<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 1-12753
Fidelity Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3915246
(State of Incorporation) (I.R.S. Employer Identification No.)
5455 W. Belmont, Chicago, Illinois, 60641
(Address of principal executive offices)
(773) 736-4414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
The number of shares outstanding of each of the issuer's classes of common
stock, was 2,205,346 shares of common stock, par value $.01, outstanding as of
July 20, 1999.
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<PAGE>
FIDELITY BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of June 30, 1999 (unaudited) and September 30, 1998 1
Consolidated Statements of Earnings for the nine and three
months ended June 30, 1999 and 1998 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended June 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended June 30, 1999 and 1998 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE PAGE 15
<PAGE> 1
FIDELITY BANCORP, INC.
Consolidated Statements of Financial Condition (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS June 30, September 30,
1999 1998
(unaudited)
<S> <C> <C>
Cash and due from banks $ 2,110 1,320
Interest-bearing deposits 837 555
Federal funds sold 100 100
FHLB of Chicago stock 9,185 6,510
Mortgage-backed securities held to maturity, at
amortized cost (approximate fair value of $3,882
at June 30, 1999 and $11,513 at September 30, 1998) 3,799 11,177
Investment securities available for sale, at fair value 66,069 58,979
Loans receivable, net of allowance for loan losses of $709
at June 30, 1999 and $591 at September 30, 1998 487,059 425,608
Accrued interest receivable 2,775 3,547
Real estate in foreclosure - 131
Premises and equipment 4,246 4,401
Deposit base intangible 42 66
Other assets 1,144 1,169
------- -------
$ 577,366 513,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 341,181 330,670
Borrowed funds 184,400 121,400
Advance payments by borrowers for taxes and insurance 5,427 6,919
Other liabilities 5,513 5,977
------- -------
Total liabilities 536,521 464,966
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized 8,000,000 shares;
issued 3,782,350 shares; 2,205,346 and 2,589,784 shares
outstanding at June 30, 1999 and September 30, 1998 38 38
Additional paid-in capital 38,435 38,117
Retained earnings, substantially restricted 32,896 30,646
Treasury stock, at cost (1,577,004 and 1,192,566 shares at
June 30, 1999 and September 30, 1998, respectively) (28,212) (19,210)
Common stock acquired by Employee Stock Ownership Plan (632) (1,092)
Common stock acquired by Bank Recognition and Retention Plans (201) (242)
Accumulated other comprehensive income (loss) (1,479) 340
------- -------
TOTAL STOCKHOLDERS' EQUITY 40,845 48,597
Commitments and contingencies
$ 577,366 513,563
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 2
FIDELITY BANCORP, INC.
Consolidated Statements of Earnings (unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
June 30, June 30,
1999 1998 1999 1998
-------------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 8,590 7,566 24,639 22,467
Investment securities 1,284 1,137 3,653 3,624
Mortgage-backed securities 90 245 438 806
Interest earning deposits 9 21 36 67
Federal funds sold 1 9 3 21
Investment in mutual funds - - - 17
------ ------ ------ ------
9,974 8,978 28,769 27,002
Interest Expense:
Deposits 3,732 3,955 11,219 12,042
Borrowed funds 2,254 1,376 6,087 4,161
------ ------ ------ ------
5,986 5,331 17,306 16,203
Net interest income before provision
for loan losses 3,988 3,647 11,463 10,799
Provision for loan losses 55 90 95 151
------ ------ ------ ------
Net interest income after provision
for loan losses 3,933 3,557 11,368 10,648
Non-Interest Income:
Fees and commissions 90 75 280 244
Insurance and annuity commissions 258 181 522 517
Other 12 15 37 44
------ ------ ------ ------
360 271 839 805
Non-Interest Expense:
General and administrative expenses:
Salaries and employee benefits 1,472 1,477 4,333 4,284
Office occupancy and equipment 414 331 1,173 929
Data processing 116 138 359 390
Advertising and promotions 98 47 303 199
Federal deposit insurance premiums 53 55 157 164
Other 357 298 1,037 932
Amortization of deposit base intangible 7 10 24 32
----- ------ ------ ------
2,517 2,356 7,386 6,930
----- ------ ------ ------
Income before income taxes 1,776 1,472 4,821 4,523
Income tax expense 666 538 1,808 1,652
------ ------ ------ ------
Net income $ 1,110 934 3,013 2,871
====== ====== ====== ======
Earnings per share - basic $ 0.51 0.34 1.33 1.06
Earnings per share - diluted $ 0.48 0.32 1.26 1.00
====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
FIDELITY BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
(Dollars in thousands)
Nine months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Common Accumulated
Additional Stock Stock Other
Common Paid-In Retained Treasury Acquired Acquired Comprehensive
Stock Capital Earnings Stock by ESOP by BRRP's Income(loss) Total
--- ------ ------- ------- ------ ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1997 $38 37,494 27,939 (13,855) (1,662) (471) 134 $49,617
Net income - - 2,871 - - - - 2,871
Cash dividends ($.18 per
share) - - (790) - - - - (790)
Amortization of award of
BRRP's stock - - - - - 194 - 194
Cost of ESOP shares released - - - - 570 - - 570
Exercise of stock options
and reissuance of treasury
shares (7,900 shares) - (184) - 456 - - - 272
Tax benefit related to
stock options exercised - 68 - - - - - 68
Market adjustment for
committed ESOP shares - 444 - - - - - 444
Change in accumulated
other comprehensive
income (loss) - - - - - - (72) (72)
--- ------ ------- ------ ------ ------ ---- -------
Balance at June 30 1998 $38 37,822 30,020 (13,399) (1,092) (277) 62 $53,174
=== ====== ======= ====== ====== ======= ====== =======
Balance at
September 30, 1998 38 38,117 30,646 (19,210) (1,092) (242) 340 48,597
Net income - - 3,013 - - - - 3,013
Purchase of treasury stock
(402,426 shares) - - - (9,312) - - - (9,312)
Cash dividends ($.32 per
share) - - (763) - - - - (763)
Amortization of award of
BRRP's stock - - - - - 41 - 41
Cost of ESOP shares released - - - - 460 - - 460
Exercise of stock options
and reissuance of treasury
shares (17,998 shares) - (125) - 310 - - - 185
Tax benefit related to
stock options exercised - 46 - - - - - 46
Market adjustment for
committed ESOP shares - 397 - - - - - 397
Change in accumulated
other comprehensive
income (loss) - - - - - - (1,819) (1,819)
--- ------ ------- ------ ------ ----- ------ ------
Balance at June 30, 1999 $38 38,435 32,896 (28,212) (632) (201) (1,479) $40,845
=== ====== ======= ====== ====== ===== ====== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
FIDELITY BANCORP, INC.
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended June 30, 1999 1998
------ ------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,013 2,871
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 365 266
Provision for loan losses 95 151
Net amortization and accretion of premiums and discounts 23 (5)
Amortization of cost of stock benefit plans 41 194
Principal payment on ESOP loan 460 570
Market adjustment for committed ESOP shares 397 444
Deferred loan fees, net of amortization (436) (284)
Amortization of deposit base intangible 24 32
Sale of real estate owned 438 271
Gain on sale of real estate owned (45) (24)
Decrease in accrued interest receivable 772 618
Decrease in other assets 49 70
Increase (decrease) in other liabilities 614 (1,037)
------ ------
Net cash provided by operating activities 5,810 4,137
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 30,000 36,023
Purchase of Federal Home Loan Bank of Chicago stock (2,675) -
Purchase of investment securities available for sale (39,951) (29,945)
Loans originated for investment (155,919) (104,717)
Purchase of premises and equipment (210) (1,051)
Principal repayments collected on loans receivable 94,467 83,174
Principal repayments collected on investment securities - 2,579
Principal repayments collected on mortgage-backed securities 7,375 3,800
------ ------
Net cash used in investing activities (66,913) (9,950)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 10,511 4,478
Proceeds from (repayments of) FHLB advances 63,000 (3,600)
Net increase (decrease) in advance payments
by borrowers for taxes and insurance (1,492) 2,716
Purchase of treasury stock (9,312) -
Payment of common stock dividends (763) (790)
Proceeds from exercise of stock options, net of tax benefits 231 340
------ ------
Net cash provided by financing activities 62,175 (3,144)
------ ------
Net change in cash and cash equivalents 1,072 (2 669)
Cash and cash equivalents at beginning of period 1,975 6,004
------ ------
Cash and cash equivalents at end of period $ 3,047 3,335
====== ======
CASH PAID DURING THE PERIOD FOR:
Interest $ 17,033 16,181
Income taxes 1,579 1,290
NON-CASH INVESTING ACTIVITIES -
Loans transferred to real estate in foreclosure 262 1,032
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
FIDELITY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation have been included.
The results of operations and other data for the nine months ended June 30,
1999 are not necessarily indicative of results that may be expected for the
entire fiscal year ended September 30, 1999.
The unaudited consolidated financial statements include the accounts of
Fidelity Bancorp, Inc. (the "Company") and its wholly-owned subsidiary,
Fidelity Federal Savings Bank and subsidiaries (the "Bank"). All material
intercompany accounts and transactions have been eliminated in consolidation.
(2) EARNINGS PER SHARE
In February 1997, the FASB issued Statement 128, "Earnings Per Share."
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. It replaces the presentations of primary EPS with the
presentation of basic EPS, and replaces fully diluted EPS with diluted EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and requires
a reconciliation of the numerator and dominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
Earnings per share of common stock for the three and nine months ended June 30,
1999 and 1998 has been calculated according to the guidelines of Statement 128.
Diluted earnings per share for the three months ended June 30, 1999 and 1998
are computed by dividing net income by the weighted average number of shares of
common stock and potential common stock outstanding for the periods which were
2,291,936 and 2,875,908, respectively. Diluted earnings per share of common
stock for the nine months ended June 30, 1999 and 1998 has been determined by
dividing net income by 2,382,520 and 2,860,379, the weighted average number of
shares of common stock and potential common stock outstanding. Stock options
are the only potential common stock and are therefore considered in the diluted
earnings per share calculations. Potential common stock are computed using the
treasury stock method.
(3) COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") which establishes
standards for reporting and the display of comprehensive income and its
components on a full set of general purpose financial statements. SFAS 130
<PAGE> 6
requires all items to be recognized under standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with other financial statements. The Company is required to
classify items of "other comprehensive income" by their nature in the financial
statements and display the balance of other comprehensive income separately in
the stockholders' equity section of the statement of financial condition. For
interim reporting purposes, the disclosure of other comprehensive income may be
included in the notes to the interim financial statements.
The Company's comprehensive income includes net income and other comprehensive
income comprised entirely of unrealized gains or losses on securities available
for sale, net of tax.
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
June 30, June 30,
1999 1998 1999 1998
-------------------- -----------------
<S> <C> <C> <C> <C>
Net Income $ 1,110 934 3,013 2,871
Comprehensive income - net of taxes-
Unrealized gain (loss) on securities
available for sale arising
during the period (1,123) 88 (1,819) (72)
------ ----- ------ ------
$ (13) 1,022 1,194 2,799
====== ===== ====== ======
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
At June 30, 1999, the Bank had outstanding commitments to originate loans of
$9.9 million, of which $3.5 millions were fixed rate, with rates ranging from
6.50% to 8.625%, and $6.4 million were adjustable rate commitments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The Company's results of operations are dependent on net interest income which
is the difference between interest earned on its loan and investment
portfolios, and its cost of funds, consisting of interest paid on deposits and
borrowed money. The Company also generates non-interest income such as
transactional fees, loan servicing fees, and fees and commissions from the
sales of insurance products and securities through its subsidiary. Operating
expenses primarily consist of employee compensation, occupancy expenses,
federal deposit insurance premiums and other general and administrative
expenses. The results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities. The Company
reported earnings for the third fiscal quarter ended June 30, 1999 of $1.1
million, compared with $934,000 for the same quarter a year ago, an increase of
18.8%. Earnings per diluted share for the quarter and nine months ended were
$0.48 and $1.26 per share, respectively in 1999, an increase from $0.32 and
<PAGE> 7
$1.00 in 1998, respectively.
The Company also announced that its board of directors declared a quarterly
dividend of $0.11 per share, payable August 13, 1999 to shareholders of record
as of July 30, 1999.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report contains certain forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors which could have a material adverse affect on
the operations and future prospects of the Company and the subsidiaries
include, but are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of the
U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in the Company's market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.
YEAR 2000 COMPLIANCE
The Company's State of Readiness On Sunday, February 7, 1999, the Company
conducted its second full-scale test of its transaction processing systems
utilizing Year 2000 dates. An extensive set of transactions was tested using
production teller terminals and related computer hardware, software, and data
communications systems. There were no significant failures or problems during
the testing.
Concerning non-information technology systems (embedded microcontrollers, etc.)
the Company has tested such things as vault doors, alarm systems, etc. and is
not aware of any significant problems with such systems.
There are three third parties with whom the Company has a material
relationship, and thus potential exposure to Year 2000 issues. The FiServ
systems, as mentioned above, are already being tested. The Company's main
commercial banking relationship is with Harris Bank in Chicago. Harris
newsletters indicate substantial progress with Year 2000 readiness. The
Company also has a material relationship with the Federal Home Loan Bank of
Chicago, whose newsletters also indicate substantial progress with Year 2000
readiness.
<PAGE> 8
The three third party utilities on which the Company is dependent are Ameritech
(phone service), Commonwealth Edison (electricity) and People's Gas (natural
gas for heating). The Company has not identified any practical, long-term
alternatives to relying on these companies for basic utility services.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The incremental direct costs to address the Company's Year 2000 issues are not
expected to exceed $50,000, exclusive of any costs incurred because of the
failure of one or more of the utility companies mentioned above. At the
present time, no situations that will require material cost expenditures to
become fully compliant have been identified. However, the Year 2000 problem is
pervasive and complex and can potentially affect any computer process.
Accordingly, no assurance can be given that Year 2000 compliance can be
achieved without additional unanticipated expenditures and uncertainties that
might affect future financial results.
It is not possible at this time to quantify the estimated future costs due to
possible business disruption caused by vendors, suppliers, customers, or even
the possible loss of electric power or phone service; however, such costs could
be substantial.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
The most likely worst case Year 2000 scenario involves a complete failure of
the utility companies mentioned above for all five of the Company's operating
locations simultaneously. This scenario would severely curtail the Company's
ability to conduct its business, including its ability to generate new loans
and to develop new deposit account relationships. The effect on existing loans
and deposits is not predictable or quantifiable.
THE COMPANY'S CONTINGENCY PLANS
In the event of a complete utility failure, the Company plans to operate at
least two locations on a restricted schedule during daylight hours. A manual
bookkeeping system will be employed, and alternative communications systems
will be used for communication between operating locations.
LIQUIDITY & CAPITAL RESOURCES
Liquidity management for the Bank is both a daily and long-term function of
management's strategy. The Company's primary sources of funds are deposits and
borrowings, amortization and prepayment of loan principal and mortgage-backed
securities, maturities of investment securities and operations. While maturing
investments and scheduled loan repayments are relatively predictable, deposit
flows and loan prepayments are greatly influenced by interest rates, floors and
caps on loan rates, general economic conditions and competition. The Bank
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships, but has from time to time decided not to pay
deposit rates that are as high as those of its competitors and, when necessary,
to supplement deposits with Federal Home Loan Bank of Chicago ("FHLB")
advances.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The minimum liquidity requirement is 4% of the liquidity base.
Liquidity requirements are determined quarterly, and savings associations have
the option of calculating their liquidity requirements either on the basis of
(i) their liquidity base at the end of the preceding quarter or (ii) the
average daily balance of their liquidity base during the preceding quarter.
Savings associations must maintain liquidity in excess of the minimum
requirement if necessary to insure safe and sound operations. At June 30,
<PAGE> 9
1999, the Bank was in compliance with Office of Thrift Supervision ("OTS")
liquidity requirements, with a liquidity ratio of 15.21%.
The Company's cash flows are comprised of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Cash flows provided by operating activities,
consisting primarily of interest and dividends received less interest paid on
deposits, were $5.8 million for the nine months ended June 30, 1999. The
Company used $66.9 million in investing activities for the nine month period
ended June 30, 1999. Significant loan originations of $155.9 million accounted
for the significant cash usage. Maturing investment securities and principal
repayments received from loans and mortgage-backed securities amounted to
$131.8 million. Net cash provided by financing activities amounted to $62.2
million for the nine months ended June 30, 1999. The Company increased its
borrowings from the FHLB by $63.0 million during the nine months ended June 30,
1999. The Company's financing activities included $9.3 million to repurchase
common stock.
At June 30, 1999, the Bank had outstanding loan commitments of $9.9 million.
Management anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit scheduled to mature in one
year or less from June 30, 1999 totaled $146.0 million. Consistent with
historical experience, management believes that a significant portion of such
deposits will remain with the Bank, and that their maturity and repricing will
not have a material adverse impact on the operating results of the Company.
The Bank is subject to regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a material impact on the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the entity's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting purposes. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
The most recent notification, July 1998, from the federal banking agencies
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum amounts and ratios
of tangible equity to tangible assets of 2%, Tier 1 capital (leverage capital)
to adjusted total assets of 5%, Tier 1 risk-based capital to risk-weighted
assets of 6%, and of Total risk-based capital to risk-weighted assets of 10%.
There are no conditions or events since that notification that have changed the
Company's or the Bank's category.
The Bank's Tangible Equity ratio at June 30, 1999 was 6.96%. The Tier 1 Capital
ratio was 6.96%, the Tier 1 Risk-based ratio was 14.61%, and the Total
Risk-Based Capital ratio was 14.87%.
CHANGES IN FINANCIAL CONDITION
Total assets at June 30, 1999 were $577.4 million, compared to $513.6 million
at September 30, 1998. Loans receivable, net of allowance for loan losses,
grew $61.5 million, primarily as a result of gross loan originations of $155.9
million. The Company continues to offer various loan products, and prices them
<PAGE> 10
competitively. The Company's total loan originations for the nine months ended
June 30, 1999 increased 48.9% or $51.2 million above the 1998 nine month
originations of $104.7 million.
Deposits increased to $341.2 million at June 30, 1999, up slightly from $330.7
million at September 30, 1998. FHLB advances increased from $121.4 million at
September 30, 1998 to $184.4 million at June 30, 1999. Additional borrowings
were used as a cost effective source to fund current new loan growth.
Book value per share on June 30, 1999 was $18.52, compared with $18.76 at
September 30, 1998. The decrease was the result of the unrealized loss on the
securities available for sale combined with the completed stock repurchase
plan.
ASSET QUALITY
The Bank's non-performing assets June 30, 1999 at included six non-performing
loans. Classified loans of $370,000 were categorized as substandard,
consisting of four residential mortgage loans, one multi-family mortgage loan,
and one consumer loan. There were no assets classified as doubtful.
The decrease of $592,000 in non-performing assets from September 30, 1998 to
June 30, 1999 resulted from management's ongoing monitoring and follow-up
procedures of delinquent customers. During the nine month period ended June
30,1999, the Bank's three foreclosed properties were sold for a combined gain
of $45,000. Management does not expect any material losses from the
non-performing loans.
STOCK REPURCHASE
As announced on November 18, 1998, the Company adopted a plan to repurchase up
to ten percent, or 240,000 shares, of its common stock. This repurchase
program, the Company's ninth, was completed on June 4, 1999. The Company
repurchased the shares at an average price of $24.10 per share.
<PAGE> 11
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees, which are considered
adjustments to yields.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended
1999 1998 June 30,1999
------------------------ ----------------------- ----------------------
Inter- Average Inter- Average Inter- Average
Average est Yield Average est Yield Average est Yield
(dollars in thousands)
------------------------ ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $470,972 8,590 7.30% 394,083 7,566 7.68% 447,080 24,639 7.35%
Mortgage-backed
securities 5,725 90 6.29% 14,054 245 6.97% 8,489 438 6.88%
Interest-bearing
deposits 791 9 4.55% 1,536 21 5.47% 963 36 4.98%
Investment securities,
mutual funds, federal
funds sold and FHLB
stock 76,438 1,285 6.72% 63,677 1,146 7.20% 73,240 3,656 6.66%
------- ----- ----- ------ ----- ----- ------- ----- -----
Total interest-earning
assets 553,926 9,974 7.20% 473,350 8,978 7.59% 529,772 28,769 7.24%
Non-interest earning
assets 13,187 15,603 14,234
------- ------- -------
Total assets $567,113 488,953 544,006
======= ======= =======
Interest-bearing liabilities:
Deposits:
Savings account 148,170 1,324 3.57% 129,876 1,286 3.96% 148,510 4,118 3.70%
Money market accounts 17,784 169 3.80% 17,885 186 4.16% 17,524 514 3.91%
Certificate accounts 172,662 2,239 5.19% 174,012 2,483 5.71% 165,234 6,587 5.32%
------- ----- ----- ------ --- ----- ------- ----- -----
Total deposits 338,616 3,732 4.41% 321,773 3,955 4.92% 331,268 11,219 4.52%
Borrowed funds 166,741 2,254 5.41% 95,982 1,376 5.73% 149,468 6,087 5.43%
------- ----- ----- ------ --- ----- ------- ----- -----
Total interest-bearing
liabilities 505,357 5,986 4.74% 417,755 5,331 5.10% 480,736 17,306 4.80%
Non-interest bearing
deposits 8,022 6,952 8,078
Other liabilities 10,964 10,872 10,672
------- ------ -------
Total liabilities 524,343 435,579 499,486
Stockholders' equity 42,770 53,374 44,520
------- ------ -------
Total liabilities and
stockholders' equity $567,113 488,953 544,006
======= ======= =======
Net interest
income/interest rate
spread (1) 3,988 2.46% 3,647 2.49% 11,463 2.44%
Net earning
assets/net interest
margin (2) $48,569 2.88% 55,595 3.08% 49,036 2.89%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.10x 1.13x 1.10x
</TABLE>
(1) Interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
(3) Average yields and costs for the three and nine month periods are
annualized for presentation purposes.
<PAGE> 12
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998
GENERAL. Net income for the three months ended June 30, 1999 was $1.1 million,
an increase of $176,000 from the net income of $934,000 for the three months
ended June 30, 1998. The 18.8% increase in earnings for the quarter was
primarily a result of increased net interest income from a greater volume of
loans receivable.
INTEREST INCOME. Interest income increased $996,000, from $9.0 million for the
quarter ended June 30, 1998 to $10.0 million for the same period in 1999. The
average interest-earning assets increased 17.0% to $553.9 million from $473.4
million the prior year. Although the average yield decreased due to
significant refinancing activity, the growth in the loan portfolio, an increase
of $76.9 million in average loans, more than compensated for the rate decrease.
The average investment portfolio increased $12.8 million to $76.4 million, from
$63.7 the previous year.
INTEREST EXPENSE. Interest expense increased from $5.3 million for the quarter
ended June 30, 1998 to $6.0 million for the quarter ended June 30, 1999.
Interest expense on deposits decreased $223,000 due to lower average costs. The
volume of average deposits increased $16.8 million from $321.8 million to
$338.6 million for the quarters ended June 30, 1999 and 1998, respectively.
The Company increased its FHLB of Chicago advances during the quarter to fund
high loan volume. The average borrowings compared to the same quarter in 1998
increased $70.8 million to $166.7 million for the three month period ended June
30, 1999. The interest effect of increased borrowings was offset by the
weighted average cost decreasing 32 basis points, causing the interest expense
on borrowed funds to increase $878,000 to $2.3 million.
PROVISION FOR LOAN LOSSES. The Company recorded a provision for loan losses in
the third quarter of 1999 of $55,000. The provision for loan losses reflects
management's on-going evaluation of losses on loans and the adequacy of the
allowance for loan losses based on all pertinent considerations, including
current market conditions. As of June 30, 1999, the allowance for loan losses
was $709,000. The ratio of the allowance for loan losses to net loans
receivable increased slightly to 0.14% at June 30, 1999.
NON-INTEREST INCOME. Non-interest income increased 32.9% to $360,000 for the
third quarter. Insurance and annuity commissions produced $258,000, a $77,000
increase compared to the same period in 1998 while fees and commissions
produced a modest gain from the previous quarter.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended June 30,
1999 totaled $2.5 million, a slight increase over the same period one year
prior of $2.4 million. The largest increase was depreciation expenses relating
to the Bank's new computer hardware and software, which were upgraded in 1998.
<PAGE> 13
INCOME TAXES. Income taxes increased $128,000 for the three months ended June
30, 1999 to $666,000 compared to $538,000 for the prior year due to increased
taxable income.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998
GENERAL. Net income for the nine months ended June 30, 1999 was $3.0 million,
an increase of 5.0% from the previous year of $2.9 million. This was due
primarily to a 9.7% increase in interest income from loans receivable.
INTEREST INCOME. Interest income increased 6.5% to $28.8 million for the nine
months ended June 30, 1999, compared to $27.0 million for the nine months ended
June 30, 1998. The net increase was attributable primarily to increased
interest income from loans receivable. Although the Bank recorded repayments
of $94.5 million during this current nine month period, an even higher volume
of loan closings accounted for the 14.7% increase in average loans receivable.
The $57.2 million increase in average net loans receivable more than
compensated for the decrease of 33 basis points in the average yield. Other
interest bearing assets slightly declined to an average of $82.7 million,
compared to $85.5 million for the nine months ended June 30, 1998.
INTEREST EXPENSE. Interest expense increased $1.1 million to $17.3 million.
The increase of 6.8% was primarily due to the $1.9 million increase in interest
expense on borrowed funds. During the current nine month period, the Bank
opted to increase FHLB advances to fund loan originations. The weighted
average rate on average advances decreased 28 basis points from 5.7% for the
period ended June 30, 1998, compared to 5.4% for the nine month period ended
June 30, 1999. Interest expense on deposits decreased 6.8% from the previous
year. The weighted average cost of deposits decreased 44 basis points due to
the change in the composition of the deposit base. Average certificates of
deposit decreased $18.0 million, while transaction accounts increased $25.9
million.
PROVISION FOR LOAN LOSSES. The Company recorded a $95,000 provision for loan
losses in the nine months of fiscal 1999, compared to a $151,000 provision in
1998. The adequacy of the loan loss provision is analyzed on a monthly basis.
Management considers the changes in the type and volume of the loan portfolio,
the specific delinquent loans, the historical loss experience, and the current
economic trends, as well as loan growth and other factors deemed appropriate
when evaluating the allowance for loan losses.
NON-INTEREST INCOME. Non-interest income increased $34,000 to $839,000 for the
nine months ended June 30, 1999 from $805,000 for the same period in 1998.
Included in non-interest income are commissions from INVEST financial
corporation, which remained stable.
NON-INTEREST EXPENSE. Non-interest expense for 1999 totaled $7.4 million, an
increase of $456,000 or 6.6%, from $6.9 million for the nine months ended June
30, 1998. The increase was attributable to slight increases in salaries and
employee benefits, office occupancy and equipment, and other expenses. The
increase in occupancy and equipment expense represents the increased
depreciation of the upgraded computer system. The Company's ratio of operating
expenses to average assets reflected continued improvement in fiscal 1999,
falling to 1.81%, from 1.89% the previous year.
INCOME TAXES. Income taxes increased $156,000 for the nine months ended June
30, 1999 to $1.8 million compared to $1.7 million for the prior year due to
increased taxable income.
<PAGE> 14
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
The Company and the Bank are not engaged in any legal proceedings of
a material nature at the present time.
Item 2. Changes in Securities
Not applicable.
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
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fidelity BANCORP, Inc.
Dated: July 21, 1999 /s/ RAYMOND S. STOLARCZYK
-----------------------------
Raymond S. Stolarczyk
Chairman and Chief Executive Officer
Dated: July 21, 1999 /s/ JAMES R. KINNEY
-----------------------------
James R. Kinney
Sr. V. P. and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Condition at June 30, 1999 (unaudited) and the
Consolidated Statement of Earnings for the nine months ended June 30, 1999
(unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1999
<CASH> 2110
<INT-BEARING-DEPOSITS> 837
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75254
<INVESTMENTS-CARRYING> 3799
<INVESTMENTS-MARKET> 3882
<LOANS> 487768
<ALLOWANCE> 709
<TOTAL-ASSETS> 457059
<DEPOSITS> 341181
<SHORT-TERM> 85400
<LIABILITIES-OTHER> 10940
<LONG-TERM> 99000
0
0
<COMMON> 38
<OTHER-SE> 40807
<TOTAL-LIABILITIES-AND-EQUITY> 577366
<INTEREST-LOAN> 24639
<INTEREST-INVEST> 4091
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 28769
<INTEREST-DEPOSIT> 11219
<INTEREST-EXPENSE> 17306
<INTEREST-INCOME-NET> 11463
<LOAN-LOSSES> 95
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7386
<INCOME-PRETAX> 4821
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3013
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 2.89
<LOANS-NON> 370
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 591
<CHARGE-OFFS> 8
<RECOVERIES> 31
<ALLOWANCE-CLOSE> 709
<ALLOWANCE-DOMESTIC> 709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
