2000 1999
------- -------
<S> <C> <C>
Operating Activities:
---------------------
Net income $ 3,056 $ 2,368
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 360 360
(Gain) loss on real estate owned 26 (40)
Depreciation of premises and equipment 436 434
Deferred loan fee amortization (130) (211)
Amortization of investment and mortgage-backed securities
discounts/premiums, net 122 276
Net (gain) loss on sale of investment securities (100) (127)
Net (gain) loss on sale of mortgage-backed securities -- 53
Net (gain) loss on sale of loans (8) (6)
Origination of loans held-for-sale (63) (477)
Proceeds from sale of loans held-for-sale 63 479
(Increase) decrease in interest receivable (227) (210)
Increase (decrease) in accrued income taxes (18) (8)
Increase (decrease) in interest payable (98) (39)
Other changes, net (124) 933
------- -------
Net cash provided (used) by operating activities 3,295 3,785
------- -------
Investing Activities:
---------------------
Proceeds from sales of investment securities available-for-sale 5,337 1,558
Proceeds from maturities and principal repayments of
Investment securities available-for-sale 4,002 11,508
Purchases of investment securities available-for-sale (9,310) (34,787)
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 8,040 21,971
Purchases of mortgage-backed securities available-for-sale -- (38,532)
Proceeds from maturities and principal repayments of investment
Securities held-to-maturity -- 5,000
Purchases of investment securities held-to-maturity (6,302) (2,004)
Purchases of mortgage-backed securities held-to-maturity (1,974) --
Proceeds from principal repayments of mortgage-backed
securities held-to-maturity 2,084 5,379
Net (increase) decrease in loans (34,573) (38,959)
Proceeds from sale of other loans 995 335
Additions to office premises and equipment (318) (1,660)
Net purchases of FHLB Stock (1,222) (2,780)
------- -------
Net cash provided (used) by investing activities (33,241) (69,800)
------- -------
</TABLE>
-3-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Cont'd.)
-------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Nine Month Ended June 30,
2000 1999
-------- --------
<S> <C> <C>
Financing Activities:
---------------------
Net increase (decrease) in savings and time deposits 6,499 8,320
Increase (decrease) in reverse repurchase agreements and 2,219 1,922
other borrowings
Net increase (decrease) in FHLB advances 23,217 57,100
Increase in advance payments by borrowers for
taxes and insurance 2,560 2,102
Cash dividends paid (572) (554)
Stock options exercised 127 36
Proceeds from sale of stock 60 77
Purchase of treasury stock (727) (511)
-------- --------
Net cash provided (used) by financing activities 33,383 68,492
-------- --------
Increase (decrease) in cash and cash equivalents 3,437 2,477
Cash and cash equivalents at beginning of period 4,668 3,152
-------- --------
Cash and cash equivalents at end of period $ 8,105 $ 5,629
======== ========
Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Cash paid during the period for:
Interest on deposits and other borrowings $ 16,975 $ 13,978
Income taxes $ 1,221 $ 915
-------- --------
Transfer of loans to real estate owned $ 330 $ 135
-------- --------
</TABLE>
See accompanying notes to consolidated 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, 1999 $ 20 $ 14,305 $ (953) $ 16,736 $ (4,062) $26,046
Comprehensive income:
Net income 3,056 3,056
Other comprehensive loss,
net of tax of ($396) (770) (770)
----- ------- ------- -------- ------- -------
Total comprehensive income (loss) -- -- -- 3,056 (770) 2,286
Cash dividends paid (572) (572)
Treasury stock purchased -
51,000 shares (727) (727)
Sale of stock through Dividend
Reinvestment Plan 60 60
Stock options exercised 127 127
----- ------- ------- -------- ------- -------
Balance at June 30, 2000 $ 20 $14,492 $(1,680) $ 19,220 $(4,832) $27,220
===== ======= ======= ======== ======== =======
</TABLE>
-5-
<PAGE>
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Unaudited)
September 30, 1999 and June 30, 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 nine month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2000 or any other future 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 June 30, Nine Months Ended June 30,
2000 1999 2000 1999
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 978 $ 882 $3,056 $2,368
----- ----- ----- -----
Numerator for basic and diluted
earnings per share $ 978 $ 882 $3,056 $2,368
----- ----- ----- -----
Denominator:
Denominator for basic earnings per
share - weighted average shares 1,899 1,969 1,906 1,977
Effect of dilutive securities:
Employee stock options 8 46 16 46
----- ----- ----- -----
Denominator for diluted earnings per share -
weighted average shares 1,907 2,015 1,922 2,023
----- ----- ----- -----
Basic earnings per share $ .52 $ .45 $ 1.60 $ 1.20
----- ----- ----- -----
Diluted earnings per share $ .51 $ .44 $ 1.59 $ 1.17
----- ----- ----- -----
</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 $4.8 million, net of tax, on investments classified
as available-for-sale are recorded at June 30, 2000.
(5) Loans Receivable
----------------
Loans receivable are comprised of the following (dollar amounts in
thousands):
<TABLE>
<CAPTION>
June 30 September 30,
2000 1999
---------- -------------
<S> <C> <C>
First mortgage loans:
Conventional:
1-4 family dwellings $185,340 $156,112
Multi-family dwellings 4,100 4,007
Commercial 25,054 26,513
Construction 11,167 22,689
------- ------
225,661 209,321
------- -------
Less:
Loans in process (7,979) (14,696)
Unearned discounts and fees (1,532) (1,453)
------- -------
216,150 193,172
------- -------
Installment Loans:
Home equity 55,907 51,316
Consumer loans 1,682 1,802
Credit cards 2,978 2,859
Other 1,595 1,892
------- -------
62,162 57,869
------- -------
Commercial business loans and leases:
Commercial business loans 28,064 22,072
Commercial leases 5,595 5,322
------- -------
33,659 27,394
------- -------
Less: Allowance for loan losses (2,657) (2,477)
------- -------
Loans receivable, net $309,314 $275,958
-------- --------
</TABLE>
(6) Changes in the allowance for loan losses for the nine months ended June 30,
2000 and 1999 are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of the fiscal year $2,477 $2,243
Provision for loan losses 360 360
Charge-offs (203) (312)
Recoveries 23 17
------ ------
Balance at June 30, $2,657 $2,308
------ ------
</TABLE>
-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 June 30, 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 nine
months ended June 30, 2000 was $154,000. For the nine months ended June 30,
2000, the Company recognized no interest income on those impaired loans using
the cash basis of income recognition.
(7) Comprehensive Income
--------------------
For the three and nine months ended June 30, 2000, the Company's total
comprehensive income was $1.32 million and $2.286 million, respectively, and for
the three and nine months ended June 30, 1999 the Company's total comprehensive
loss was ($1.788 million) and ($1.156 million), respectively.
(8) Subsequent 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. ("Pennwood") for $13.10 per
share in cash or approximately $7.5 million. Subsequently, on May 9, 2000,
Fidelity Bank signed an 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 ("Farmers"). The acquisition of Pennwood and the sale of the
Kittanning branches to Farmers were completed on July 14, 2000.
-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. (the "Company") 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. ("Pennwood") for $13.10 per
share in cash or approximately $7.5 million. Subsequently, on May 9, 2000,
Fidelity Bank signed an 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 ("Farmers"). The acquisition of Pennwood and the sale of the
Kittanning branches to Farmers were completed on July 14, 2000.
Comparison of Financial Condition at September 30, 1999 and June 30, 2000
-------------------------------------------------------------------------
Total assets of the Company increased $35.8 million or 7.4% to $518.4 million at
June 30, 2000 from $482.5 million at September 30, 1999. Significant changes in
individual categories were increases in loans receivable of $33.4 million,
investment securities held-to-maturity of $6.3 million and a decrease in
mortgage-backed securities available-for-sale of $8.8 million.
Total liabilities of the Company increased by $34.6 million or 7.6% to $491.1
million at June 30, 2000 from $456.5 million at September 30, 1999. The increase
primarily reflects a $23.2 million increase in Federal Home Loan Bank advances
and a $6.5 million increase in savings and time deposits.
Stockholders' equity increased $1.2 million or 4.5% to $27.2 million at June 30,
2000, compared to September 30, 1999. This result reflects net income for the
nine-month period ended June 30, 2000 of $3.056 million, stock options exercised
of $127,000 and stock issued under the Dividend Reinvestment Plan of $60,000.
Offsetting these increases were common stock cash dividends paid of $572,000, an
increase in accumulated other comprehensive loss, net of tax, on securities
available-for-sale of $770,000, 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>
<TABLE>
<CAPTION>
June 30, September 30
2000 1999
---- ----
<S> <C> <C>
Non-accrual residential real estate loans
(one-to-four family) $ 289 $ 250
Non-accrual construction, multi family
residential and commercial real estate loans 312 1,362
Non-accrual installment and commercial
business loans 467 773
------ ------
Total non-performing loans $1,068 $2,385
====== ======
Total non-performing loans as a percent of
net loans receivable .35% .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 .27% .52%
====== ======
</TABLE>
Included in non-performing loans at June 30, 2000 are four single-family
residential real estate loans totaling $289,000, two commercial real estate
loans totaling $312,000, 10 home equity and installment loans totaling $232,000,
and three commercial business loans totaling $235,000.
At June 30, 2000, the Company had an allowance for loan losses of $2.7 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 248.8% of non-performing loans at June 30, 2000. See "Provision
for Loan Losses."
-10-
<PAGE>
Comparison of Results of Operations
-----------------------------------
for the Three and Nine Months Ended June 30, 2000 and 1999
----------------------------------------------------------
Net Income
----------
Net income for the three months ended June 30, 2000 was $978,000 compared to
$882,000 for the same period in 1999, an increase of $96,000 or 10.9%. The
increase reflects an increase in net interest income of $46,000 or 1.5%, a
decrease in the provision for loan losses of $35,000 or 22.6%, an increase in
other income of $64,000 or 17.2%, and a decrease in operating expenses of
$12,000 or .6%. Partially offsetting these factors was an increase in the
provision for income taxes of $61,000 or 18.3%.
Net income for the nine months ended June 30, 2000 was $3.1 million compared to
$2.4 million for the same period in 1999, an increase of $688,000 or 29.0%. The
increase reflects an increase in net interest income of $743,000 or 8.6% and an
increase in other income of $237,000 or 21.3%. Partially offsetting these
factors was an increase in operating expenses of $10,000 or .2% and an increase
in the provision for income taxes of $282,000 or 30.6%.
Interest Rate Spread
--------------------
The Company'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 2.57% in the three months ended June 30, 2000 from 2.75% 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
June 30,
2000 1999
---- ----
Average yield on:
Mortgage loans 7.42% 7.49%
Mortgage-backed securities 6.83 6.23
Installment loans 8.16 8.06
Commercial business loans 9.20 8.87
Interest -earning deposits with other
Institutions, investment securities, and
FHLB stock (1) 7.30 6.76
---- ----
Total interest-earning assets 7.49 7.19
---- ----
Average rates paid on:
Savings deposits 3.90 3.79
Borrowed funds 6.24 5.50
---- ----
Total interest-bearing liabilities 4.92 4.44
---- ----
Average interest rate spread 2.57% 2.75%
==== ====
Net yield on interest-earning assets 2.66% 2.89%
==== ====
(1) Interest income on tax-free investments has been adjusted for federal
income tax purposes using a rate of 34%
-11-
<PAGE>
The Company's tax-equivalent interest rate spread decreased to 2.69% in the nine
months ended June 30, 2000 from 2.70% 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.
Nine Months
Ended June 30,
2000 1999
---- ----
Average yield on:
Mortgage loans 7.49% 7.68%
Mortgage-backed securities 6.68 6.15
Installment loans 8.12 8.14
Commercial business loans 9.03 9.05
Interest -earning deposits with other
Institutions, investment securities, and
FHLB stock (1) 7.15 6.72
---- ----
Total interest-earning assets 7.44 7.25
---- ----
Average rates paid on:
Savings deposits 3.86 3.98
Borrowed funds 5.96 5.59
---- ----
Total interest-bearing liabilities 4.75 4.55
---- ----
Average interest rate spread 2.69% 2.70%
==== ====
Net yield on interest-earning assets 2.77% 2.86%
==== ====
(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 21.9% to $5.9 million for the three
months ended June 30, 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 $3.0 million or 21.0% to $17.1 for the nine months
ended June 30, 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.
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<PAGE>
Interest on mortgage-backed securities decreased $212,000 or 12.3% to $1.5
million and $478,000 or 9.4% to $4.6 million for the three and nine months ended
June 30, 2000, respectively, as compared to the same periods in 1999. The
decrease for both the three and nine month periods ended June 30, 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 $354,000 or 28.2% to $1.6 million and $1.1 million or 30.5%
to $4.5 million for the three and nine month periods ended June 30, 2000, as
compared to the same period in 1999. The increase for both the three and nine
month periods ended June 30, 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 $141,000 or 5.6% to $2.7 million
and decreased $120,000 or 1.5% to $7.9 million for the three and nine month
periods ended June 30, 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,
as well as an increase in the average cost of deposits. The decrease for the
nine 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 50.6% to $3.1 million and
$2.9 million or 55.2% to $8.3 million for the three and nine month periods ended
June 30, 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.
Net Interest Income Before Provision for Loan Losses
----------------------------------------------------
The Company's net interest income before provision for loan losses increased
$46,000 or 1.6% to $3.1 million, and $743,000 or 8.6% to $9.4 million for the
three and nine month periods ended June 30, 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 decreased $35,000 or 22.6% to $120,000 for the
three month period ended June 30, 2000, as compared to the same period in fiscal
1999. The provision was $360,000 for both the nine month periods ended June 30,
2000 and 1999. The provision for the periods 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 June 30, 1999 to $2.7 million at June 30, 2000. Loan
charge-offs, net of recoveries, were $180,000 and $295,000 for the nine months
ended June 30, 2000 and 1999, respectively.
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<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 $64,000 or 17.2% to $436,000 and
$237,000 or 21.3% to $1.4 million for the three and nine month periods ended
June 30, 2000, respectively, as compared to the same periods in fiscal 1999. The
increases for both the three and nine month periods primarily reflect increased
gains on the sale of investment and mortgage-backed securities, increased
deposit service charges, 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.
Operating Expenses
------------------
Total operating expenses for the three and nine month periods ended June 30,
2000, remained relatively unchanged as compared to the same periods in 1999. Due
to the consummation of the merger of Pennwood, operating expenses may increase
in future periods.
Income Taxes
------------
Income taxes increased $61,000 or 18.3% to $395,000 and $282,000 or 30.6% to
$1.2 million for the three and nine month periods ended June 30, 2000,
respectively, compared to the same periods in fiscal 1999. The increase in taxes
for both the three and nine month periods ended June 30, 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 June 30, 2000, the Company
had Tier 1 capital as a percentage of risk-weighted assets of 13.67% and total
risk-based capital as a percentage of risk-weighted assets of 14.54%.
-14-
<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 June 30, 2000, the
Company had a Leverage Ratio of 8.34%.
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 June 30, 2000, the Bank complied with the minimum
leverage ratio having Tier 1 capital of 6.95% of average total assets, as
defined.
The Bank is also required to maintain a ratio of qualifying total capital to
risk-weighted assets and off-balance sheet items of a minimum of 8%. At June 30,
2000, the Bank's total capital to risk-weighted assets ratio calculated under
the FDIC capital requirement was 12.44%.
Liquidity
---------
The Company's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB of
Pittsburgh and other sources, including sales of securities and, to a limited
extent, loans. At June 30, 2000, the total of approved loan commitments amounted
to $3.7 million. In addition, the Company had $8.0 million of undisbursed loan
funds at that date. The amount of savings certificates which mature during the
next twelve months totals approximately $80.6 million, a substantial portion of
which management believes, on the basis of prior experience, will remain in the
Company.
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 June 30, 2000.
-15-
<PAGE>
Part II - Other Information
---------------------------
Item. 1 Legal Proceedings
The Company is not involved in any pending legal proceedings other
than non-material legal proceedings undertaken in the ordinary
course
of business.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(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)
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)
-16-
<PAGE>
(b) Reports on Form 8-K
On May 11, 2000, the Company filed a Form 8-K dated May 9, 2000
to report that Fidelity Savings Bank, the wholly-owned subsidiary
of Fidelity Bancorp, Inc. signed a definitive agreement with The
Farmers National Bank of Kittanning to sell to Farmers the real
property, furniture, fixtures and equipment, and to assume the
deposit liabilities of the two Kittanning branches of Pennwood
Savings Bank.
--------------------------------------------------------------------------------
(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.
-17-
<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: July 28, 2000 By: /s/ William L. Windisch
--------------------------------------------
William L. Windisch
President and Chief Executive Officer
Date: July 28, 2000 By: /s/ Richard G. Spencer
--------------------------------------------
Richard G. Spencer
Executive Vice President and
Chief Financial Officer
-18-
