<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 2000
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 West Belmont Avenue, Chicago, Illinois 60641
(Address of principal executive offices)
Telephone (773) 736 - 4414
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01
(Title of class)
The registrant (1) has filed all reports required to be filed by Section 13
or 15 (D) of the Securities Exchange Act of 1934 during the preceding twelve
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e., persons other than directors and executive officers of the
registrant is $33,249,316 and is based upon the last sales price as quoted on
Nasdaq Stock Market for December 1, 2000.
The number of shares of Common Stock outstanding as of December 1, 2000:
2,017,285
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on January 24, 2001 are incorporated by reference into Part III hereof.
===============================================================================
<PAGE> 1
ITEM 1. BUSINESS
GENERAL
On December 3, 1993, Fidelity Bancorp, Inc., a Delaware corporation (the
"Company") completed its public offering of its common stock and became the
holding company for Fidelity Federal Savings Bank, (the "Bank") as part of the
Bank's conversion from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank. The Company issued and sold 3,782,350
shares of common stock at $10.00 per share, thereby completing the conversion.
Primarily as a result of stock repurchase programs, outstanding shares of
common stock at September 30, 2000 totalled 2,025,085. The Company's common
stock is listed on the Nasdaq National Market and trades under the symbol
"FBCI".
Originally organized in 1906, the Bank conducts its business through its main
office and four full-service branch offices, located in Chicago, Franklin Park,
and Schaumburg, Illinois. The Bank'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 Federal Home Loan Bank ("FHLB") advances. In addition to
traditional mortgage loans, consumer loans, and retail banking products, the
Bank generates non-interest income such as transactional fees, and fees and
commissions from its full-service securities brokerage services offered through
INVEST Financial Corporation ("INVEST") as well as insurance and annuity
products. The brokerage services, as well as the insurance and annuity
products, are offered through Fidelity Corporation, the Company's wholly owned
subsidiary. The Bank's operating expenses primarily consist of employee
compensation, occupancy expenses, federal deposit insurance premiums and other
general and administrative expenses. The Bank's 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.
As a federally chartered savings bank, the Bank's deposits are insured up to
the applicable limits by the Federal Deposit Insurance Corporation ("FDIC"), up
to applicable limits. The Bank is a member of the FHLB of Chicago, which is
one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board
of Governors of the Federal Reserve System as to reserves required to be
maintained against deposits and certain other matters.
The Company's executive offices are located at 5455 West Belmont Avenue,
Chicago, Illinois 60641. The telephone number is (773) 736-3000.
Market Area
The Bank's market area for deposits is concentrated in the neighborhoods
surrounding its offices in the northwest Chicago and suburban areas. The
Bank's primary market area for lending includes northwest Chicago, western Cook
County and adjacent areas in DuPage, Kane and Lake Counties, Illinois, and to a
lesser extent McHenry County and the remainder of Cook County, Illinois.
Management believes that its offices are located in communities that can
generally be characterized as consisting of stable, residential neighborhoods
of predominately one- to four-family residences.
<PAGE> 2
COMPETITION
The bank is faced with increasing competition in attracting retail customer
business, including deposit accounts and loan originations. The Chicago
metropolitan area is a highly competitive market. Competition or deposits
comes primarily from savings institutions, commercial banks, money market
mutual funds, and insurance companies (primarily in the form of annuity
products). Factors affecting the attraction of customers includes interest
rates offered, convenience of branch locations, ease of business transactions,
and office hours. Competition for loan products comes primarily from other
mortgage brokers, savings institutions, commercial banks and mortgage banking
companies. Factors affecting business include interest rates, terms, fees, and
customer service.
REGULATORY ENVIRONMENT
The Bank is subject to extensive regulation, supervision and examination by the
OTS, as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. The regulation and
supervision of the Bank establishes a comprehensive framework of approved
activities in which the Bank can engage and is designed primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities. Any change in regulation, whether by
the OTS, the FDIC or Congress, could have a material impact on the Bank and its
operations. See "Supervision and Regulation" for more information.
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, implementation of new technologies, the
Company's ability to develop and maintain secure and reliable electronic
systems 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.
<PAGE>
<PAGE> 3
ITEM 2. PROPERTIES
The Bank conducts its business through five full-service offices. All offices
have ATM facilities. All offices, except for the Franklin Park branch, have
drive-through facilities. During fiscal 2000, the Company's wholly owned
subsidiary, Fidelity Corporation, opened a satellite office to sell insurance
and non FDIC investments through INVEST Financial Corporation. Management
believes that the current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company. Certain information
concerning the offices of the Company and the Bank is set forth below.
<TABLE>
<CAPTION>
Net Book Value
Original Date of Property or Leased
Leased or Leasehold Improvements or
Location Acquired at September 30, 2000 Owned
(In thousands)
<S> <C> <C> <C>
EXECUTIVE AND HOME OFFICE: Various dates
5455 W. Belmont Ave. commencing in
Chicago, IL 60641 1955 $ 1,043 Owned
BRANCHES:
Higgins Branch
6360 W. Higgins Road
Chicago, IL 60630 1984 496 Owned
Franklin Park Branch
10227 W. Grand Ave.
Franklin Park, IL 60131 1980 42 Leased
Schaumburg Branch
2425 West Schaumburg Rd
Schaumburg, IL 60194 1995 913 Leased
Harlem Avenue Branch
3940 North Harlem Ave.
Chicago, IL 60634 1995 398 Owned
FIDELITY CORPORATION
4902 West Irving Park Road
Chicago, IL 60641 2000 7 Leased
-------
$ 2,899
=======
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
As of September 30, 2000, neither the Company nor its subsidiaries are involved
in any pending legal proceedings, other than routine legal proceedings
occurring in the ordinary course of business. Such proceedings in the
aggregate are believed by management to be immaterial to the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
<PAGE> 4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq Stock Market under the
symbol "FBCI". As of December 1, 2000 the Company had approximately 460
stockholders of record. The table below shows the reported high and low sales
prices of the common stock during the periods indicated as reported on the
Nasdaq Stock Market and does not necessarily reflect retail markups, markdowns,
or commissions:
2000 1999
High Low High Low
First Quarter 18 16 25 15 1/4
Second Quarter 18 1/4 16 3/8 25 1/8 22
Third Quarter 18 17 1/4 23 7/8 20 1/4
Fourth Quarter 17 3/4 17 22 15
The Company announced its tenth stock repurchase program on October 19, 1999
for 110,000 shares and expanded it to 220,000 shares on January 26, 2000. As
of December 1, 2000, the Company had purchased 200,200 shares of the approved
220,000, at an average cost of $17.684 per share. The Company believes such
repurchases increase the long-term potential return to stockholders. The
price, timing of purchases and actual number of shares repurchased in the
future will be based on the impact to stockholder value.
The Board of Directors declared per share dividends aggregating $0.47 and $0.43
during fiscal 2000 and 1999, respectively. In addition, the Board of Directors
declared a regular quarterly dividend of $0.12 per share, payable on November
15, 2000 to stockholders of record as of October 31, 2000.
<PAGE> 5
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain financial data at or for the periods
indicated. This information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto.
<TABLE>
<CAPTION>
At and For the Years Ended September 30,
2000 1999 1998 1997 1996
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income $ 43,851 39,294 36,127 35,915 31,554
Interest expense 29,112 23,762 21,836 21,470 18,129
------ ------ ------ ------ ------
Net interest income before
provision for loan losses 14,739 15,532 14,291 14,445 13,425
Provision for loan losses 180 165 181 64 410
------ ------ ------ ------ ------
Net interest income after
provision for loan losses 14,559 15,367 14,110 14,381 13,015
Non-interest income:
Gain on sale of investment
securities available for sale - - - -
Fees and commissions 452 374 332 341 379
Insurance and annuity commissions 1,063 721 717 700 519
Other 53 51 58 62 59
------ ------ ------ ------ ------
Total non-interest income 1,568 1,146 1,107 1,103 957
Non-interest expense 9,320 9,840 9,218 12,266 10,595
------ ------ ------ ------ ------
Income before income taxes 6,807 6,673 5,999 3,218 3,377
Income tax expense 2,565 2,543 2,219 2,293 1,235
------ ------ ------ ------ ------
Net income $ 4,242 4,130 3,780 925 2,142
====== ====== ====== ====== ======
SELECTED FINANCIAL CONDITION DATA:
Total assets $ 637,031 599,281 513,563 495,634 475,862
Loans receivable, net 533,999 507,557 425,608 388,262 354,255
Mortgage-backed securities
held to maturity, net 3,179 3,585 11,177 16,875 21,673
Investment securities
available for sale 74,366 66,070 58,979 70,297 78,104
Deposits 381,433 357,016 330,670 323,443 302,934
Borrowed funds 205,150 186,250 121,400 113,400 115,300
Stockholders' equity 42,803 42,021 48,597 49,617 48,828
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
September 30, 2000 1999 1998 1997 1996
SELECTED FINANCIAL RATIOS AND OTHER DATA: <C> <C> <C> <C> <C>
Return on average assets 0.70% 0.74% 0.76% 0.19% 0.50%
Return on average stockholders' equity 10.17 9.42 7.30 1.82 4.08
Average stockholders' equity to
average assets 6.90 7.89 10.46 10.40 12.27
Stockholders' equity to total assets 6.72 7.01 9.46 10.01 10.26
Non interest expense to average assets 1.54 1.77 1.87 1.91 2.48
Interest rate spread during period 2.06 2.43 2.38 2.45 2.57
Net interest margin 2.49 2.87 2.98 3.03 3.23
ASSET QUALITY RATIOS:
Non-performing loans to loans
receivable, net 0.07 0.07 0.20 0.47 0.87
Non-performing assets to total assets 0.06 0.06 0.19 0.41 0.67
Net charge-offs to average loans - (0.05) 0.01 0.11 0.01
Allowance for loan losses to total loans 0.18 0.15 0.14 0.12 0.23
Allowance for loan losses to
non-performing loans 250.66 227.41 71.12 25.44 26.25
REGULATORY CAPITAL RATIOS:
Tangible 6.95 6.89 8.91 8.59 8.04
Core 6.95 6.89 8.91 8.59 8.04
Risk-based 14.55 14.71 18.99 18.37 16.89
OTHER DATA:
Loan originations (dollars in thousands) $110,184 196,859 142,788 97,774 139,589
Number of deposit accounts 25,356 24,524 21,193 24,984 24,553
Book value per share outstanding $ 21.14 19.03 18.76 17.75 17.04
Earnings per share - diluted $ 1.96 1.76 1.33 0.32 0.72
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 1999
GENERAL. Net income for the Company was $4.2 million, or $1.96 per diluted
share ($2.04 per basic share) for the year ended September 30, 2000, an
increase of 2.7% over the prior year. Diluted earnings per share increased by
11.4% over the $1.76 recorded in fiscal 1999 as a result of our continuing
stock repurchase program. Net income increased as a result of increased non-
interest income and lower non-interest expense.
NET INTEREST INCOME. The Bank's core earnings, net interest income, are the
primary source of earnings for the Company. Net interest income consists of
interest income on loans, mortgage-backed and investment securities, offset by
interest expense on deposits and borrowed funds. Net interest income for the
year was $14.7 million, compared to $15.5 million in fiscal 1999. The
Company's average interest-earning assets increased to $592.8 million for the
year ended September 30, 2000 from $542.0 million for the year ended September
30, 1999, an increase of $50.9 million, or 9.4%, while the Company's net
interest margin declined to 2.49%for the year ended September 30, 2000,
compared to 2.87% one year ago. The decrease in the net interest margin was
primarily due to the impact of the flat to inverted yield curve witnessed over
<PAGE> 7
the past twelve months, increased competition for savings deposits, and wider
than normal borrowing spreads. This interest rate environment was reflected in
the 52 basis point increase in interest-bearing liabilities offset only
partially by the 15 basis point increase in the yield on average interest-
earning assets.
Interest income for the year ended September 30, 2000 totaled $43.9 million, an
increase of $4.6 million from the year ended September 30, 1999. The increase
in interest income was due to a combination of both a 9.4% increase in
interest-earning assets combined with an increase in the yield. Interest
income on mortgage loans, the largest component of interest-earning assets,
increased $4.5 million from the prior year to $38.3 million. The average
mortgage loan portfolio when comparing year to year increased $53.6 million.
The increase that can be attributed to rate has been affected by the trend in
loan originations away from fixed-rate products toward adjustable rate
mortgages in the rising rate environment over the past year. Interest income
on investment securities increased $285,000, or 5.8% to $5.2 million for the
year ended September 30, 2000 compared to $5.0 million for the year prior.
Interest expense for the year totaled $29.1 million, an increase of $5.4
million from the prior year. The increase in interest expense was impacted by
the increase in the average cost of interest-bearing liabilities to 5.34% from
4.82%. Interest expense on deposit accounts increased $2.9 million to $18.0
million for the year. Average interest-bearing deposits increased $30.3
million to $364.8 million for the year ended September 30, 2000. Increases in
short term U.S. Treasury rates and increased competition for deposits required
payment of higher deposit rates to attract and retain deposits. The average
cost of deposits for the year was 4.93%, an increase from the average cost of
4.51% for fiscal 1999.
For the year ended September 30, 2000, the Company recorded interest expense on
borrowed funds of $11.1 million on an average balance of $180.7 million at an
average cost of 6.16%. This compares to interest expense of $8.7 million on an
average balance of $158.5 million at an average cost of 5.48% for the year
ended 1999. The increase in the average balance was primarily due to funding
loan originations, while the increase in the average rate was due to the
replacement of called advances at higher interest rates. Additional net
proceeds from the Federal Home Loan Bank of Chicago ("FHLB") borrowings for the
year ended September 30, 2000 totaled $15.0 million.
PROVISION FOR LOAN LOSSES. Based on management's evaluation of the loan
portfolio, a provision for loan losses of $180,000 was recorded during the year
ended September 30, 2000. The provision for loan losses was $165,000 for
fiscal 1999. At both September 30, 2000 and 1999, the ratio of non-performing
loans to total loans was 0.07%. The allowance for loan losses represented
0.18% of total loans receivable at September 30, 2000 compared to 0.15% one
year ago. Management reviews the provision for loan losses quarterly to
provide coverage for possible future losses. The Company evaluates its loan
portfolio quarterly in conjunction with a number of factors, including the
current level of non-performing loans and general economic conditions. Based
on management's evaluation of the loan portfolio, past loan loss experience,
and known and inherent risks in the portfolio, management believes that the
allowance is adequate, although there can be no assurances that losses will not
exceed estimated amounts.
NON-INTEREST INCOME. Total non-interest income for the year ended September
30, 2000 was $1.6 million, a $422,000 increase, or 36.8%, over 1999 results.
Annuity and insurance product sales remain the primary source of non-interest
income. Through its relationship with INVEST, the Bank offers non-traditional
<PAGE> 8
investment products to its customers such as mutual funds, annuities and other
brokerage services. Commission revenue from insurance and annuity sales
increased $342,000 to $1.1 million, from $721,000 for the year ended September
30, 1999. The increase was due to a rise in sales of mutual funds and other
non-traditional products, a dedicated sales force, and an expanded product
line.
NON-INTEREST EXPENSE. Total non-interest expense for the year ended September
30, 2000 was $ 9.3 million, a decrease of $520,000 from the prior year.
Management continues to control expenses and this was evidenced in the improved
operating expense to average assets ratio of 1.54% for fiscal 2000, compared to
1.77% for fiscal 1999.
Salaries and benefits, the largest portion of non-interest expenses, decreased
$453,000 to $5.3 million for fiscal 2000 from $5.8 million for fiscal year
1999. The decline was primarily due to decreased ESOP expense. ESOP expense of
$415,300 was $485,000 lower than the 1999 expense of $900,200, primarily due to
a lower market adjustment of $182,000 in fiscal 2000 compared to $502,000 in
fiscal 1999.
Advertising and promotion expense increased $155,000 to $554,000 for the year
ended September 30, 2000. The increase was due to increased deposit and equity
line of credit advertising campaigns in addition to expenses related to the
launch of the Bank's website during the 2000 fiscal year.
Other non-interest expenses decreased $174,000 to $1.4 million for the year
ended September 30, 2000 compared to the prior year. Included in this decrease
was a reduction in federal deposit insurance premium expense resulting from a
scheduled decrease in insurance rates effective January 1, 2000.
INCOME TAX EXPENSE. The Company recorded a provision for income taxes of $2.6
million for the year ended September 30, 2000, or an effective tax rate of
37.7%, compared to $2.5 million for the year ended September 30, 1999, or an
effective tax rate of 38.0%.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998
GENERAL. For the year ended September 30, 1999, earnings per diluted share
were up $0.43 per share, or 32.3%, from $1.33 in 1998 to $1.76 in 1999. Net
income increased 9.3%, from $3.8 million in 1998 to $4.1 million in 1999.
Earnings per share and net income increased as the result of increased interest
income, which resulted primarily from a greater volume of loans receivable.
NET INTEREST INCOME. Net interest income in fiscal 1999 showed an 8.7%
increase over the prior year. Fiscal 1999 net interest income amounted to
$15.5 million, compared to $14.3 million the prior year. The Company had a
12.7% increase in average interest earning assets and a 15.9% increase in
average interest bearing liabilities. Net interest margin declined 11 basis
points from 2.98% to 2.87% in 1999. The Company's net interest spread
increased 5 basis points during the year.
Interest income increased 8.8% from year to year. Fiscal 1999 interest income
totalled $39.3 million, an increase of $3.2 million over fiscal 1998's income
of $36.1 million. Interest income generated from loan volume showed an 11.8%
increase to $33.8 million in 1999, compared to $30.2 million in 1998. The
15.9% increase in the average loans receivable more than compensated for the 27
basis point decrease in the weighted average loan yields. Investment portfolio
<PAGE> 9
purchases have increased the average portfolio by $5.6 million and this
increase contributed to the 4.0% increase in interest income. Investment
securities interest income increased $192,000 from $4.8 million in 1998 to $
5.0 million in 1999.
Total interest expense increased $1.9 million, from $21.8 million in 1998 to
$23.8 million in fiscal 1999. Throughout the year, some maturing certificates
of deposit with higher interest rates were replaced with lower yielding
transactions accounts, thus the overall weighted average interest cost on
deposits decreased 43 basis points and the average deposit base increased $12.2
million, or 3.8%. Borrowed funds continued to be a reasonable choice for
funding loan growth throughout the year, thus the $55.6 million increase in
average borrowed funds. The weighted average cost decreased 25 basis points
from 1998 to 1999, 5.73% to 5.48%, respectively. The Bank has continued to
utilize the FHLB to secure advances at reasonable rates.
PROVISION FOR LOAN LOSSES. During the year ended September 30, 1999, the
Company's provision for loan losses was $165,000, compared to $181,000 in 1998.
New loans closed during the year totaled $196.9 million, up $54.1 million.
Management reviews the provision for loan losses quarterly to provide coverage
for possible future losses. The Company evaluates its loan portfolio quarterly
in conjunction with a number of factors, including the current level of non-
performing loans and general economic conditions. At September 30, 1999, non-
performing assets totalled $343,000 or 0.06% of total assets, compared to
$962,000 or 0.19% of total assets at September 30, 1998.
NON-INTEREST INCOME. Fees and commissions increased $42,000, or 12.7% from
1998 to 1999. This non-interest income amounted to $374,000, compared to
$332,000 in the previous year. Annuity and insurance product sales remain the
primary source of non-interest income. These remained flat at approximately
$720,000 in both 1999 and 1998.
NON-INTEREST EXPENSE. Salaries and benefits, the largest portion of non-
interest income, remained flat at approximately $5.8 million for both fiscal
1999 and 1998. Office occupancy includes the cost of depreciating the
Company's computer system, which was placed in service in the second half of
fiscal 1998. The computer upgrade included both hardware, software for the
offices, as well as ATM upgrade adjustments.
INCOME TAX EXPENSE. Income tax expense for the year ended September 30, 1999
was $2.5 million, or $324,000 more than that recorded in the prior year. The
fiscal 1998 effective tax rate was 37.0%, compared to 38.1% for fiscal 1999.
The slight increase in rate was due in part to the addition of some investment
securities that are not exempt from state tax.
<PAGE> 10
RATE/VOLUME ANALYSIS
The table below presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the period indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net changes. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Years ended September 30 2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Due to Increase (Decrease) Due
to
Volume Rate Total Volume Rate
Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net $ 3,990 552 4,542 4,681 (1,125)
3,556
Mortgage-backed securities (286) 19 (267) (502) (10)
(512)
Interest-earning deposits (6) 1 (5) (31) (3)
(34)
Investment securities and
federal funds sold 96 191 287 380 (223)
157)
------ ---- ----- ------ ----- -----
Total $ 3,794 763 4,557 4,528 (1,361) 3,167
====== ==== ====== ====== ===== ======
INTEREST-BEARING LIABILITIES:
Savings accounts (313) 19 (294) 795 (244) 551
Money market accounts (116) (14) (130) (21) (48)
(69)
Certificate accounts 2,374 972 3,346 (486) (862)
(1,348)
Borrowed funds 1,292 1,136 2,428 3,056 (264) 2,792
------ ---- ----- ------ ----- -----
Total $ 3,237 2,113 5,350 3,344 (1,418) 1,926
------ ==== ====== ------ ===== ======
Net change in net interest income $ (793) 1,241
====== ======
</TABLE>
<PAGE> 11
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to the Company's
average balance sheets 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
labilities, respectively, for the years shown. Average balances are derived
from average daily balances. The yields and costs include fees, which are
considered adjustments to yields.
<TABLE>
<CAPTION>
For years ended September 30, 2000 1999 1998
Average Average
Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net $ 513,437 38,329 7.47% $459,886 33,787 7.35% $396,611 30,231 7.62%
Mortgage-backed securities 3,307 239 7.23% 7,280 506 6.95% 14,503 1,018 7.02%
Interest-earning deposits 734 41 5.59% 837 46 5.50% 1,401 80 5.71%
Investment securities available
for sale, and federal
funds sold 75,367 5,242 6.96% 73,950 4,955 6.70% 68,374 4,798 7.02%
------- ------ ---- ------- ------ ---- -------- ------- ----
Total interest-earning assets 592,845 43,851 7.40% 541,953 39,294 7.25% 480,889 36,127 7.51%
Non-interest earning assets 11,153 13,993 14,088
------ ------- -------
Total assets $ 603,998 555,946 494,977
======= ======= =======
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and NOW accounts 139,330 5,137 3.69% 147,820 5,431 3.67%. 126,431 4,880 3.86%
Money market accounts 14,284 545 3.82% 17,324 675 3.90% 17,848 744 4.17%
Certificate accounts 211,174 12,310 5.83% 169,337 8,964 5.29% 177,998 10,312 5.79%
------- ----- ---- ------- ------ ---- -------- ------ ----
Total deposits 364,788 17,992 4.93% 334,481 15,070 4.51% 322,277 15,936 4.94%
Borrowed funds 180,651 11,120 6.16% 158,523 8,692 5.48% 102,968 5,900 5.73%
------- ----- ---- ------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 545,439 29,112 5.34% 493,004 23,762 4.82% 425,245 21,836 5.13%
Non-interest bearing deposits 6,452 7,768 6,002
Other liabilities 10,402 11,327 11,506
------ ------- -------
Total liabilities 562,293 512,099 442,753
Stockholders' equity 41,705 43,847 52,224
------ ------- -------
Total liabilities and stockholders'
equity $ 603,998 555,946 494,977
======= ======= =======
Net interest income/interest rate
spread (1) 14,739 2.06% 15,532 2.43% 14,291 2.38%
====== ==== ====== ==== ====== ====
Net earning assets/net interest
margin (2) $ 47,406 2.49% 48,949 2.87% 55,644 2.98%
======= ==== ======= ==== ======= ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.09x 1.10x 1.13x
======= ======= =======
</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.
<PAGE> 12
REVIEW OF FINANCIAL CONDITION
Total assets increased $37.8 million to $637.0 million at September 30, 2000,
compared to $599.3 million at September 30, 1999. The increase was primarily
due to an increase in loans receivable funded by borrowed funds. Loan
originations for the current fiscal year were $110.2 million. The Company's
third party originator (TPO) network continued to give the Company the ability
to control overhead expenses without constraining the ability to grow loan
volume.
Cash and due from banks, interest-earning deposits, and federal funds sold
amounted to $6.2 million at September 30, 2000 as compared to $3.4 million a
year earlier.
Investment securities classified as available for sale represent a secondary
source of liquidity to the Company. The market value of these securities
fluctuates with interest rate movements. Interest income of future periods may
be impacted to the extent interest rates increase and these securities are not
sold with the proceeds reinvested at the higher market rates. The decision
whether to sell the available for sale securities or not, is based on a number
of factors, including projected funding needs, reinvestment opportunities and
the relative cost of alternative liquidity sources. Investment securities
totalled $74.4 million at September 30, 2000. The portfolio increased $8.3
million or 12.6% during the year. No investments were sold during the fiscal
year.
The Company's $534.0 million loan portfolio consists primarily of mortgage
loans on residential real estate. Home equity lines of credit, commercial real
estate and consumer loans represented $22.9 million of the loan portfolio.
The composition of the loan portfolio has been changing as a result of an
emphasis on multi-family, home equity loans and more recently, commercial real
estate in an attempt to improve the overall yield on loans. In addition to
these product concentrations, loans were originated to applicants for which
income verification was not required, and to a lesser extent, applicants with
less than perfect credit and higher debt-to-income ratios than secondary market
conforming standards (see "Lending Activities").
Deposits increased 6.8%, or $24.4 million to $381.4 million at September 30,
2000, compared to $357.0 million at September 30, 1999. Savings and
transaction accounts at September 30, 2000 amounted to $162.9 million, compared
to $166.5 million. Certificates of deposit increased throughout the year to
$218.6 million at September 30, 2000, from $190.5 million at September 30,
1999. The deposit base and the interest paid on deposits continues to be
affected by alternative investment products and competition within the
Company's market areas.
Borrowed funds increased $18.9 million, or 10.2%, to $205.2 million at
September 30, 2000. The increase in loans receivable was funded primarily with
FHLB of Chicago advances, which increased $15.1 million during the current
year. Of the FHLB advances at September 30, 2000, $35.0 million of advances,
with a weighted average term to maturity of 4.7 years, contain various call
provisions, with a weighted average term to call of 0.7 years. The calls are
most likely exercised by the issuer in a period of rising interest rates.
Advance payments by borrowers for real estate taxes was at a lower level due to
Cook County real estate taxes being payable prior to September 30, 2000
compared to the first quarter of the new fiscal year at September 30, 1999.
The balance at September 30, 2000 was $2.2 million compared to $ 8.0 million at
September 30, 1999.
<PAGE> 13
Stockholders' equity of the Company grew to $42.8 million at September 30,
2000, compared to $42.0 million at September 30, 1999, an increase of $782,000.
The net increase in stockholders' equity is primarily due to comprehensive
income of $4.5 million, offset by the payment of cash dividends of $991,000 and
the repurchase of $3.4 million of common stock (191,200 shares).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and borrowings, proceeds
from principal and interest on loans and mortgage-backed securities. While
maturities and scheduled amortization of loan and mortgage-backed securities
are predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by interest rate cycles and economic conditions. The Bank
generally manages the pricing of its deposits to be competitive and increase
core deposit relationships. The Bank utilizes particular sources of funds
based on comparative costs and availability.
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 September 30,
2000, the Bank was in compliance with Office of Thrift Supervision ( OTS )
liquidity requirements, with a liquidity ratio of 14.02%.
The Company's most liquid assets are cash and cash equivalents, which include
federal funds and interest-bearing deposits. The level of these assets are
dependent on the Company's operating, financing and lending, and investing
activities during any given period. At September 30, 2000 and 1999, cash and
cash equivalents totaled $6.2 million and $3.4 million, respectively.
Liquidity management for the Company is both a daily and long-term function.
Excess funds are generally in federal funds. In the event that the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available through the use of FHLB advances. 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.
Net cash related to operating activities, consisting primarily of interest and
dividends received less interest paid on deposits, were $3.6 million for the
year ended September 30, 2000. During the year, $33.9 million was used in
investing activities, consisting primarily of loan originations, largely offset
by principal collections on loans. Net cash provided by financing activities
amounted to $33.2 million for the year ended September 30, 2000.
At September 30, 2000, the Company believed it had sufficient cash to fund its
outstanding commitments, or would be able to obtain the necessary funds from
outside sources to meet its cash needs.
<PAGE> 14
LENDING ACTIVITIES
LOANS AND MORTGAGE-BACKED SECURITIES PORTFOLIO COMPOSITIONS. The loan
portfolio consists primarily of conventional first mortgage loans secured by
one- to four-family residences. At September 30, 2000, the gross loans
receivable portfolio was $531.7 million, of which $390.5 million were one- to
four-family residential mortgage loans. Of the one- to four-family residential
mortgage loans outstanding at that date, 53.6% were fixed-rate and 46.4% were
adjustable-rate mortgage (ARM) loans. The Bank services a $3.7 million fixed-
rate commercial loan for a golf course in a western Chicago suburb, having
participated $1.89 million of the loan to another institution, resulting in a
net loan of $1.85 million for the Bank. Through regular monthly payments, the
Bank's outstanding portion at September 30, 2000 was $1.4 million. The
remainder of the loan portfolio at September 30, 2000 consisted of $118.3
million of multi-family loans, $5.8 million in commercial real estate, and
$17.1 million of consumer loans. Consumer loans consisted primarily of home
equity and second mortgage loans.
During 1994, the Bank expanded its delivery system for mortgage loans to
include TPOs, which are mortgage brokers that have agreed to originate loans
for the Bank's portfolio. The loan department continues to seek and sign
agreements with new TPOs. At September 30, 2000, the Bank had a network of 92
TPOs. The TPO program produced $90.0 million or 96.5% of the one- to four-
family and multi-family mortgage loan originations in 2000.
In 1996, the Bank began offering certain residential loans without income
verification. Verification that the applicant is employed is noted in the file
and the amount listed on the application is used to determine the debt to
income ratio. The maximum loan to value ratio is 95% for this program. The
Bank also offers a similar program for people who typically are self-employed.
The income used to qualify the loan is the amount stated on the loan
application. The maximum loan amount allowed under this program is 95% of the
property value. The Bank also grants loans to applicants with less than
perfect credit and higher debt to income ratios than secondary market
conforming standards. In all other respects the loans are originated in the
same manner as a conventional loan. All loans have risk premium factored into
the rate and additional valuation allowances are established when the loan is
funded. It is the Bank's general policy to require private mortgage insurance
(PMI) on any conventional loan with a loan to value ratio greater than 80% for
one- to four-family homes, townhouses, and condominium units. The Bank
originated $69.1 million of these loans during fiscal 2000. At September 30,
2000, the portfolio included $167.0 million of these loans.
Loan origination standards of the Bank generally conform to the requirements
for sale to the Federal Home Loan Mortgage Corporation (FHLMC). On occasion
the Bank sells fixed-rate mortgage loans to the FHLMC. There were no sales
during the years ended September 30, 2000 or 1999. At September 30, 2000, the
unpaid balance of total mortgage loans sold to the FHLMC and serviced by the
Bank was $4.4 million.
The Bank's investment policy permits the investment in mortgage-backed
securities. The Bank purchases FHLMC Gold mortgage-backed securities to
coincide with its ongoing asset/liability management objectives and to
supplement its own loan origination program. The FHLMC mortgage-backed
securities owned by the Bank are guaranteed by the FHLMC and are collateralized
with generic pools of single family mortgages with a security coupon of 7.50%.
With respect to prepayment risk, these securities are likely to exhibit
substantially the same characteristics as the whole loans owned by the Bank.
Prepayments are not expected to have a material effect on the yield or the
<PAGE> 15
recoverability of the carrying amounts of these securities. At September 30,
2000, total mortgage-backed securities aggregated $3.2 million, or 0.5% of
total assets. The fair value of these securities was approximately $3.2
million at September 30, 2000.
Currently all loans originated or purchased by the Bank and mortgage-backed
securities are held for investment.
The following table sets forth the composition of the loan portfolio and
mortgage-backed securities held to maturity, in dollar amounts and in
percentages of the respective portfolios at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
Percent Percent
Percent
Amount of Total Amount of Total Amount of
Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 390,527 73.45% $ 388,586 76.86 324,265
76.47%
Multi-family 118,309 22.25 100,412 19.86 83,084 19.59
Commercial 3,448 0.65 2,577 .51 3,295 0.78
Construction 2,304 .43 - - - -
Commercial leases - - - - 30 0.01
------- ----- ------- ---- ------ -----
Total mortgage loans 514,588 96.78 491,575 97.23 410,674 96.85
Consumer loans 17,101 3.22 14,016 2.77 13,358 3.15
------- ------ ------- ------ ------ ------
Gross loans receivable 531,689 100.00% 505,591 100.00% 424,032
100.00%
====== ====== ======
Less:
Loans in process 26 16 1
Unearned discounts and
deferred loan costs (3,286) (2,762) (2,168)
Allowance for loan losses 950 780 591
------- ------- -------
Loans receivable, net $ 533,999 507,557 425,608
======= ======= =======
Mortgage-backed
securities - FHLMC $ 3,181 100.00% 3,587 100.00% 11,177
100.00%
====== ====== ======
Net premiums (2) (2) -
------- ------- ------
Mortgage-backed
securities, net $ 3,179 $ 3,585 $ 11,177
======= ======= =======
</TABLE>
<PAGE> 16
<TABLE>
<CAPTIONS>
At September 30,
1997 1996
Percent Percent
Amount of Total Amount of Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 304,950 78.83% 277,086 78.34%
Multi-family 64,450 16.66 55,341 15.65
Commercial 2,894 .75 5,656 1.60
Commercial leases 408 .10 2,032 0.57
------- ----- ------- ----
Total mortgage loans 372,702 96.34 340,115 96.16
Consumer loans 14,152 3.66 13,585 3.84
------- ----- ------- ----
Gross loans receivable 386,854 100.00% 353,700 100.00%
====== ======
Less:
Loans in process 3
Unearned discounts and
deferred loan fees (1,868) (1,368)
Allowance for loan losses 460 810
------- -------
Loans receivable, net $ 388,262 354,255
======= =======
Mortgage-backed
securities - FHLMC $ 16,866 100.00% $ 21,647 100.00%
====== ======
Net premiums 9 26
------- -------
Mortgage-backed
securities, net $ 16,875 $ 21,673
======= =======
</TABLE>
<PAGE> 17
The following table sets forth the Bank's loan originations, purchases of
loans, commercial leases, and mortgage-backed securities held to maturity,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Mortgage Loans (gross):
At beginning of period $ 491,575 410,674 372,702
Mortgage loans originated:
One- to four- family 67,095 157,429 107,575
Multi-family 26,158 29,224 26,719
Commercial 8,350 2,216 2,494
------- ------- -------
Total mortgage loans originated 101,603 188,869 136,788
Transfer to foreclosed real estate and net charge-offs 73 (262) (634)
Principal repayments of loans receivable (78,517) (107,676) (100,182)
Principal repayments of commercial leases - (30) (378)
Purchase of loans receivable - - 2,378
------- ------- -------
At end of period $ 514,588 491,575 410,674
------- ------- -------
Consumer loans (gross):
At beginning of period $ 14,016 13,358 14,152
Consumer loans originated 8,581 7,990 6,000
Principal repayments (5,496) (7,332) (6,794)
------- ------ ------
At end of period 17,101 14,016 13,358
------- ------ ------
Total loans (gross) $ 531,689 505,591 424,032
======= ======= =======
Mortgage-backed securities held to maturity:
At beginning of period $ 3,585 11,177 16,866
Amortization and principal repayments (684) (7,592) (5,689)
Purchase of mortgage-backed securities 278 - -
------- ------ ------
At end of period $ 3,179 3,585 11,177
======= ======= =======
<PAGE> 18
LOANS AND MORTGAGE-BACKED SECURITIES MATURITY AND REPRICING. The following
table shows the maturity or period to repricing of the loans and mortgage-
backed securities held to maturity portfolios at September 30, 2000. The table
does not include prepayments or scheduled principal amortization. Principal
repayments and prepayments on loans and mortgage-backed securities held to
maturity totalled $84.7 million, $122.6 million, and $113.0 million for the
years ended September 30, 2000, 1999 and 1998, respectively.
</TABLE>
<TABLE>
<CAPTION>
At September 30, 2000
Fixed Rate Adjustable Rate Other Loans Totals
Mortgage-
Con- Total Backed
One-to- One-to- struction Loans Securities
Four Multi- four Multi- and Receiv- Held to
Family Family Family Family Commercial Consumer able Maturity Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS DUE:
Within one year $ 24,420 1,357 56,258 31,415 457 6,870 120,777 529 121,306
After one year:
One to three years 42,244 2,228 73,620 55,063 3,204 6,236 182,595 900 183,495
Three to five years 34,796 1,333 51,305 24,727 1,468 2,437 116,066 721 116,787
Five to 10 years 61,168 2,077 - - - 1,401 64,646 982 65,628
10 to 20 years 36,338 732 - - - 157 37,227 47 37,274
Over 20 years 10,378 - - - - - 10,378 - 10,378
------- ----- ------- ------ ----- ----- ------- ------- --------
Total due after
one year 184,924 6,872 124,925 78,665 5,295 10,231 410,912 2,650 413,562
Total amounts due $ 209,344 8,229 181,183 110,080 5,752 17,101 531,689 3,179 534,868
Less:
Loans in process 26 - 26
Unearned discounts,
premiums and deferred
loan costs, net (3,286) - (3,286)
Allowance for possible loan losses 950 - 950
------ ------ ------
Loan receivable and mortgage-
backed securities held to
maturity, net $ 533,999 3,179 537,178
======== ======= =======
<PAGE>
<PAGE> 19
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Bank primarily originates first
mortgage loans secured by one- to four-family residences located in its primary
market area, including townhouse and condominium units. Typically, such
residences are single or two-family homes that serve as the primary residence
of the owner. To a lesser extent, the Bank also originates loans secured by
non-owner occupied one- to four-family residential real estate. Loan
originations are generally obtained from existing or past customers, members of
the local communities, third party mortgage originators located in the Bank's
market area, local real estate agent referrals, and builder/developer referrals
within the Bank's market area.
The Bank offers fixed-rate and ARM loans, which are generally amortized over 30
years, with terms of up to 30 years. Loan rates are based on market
conditions. The Bank originates zero-point loans, and loans with discount
points and fees for related origination expenses, such as appraisals and other
closing costs, on one- to four-family residential mortgage loans. Generally,
all residential mortgage loans originated by the Bank are underwritten in
conformity with FHLMC guidelines. The ARM loans generally reprice on a one,
three, or five year basis. As a general matter, the Bank does not offer
"teaser rates" on its ARM loans, nor does it offer loans with a negative
amortization feature. At time of origination, the Bank determines whether to
sell or retain fixed-rate, one- to four-family residential first mortgages
loans, while generally retaining the servicing right for loans sold. ARM loans
originated are normally held for investment.
The Bank generally makes first mortgage loans secured by one- to four-family,
owner-occupied residential real estate in amounts up to 97% of the lower of the
purchase price or the appraised value. The Bank also originates first mortgage
loans secured by one- to four-family residential investment (i.e., other than
owner occupied) properties in amounts up to 95% of the appraised value of the
property. It is the Bank's general policy to require private mortgage
insurance (PMI) on any conventional loan with a loan to value ratio greater
than 80% for one- to four-family homes, townhouses, and condominium units. In
addition, the Bank usually requires certain housing expense to income ratios
and monthly debt payment to income ratios for all borrowers which vary
depending on the loan to value ratio and other compensating factors. Mortgage
loans originated by the Bank generally include due-on-transfer clauses which
provide the Bank with the contractual rights to deem the loan immediately due
and payable, in most instances, in the event that the borrower transfers
ownership of the property without the Bank's consent. It is the Bank's policy
to enforce due-on-transfer provisions.
Residential loans without income verification are offered in amounts up to a
maximum value ratio of 95%. The Bank also offers a similar program for people
who typically are self-employed. The income and assets used to qualify the
loan is the amount stated on the loan application. The maximum loan amount
allowed under this program is 95% of the property value. The Bank, to a lesser
extent, grants loans to applicants with less than perfect credit and higher
debt to income ratios than secondary market conforming standards. In all other
respects the loans are originated in the same manner as a conventional loan. It
is the Bank's general policy to require private mortgage insurance (PMI) on any
conventional loan with a loan to value ratio greater than 80% for one- to four-
family homes, townhouses, and condominium units. All loans have risk premium
factored into the rate and additional valuation allowance are established when
the loan is funded.
The Bank offers a mortgage loan modification program that allows the borrower
to receive a reduced interest rate, change in term, or a change in loan
<PAGE> 20
program, in lieu of refinancing the original loan. The borrower is charged a
fee that varies based upon the modifications made, including an appraisal fee
when the Bank requires a reappraisal of the collateral. The program has been
advantageous to the Bank during periods of heavy refinance activity such as
1998, by limiting the disruption to its loan operations, as well as reducing
the costs associated with refinance activity of existing borrowers.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Bank originates fixed and
adjustable rate multi-family loans secured by properties (five units or more)
typically located in its primary market area. These loans generally have rate
and payment adjustment periods of 3 to 5 years, with amortizations of up to 30
years. The Bank customarily charges origination fees of up to 3% of the loan
amount for newly originated loans and lesser fees for renewals or modifications
of existing loans. The Bank's policies generally require personal guarantees
from the borrowers, with joint and several liability. The Bank's underwriting
decisions relating to these loans are primarily based upon the net operating
income generated by the property in relation to the debt service ("debt
coverage ratio"), the borrower's cash-at-risk position, financial resources and
income level of the borrower, the borrower's experience in owning or managing
similar property, the marketability of the property and the Bank's lending
relationship with the borrower. The Bank originates multi-family loans in
amounts up to 85% of the lower of the appraised value of the property or the
purchase price. The Bank generally requires a minimum debt coverage ratio of
1.15x on multi-family properties, utilizing forecasted net operating income.
As of September 30, 2000, $118.3 million, or 22.2%, of the Bank's loan
portfolio consisted of multi-family loans. Multi-family mortgage loans
typically involve substantially larger loan balances than single-family
mortgage loans, and are dependent on successful property operation as well as
on general and local economic conditions.
In connection with the Bank's policy of maintaining an interest-rate sensitive
loan portfolio, the Bank has originated loans secured by commercial real
estate, which generally carry a higher yield and are made for a shorter term
than fixed-rate one- to four-family residential loans. Commercial real estate
loans are generally granted in amounts up to 75% of the appraised value of the
property, as determined by an independent appraiser previously approved by the
Bank. The Bank's commercial real estate loans are secured by improved
properties located in the Chicago metropolitan area. As of September 30, 2000,
$3.4 million, or 0.6%, of the Bank's loan portfolio consisted of commercial
real estate loans.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks by lending
primarily on existing income-producing properties and generally restricting
such loans to properties in the Chicago area. The Bank analyzes the financial
condition of the borrower and the reliability and predictability of the net
income generated by the security property in determining whether to extend
credit. In addition, the Bank usually requires a net operating income to debt
service ratio of at least 1.15 times.
CONSTRUCTION LENDING. The Bank originates loans to finance the construction of
residential property primarily in its market area. The Bank will consider
commercial construction loans in the future on a case-by-case basis. At
September 30, 2000, the Bank had a $3.1 million loan to finance the
<PAGE> 21
construction of a condominium complex. At September 30, 2000 the Bank's
construction loans totaled $2.3 million, or 0.4%, of total loans receivable.
The Bank uses underwriting and construction loan guidelines for financing
primarily individual, owner-occupied houses where qualified contractors are
involved. Construction loans are structured either to be converted to
permanent loans at the end of the construction phase or to be paid off upon
receiving financing from another financial institution. Construction loans are
based on the appraised value of the property, as determined by an independent
appraiser, and an analysis of the potential marketability and profitability of
the project. Construction loans generally have terms of up to 18 months, with
extensions as needed. Loan proceeds are disbursed in increments as
construction progresses and as inspections warrant.
Construction loans afford the Bank the opportunity to increase the interest
rate sensitivity of its loan portfolio and to receive yields higher than those
obtainable on ARM loans secured by existing residential properties. These
higher yields correspond to the higher risks associated with construction
lending. Construction development loans involve additional risks attributable
to the fact that loan funds are advanced upon the security of the project under
construction, which is of uncertain value prior to its completion. Because of
the uncertainties inherent in estimating construction costs as well as the
market value of the completed project and the effects of governmental
regulation of real property, it is relatively difficult to evaluate accurately
the total funds required to complete a project and the related loan- to-value
ratio. As a result of the foregoing, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the
success of the ultimate project rather than the ability of the borrower or
guarantor to repay principal and interest. If the Bank is forced to foreclose
on a project prior to or at completion due to a default, there can be no
assurance that the Bank will be able to recover all of the unpaid balance of,
and accrued interest on, the loan as well as related foreclosure and holding
costs. In addition, the Bank may be required to fund additional amounts to
complete the project and may have to hold the property for an unspecified
period of time. The Bank has attempted to address these risks through its
underwriting procedures and its limited amount of construction lending on
multi-family and commercial real estate properties.
OTHER LENDING. The Bank's other lending activities consist of consumer
lending, primarily home equity loans, fixed-rate second mortgage loans, and to
a lesser extent automobiles, boats and recreational vehicles, and other secured
and unsecured loans. On September 30, 2000, outstanding balances on home
equity lines represented $15.8 million or 2.9% of the Bank's total loan
portfolio. The Bank uses the same underwriting standards for home equity lines
of credit as it uses for residential mortgage loans. As of September 30, 2000,
$1.3 million or 0.2% of the Bank's loan portfolio consisted of consumer loans.
LOAN APPROVAL PROCEDURES AND AUTHORITY. Certain officers have authority to
approve loans up to specified dollar amounts. One- to four-family mortgage
loans conforming to agency standards and all consumer loans may be approved by
the Senior Vice President - Personal Banking, Senior Vice President - Loan
Investments and designated underwriters up to the agency maximum loan
limitations. Non-conforming loans up to $250,000 and otherwise conforming to
the loan policy may be approved by the Senior Vice President - Loan
Investments. Loans of up to $500,000 may be approved by the Senior Vice
President - Loan Investments with the concurrence of a member of the Bank loan
committee or a senior underwriter. Secured mortgage and unsecured consumer
loans may be approved by designated personal banking managers. The Bank's
policies generally provide that all other loans are to be approved by the Board
<PAGE> 22
or certain committees which include Board members. All multi-family loans over
$1.5 million and one- to four-family construction loans over $1.5 million
require the approval of a majority of the Board.
For all loans originated by the Bank, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered, income and
certain other information generally is verified and, if necessary, additional
financial information is required. All borrowers of one- to four-family
residential mortgage loans are qualified pursuant to applicable agency
guidelines. The Bank's policies require appraisals on all real estate intended
to secure a proposed loan, which currently are performed by independent
appraisers designated and approved by the Bank. Further, under current OTS
regulations, all loan transactions of $1.0 million or more, non-residential
transactions of $250,000 or more, and complex residential transactions of
$250,000 or more, the Bank requires appraisals conducted by state certified or
licensed appraisers. The Board, at least annually, approves the independent
appraisers used by the Bank and reviews the Bank's appraisal policy. It is the
Bank's policy to obtain title insurance on all real estate first mortgage
loans. Borrowers must also obtain hazard insurance prior to closing.
Borrowers generally are required to advance funds on a monthly basis together
with each payment of principal and interest to a mortgage escrow account from
which the Bank makes disbursements for items such as real estate taxes and
hazard insurance premiums.
DELINQUENCIES AND CLASSIFIED ASSETS.
DELINQUENT LOANS. The Board of Directors performs a monthly review of all
delinquent loans. The procedures taken by the Bank with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency.
The Bank's policies generally provide that delinquent mortgage loans be
reviewed and that a written late charge notice be mailed no later than the
twentieth day of delinquency. The policies also require telephone contacts for
loans more than 20 days late to ascertain the reasons for the delinquency and
the prospects of repayment. Face-to-face interviews and collection notices are
generally required for loans more than 30 days delinquent and on a case-by-case
basis for mortgage loans. After 60 days, the Bank will either set a date by
which the loan must be brought current, enter into a written forbearance
agreement, foreclose on any collateral or take other appropriate action. The
Bank's policies regarding delinquent consumer loans are similar except that
telephone contacts and correspondence will generally occur after a consumer
loan is more than 15 days delinquent.
It is the Bank's general policy to discontinue the accrual of interest on all
first mortgage loans 90 days past due. Consumer loans continue to accrue
interest until a determination is made by the Bank that the loan may result in
a loss. Property acquired by the Bank as a result of a foreclosure on a
mortgage loan is classified as real estate owned and is recorded at the lower
of the unpaid principal balance or fair value at the date of acquisition and
subsequently carried at the lower of cost or net realizable value.
<PAGE> 23
Set forth below is certain information regarding delinquent loans at September
30, 2000, 1999 and 1998:
</TABLE>
<TABLE>
<CAPTION>
At September 30, 2000 At September 30, 1999
60-89 Days 90 Days or More 60-89 Days 90 Days or More
----------------- ------------------ ----------------- -----------------
Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four- family 7 $ 896 3 $ 151 2 $ 252 5 $ 216
Multi-family 1 215 - - 1 159 1 84
Commercial - - 1 224 - - - -
Commercial leases (1) - - - - - - - -
-- --- -- ------ -- ---- -- ----
Total mortgage loans 8 1,111 4 375 3 411 6 300
Consumer 2 32 1 4 - - 4 43
-- --- -- ------ -- ---- -- ----
Total loans 10 $ 1,143 5 $ 379 3 $ 411 10 $ 343
== === == ====== == ==== == =====
Delinquent loans to
total loans 0.21% 0.07% 0.08% 0.07%
=== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1998
60-89 Days 90 Days or More
----------------- ------------------
Number Principal Number Principal
of Balance of Balance
Loans of Loans Loans of Loans
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four- family 8 $ 501 6 $ 571
Multi-family - - 1 228
Commercial - - - -
Commercial leases (1) - - 1 30
-- --- -- ------
Total mortgage loans 8 501 8 829
Consumer 1 14 1 2
-- --- -- ------
Total loans 9 $ 515 9 $ 831
== === == ======
Delinquent loans to
total loans 0.12% 0.20%
=== ======
</TABLE>
(1) Relates to leases purchased from Bennett Funding Group - see further
discussion in "CLASSIFIED ASSETS". For purposes of this table, the portfolio
of leases has been considered to be one loan due to the collectibility issues
related to the leases.
NON-PERFORMING ASSETS. The following table sets forth information regarding
non-accrual loans, loans which are 90 days or more past due, and real estate in
foreclosure. The Bank continues accruing interest on all consumer loans until
a loss determination is made. Upon determination that the loan will result in
a loss, the Bank discontinues the accrual of interest and/or establishes a
reserve in the amount of the anticipated loss. For the year ended September
30, 2000, interest income on non-accrual loans included in net income amounted
to less than $1,000. If all non-accrual mortgage loans, as of September 30,
2000, had been currently performing in accordance with their original terms,
<PAGE> 24
the Bank would have recognized interest income from such loans of $21,000.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans $ 375 $ 300 $ 799 $ 1,397 $1,049
Non-accrual commercial leases - - 30 408 2,032
Non-accrual consumer loans 4 43 2 3 5
----- --- ----- ----- ---
Total non-accrual loans 379 343 831 1,808 3,086
Consumer loans 90 days or more
past due and still accruing - - - - -
----- --- ----- ----- ---
Total non-performing loans 379 343 831 1,808 3,086
Real estate in foreclosure 3 - 131 215 97
----- --- ----- ----- ---
Total non-performing assets $ 382 $ 343 $ 962 $ 2,023 $3,183
===== === ===== ===== ===
Total non-performing loans to
total loans 0.07% 0.07% 0.19% 0.47% 0.87%
===== === ===== ===== ===
Total non-performing assets to
total assets 0.06% 0.06% 0.19% 0.41% 0.67%
===== === ===== ===== ===
</TABLE>
CLASSIFIED ASSETS. Federal regulations require the Bank to classify loans and
other assets such as debt and equity securities, considered by the OTS to be of
lesser quality, as "substandard", "doubtful" or "loss" assets. The Bank's
classification policies provide that assets will be classified according to OTS
regulations. An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized
by the "distinct possibility" that the insured institution will sustain "some
loss" if the deficiencies are not corrected. Assets classified as "doubtful"
have all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as "loss" are
those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets which do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "special
mention" by management.
When the Bank determines that an asset should be classified, it generally does
not establish a specific allowance for such asset unless it determines that
such asset may result in a loss. The Bank may, however, increase its general
valuation allowance in an amount deemed prudent. General valuation allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. The Bank's policies
provide for the establishment of a specific allowance equal to 100% of each
asset classified as "loss" or to charge-off such amount. A savings
<PAGE> 25
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional general or specific loss allowances. The
Bank reviews the problem loans in its portfolio on a monthly basis to determine
whether any loans require classification in accordance with applicable
regulations; and believes its classification policies are consistent with OTS
policies.
As of September 30, 2000, the Bank had classified assets of $382,000.
Classified loans of $379,000 were categorized as substandard, consisting of 3
residential mortgage loans, 1 commercial and 1 auto loan. There were no assets
classified as doubtful.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan and lease losses based on management's evaluation
of the risk inherent in its loan portfolio and the general economy. Such
evaluation, which includes a review of all loans on which full collection may
not be reasonably assured, considers among other matters the estimated net
realizable value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing
for an adequate loan loss allowance. In recent years, in light of the general
economic conditions, management has, from time to time, increased its provision
to account for its evaluation of the potential effects of such conditions. The
Bank will continue to monitor and modify its allowances for loan losses as
conditions dictate. Although the Bank maintains its allowance at a level which
it considers adequate to provide for potential losses, there can be no
assurances that such losses will not exceed the estimated amounts.
<PAGE> 26
The following table sets forth the Bank's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
At or for the Years Ended September 30,
2000 1999 1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 780 $ 591 $ 460 $ 810 $ 403
Provision for loan losses 180 165 181 64 410
Charge offs:
One-to four-family - - - - (8)
Multi-family - - - - -
Commercial leases - - - (406) -
Consumer loans (13) (8) (51) (19) (26)
---- ---- ---- ---- ----
Total Charge-offs (13) (8) (51) (425) (34)
Recoveries:
Commercial leases - 27 - - -
Consumer loans 3 5 1 11 31
---- ---- ---- ---- ----
Total Recoveries 3 32 1 11 31
---- ---- ---- ---- ----
Balance at end of year $ 950 $ 780 $ 591 $ 460 $ 810
==== ==== ==== ==== ====
Ratio of charge-offs during the
year to average loans
outstanding during the year - % - % 0.01% 0.11% 0.01%
==== ==== ==== ==== ====
Ratio of allowance for loan losses
to net loans receivable at end
of year 0.18% 0.15% 0.14% 0.12% 0.23%
==== ==== ==== ==== ====
Ratio of allowance for loan losses
to total non-performing loans at
end of year 250.66% 227.41% 71.12% 25.44% 26.25%
====== ===== ===== ====== =====
Ratio of allowance for loan losses
to non-performing assets at end
of year 248.69% 227.41% 61.43% 22.74% 25.48%
====== ===== ===== ====== =====
</TABLE>
<PAGE> 27
On September 30, 2000, the Bank maintained no specific reserves on its loan
portfolio, and is unaware of any specific identifiable charge-offs in its loan
portfolio. The following table sets forth the Company's allocation of its
allowance for loan losses. This allocation is based on management's subjective
estimates. The amount allocated to a particular category should not be
interpreted as the only amount available for future charge-offs that may occur
within that category; it may not be indicative of future charge-off trends and
it may change from year to year based on management's assessment of the risk
characteristics of the loan portfolio.
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
% of Loans % of Loans % of Loans
in Category in Category in Category
of Total of Total of Total
Outstanding Outstanding Outstanding
Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four- family $ 421 73.45% $ 340 76.86% $ 241 76.47%
Multi-family 232 22.25 179 19.86 140 19.59
Commercial real estate 39 0.65 38 0.51 52 0.78
Commercial leases - - - - 2 0.01
Construction 23 0.43 - - - -
Consumer loans 190 3.21 171 2.77 148 3.15
Unallocated 45 - 52 - 8 -
---- ------ ---- ------ ---- ------
Total allowance for loan losses $ 950 100.00% $ 780 100.00% $ 591 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
INVESTMENT ACTIVITIES
The investment policies of the Company and the Bank, established by the Board
of Directors and implemented by the Asset/Liability Committee, attempt to
provide and maintain liquidity, generate a favorable return on investments
without incurring undue interest rate and credit risk, and complement the
Bank's lending activities. Federally chartered savings institutions have the
authority to invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain
bankers' acceptances, repurchase agreements and federal funds. Subject to
various restrictions, federally chartered savings institutions may also invest
their assets in commercial paper, investment grade corporate debt securities,
asset-backed securities, and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.
The Company is the holder of certain subordinated notes (the "Notes") issued by
Cole Taylor Financial Group, Inc. The Notes have a par value and cost basis of
$3.0 million. The Notes were acquired by the Company in 1994, when Cole Taylor
Financial Group, Inc. was the parent company for both a consumer finance
company and a Chicago area bank. In fiscal 1997, Cole Taylor's bank subsidiary
was "spun-off" to certain Cole Taylor shareholders in exchange for stock and
certain assets. The Notes remained as obligations of the surviving company,
which is now known as Reliance Acceptance Group, Inc. ("RAG") and is the parent
company for the consumer finance company.
On November 14, 1997, RAG filed a Form 10-Q with the SEC in which RAG
reported, among other things, substantial additions to its loan loss reserves,
<PAGE> 28
increasing delinquencies and repossession losses, a severe decline in its net
interest margin, continuing defaults under senior credit agreements, a lack of
future funding sources, and the imposition of substantial restrictions by
senior lenders.
The Company evaluated the information that was then available about RAG's
circumstances and future prospects in an effort to assess impairment and to
place a value on the Notes in the context of a possible RAG liquidation, sale
and/or bankruptcy. The Company concluded that the impairment was other than
temporary, and that a complete write-down of the Notes was appropriate, because
of RAG's worsening condition, the fact that the Notes are subordinate to the
senior debt and are structurally subordinate to the other obligations of RAG's
finance company subsidiary, and the substantial uncertainties that existed
regarding ultimate realization of the asset.
Accordingly, the Company wrote the Notes down $3.0 million during the fourth
quarter and fiscal year ended September 30, 1997. In accordance with generally
accepted accounting principles (GAAP), the write-down was charged against
fiscal year 1997 earnings because the notes were considered to be other than
temporarily impaired.
RAG subsequently filed a bankruptcy petition in the United States Bankruptcy
Court in Delaware. The Company is continuing its efforts to attempt to realize
some recovery of its subordinated notes. Among other things, the Company
actively participated on the Official Committee of the Unsecured Creditors of
RAG and in the formulation of a plan for RAG's bankruptcy liquidation.
Further, the Estate Representative for RAG, with the support of the Company and
other holders of RAG subordinated notes, has filed two lawsuits against a
number of RAG insiders, certain legal and accounting firms and others in the
United States District Court for the District of Delaware.
The lawsuits allege a variety of causes of action against these individuals and
entities relating to the spin-off, the accuracy of RAG's financial statements
and similar matters. A litigation fund of approximately $5.0 million was
established pursuant to RAG's plan of reorganization to pursue these lawsuits
and similar litigation. Settlements have been reached with certain defendants
in this litigation. However, the primary defendants continue to vigorously
defend the lawsuits. The lawsuits have been scheduled the lawsuits for a jury
trial on January 4, 2001.
On February 14, 2000, the Company filed a class action in the Circuit Court of
Cook County, Illinois against LaSalle National Bank and affiliates. The action
is brought on behalf of the Company individually and as class representative
of all RAG subordinated noteholders. The compliant alleges a cause of action
arising out of LaSalle's involvement as a trustees of the RAG subordinated
notes. Discovery has not yet commenced and no trial date has been set.
<PAGE> 29
The following table sets forth certain information regarding the amortized cost
and fair value of the Company's investment securities portfolio at the dates
indicated:
<TABLE>
<CAPTION>
At September 30,
2000 1999 1998
Amortized Fair Amortized Fair Amortized
Fair
Cost Value Cost Value Cost
Value
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning deposits:
FHLB daily investment $ 1,400 1,400 404 404 547 547
Money market fund 5 5 172 172 8 8
----- ----- --- --- ----- -----
Total interest-bearing deposits $ 1,405 1,405 576 576 555 555
===== ===== ===== ===== ===== =====
Federal funds sold $ 100 100 100 100 100 100
==== === ===== ===== ===== =====
Mutual funds -
Federated Liquid Cash Trust $ - - - - -
===== ===== ===== ===== ===== =====
FHLB-Chicago Stock $10,065 10,065 9,615 9,615 6,510 6,510
===== ===== ===== ===== ===== =====
Investment securities
available for sale:
U.S. Government and
agencies $ 68,436 65,603 68,428 66,070 58,439 58,979
Corporate asset-backed
securities - - - - - -
Corporate debt securities 7,972 8,763 - - - -
------- ------ ------ ------ ------ ------
Total investment securities
available for sale $ 76,408 74,366 68,428 66,070 58,439 58,979
======= ====== ====== ====== ====== ======
</TABLE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and maturities of the Company's investment securities
available for sale at September 30, 2000.
<TABLE>
<CAPTION>
At September 30, 2000
One Year One to Five to More than
or Less Five Years 10 Years 10 Years Total
Avg
Wtd Wtd Wtd Wtd remaining Wtd
Amtzd Avg Amtzd Avg Amtzd Avg Amtzd Avg Years to Amtzd Fair Avg
Cost Yield Cost Yield Cost Yield Cost Yield Maturity Cost Value Yield
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agencies $ - - % - -% 68,436 6.59% - - % 8.1 68,436 65,603 6.59%
Corporate securities - - - - - - 7,972 9.50 29.7 7,972 8,763 9.50
---- ---- ---- ---- ------ ----- ---- ----- ----- ------ ------ ----
$ - - % - -% 68,436 6.59% 7,972 9.50% 10.3 76,408 74,366 6.89%
==== ==== ==== ==== ====== ===== ==== ===== ===== ====== ====== ====
</TABLE>
<PAGE> 30
Investments include $76.5 million in callable notes. These securities are
shown as repricing at their respective maturity dates although there can be no
assurance that the securities will not be called before maturity. The issues
include three FHMLCs; $8.5 million 6.60% due 6/24/2008, $10 million 6.65% due
3/23/2009, and $10 million 6.75% due 5/4/2009 that are callable with 10 days
notice. Also included is a $20 million, 6.77% FNMA due 5/21/2008 that is
callable within 10 days notice. Two FHLB notes for $10 million each with rates
of 6.275% and 6.285% are due 11/25/2008 and 12/29/2008, respectively. These
are callable on their quarterly anniversary dates. Also included are two
corporate notes with rates of 9.25% and 9.74% are due 3/15/30 and 9/15/30,
respectively. These are callable on their anniversary date in 2010.
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments, and cash flows generated from operations
are the primary sources of the Bank's funds for use in lending, investing and
for other general purposes. The Bank also utilizes FHLB advances from time to
time.
DEPOSITS. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of passbook savings,
NOW, Super NOW, money market and certificate accounts. The flow of deposits is
influenced significantly by general economic conditions, changes in money
market rates, prevailing interest rates and competition. The Bank's deposits
are obtained primarily from the areas in which its home office is located. The
Bank relies primarily on customer service and long-standing relationships with
customers to attract and retain these deposits. Certificate accounts in excess
of $100,000 are not solicited by the Bank nor does the Bank use brokers to
obtain deposits. Management constantly monitors the Bank's deposit accounts
and, based on historical experience, management believes it will retain a large
portion of such accounts upon maturity.
The following table presents the deposit activity of the Bank for the years
indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Deposits $ 702,632 716,232 372,003
Withdrawals (696,519) (704,706) (377,067)
------- ------- -------
Net deposits in excess of withdrawals 6,113 11,526 (5,064)
Interest credited on deposits 18,304 14,820 12,341
------- ------- -------
Total increase in deposits $ 24,417 26,346 7,277
======= ======= =======
</TABLE>
<PAGE> 31
The following table sets forth maturities time deposits over $100,000 at
September 30, 2000:
<TABLE>
<CAPTION>
Maturity Period
(in thousands)
<S> <C>
Three months or less $ 2,351
Over three through six months 12,992
Over six through 12 months 14,682
Over 12 months 5,236
-------
$ 35,261
=======
</TABLE>
The following table sets forth the distribution of the Bank's deposit accounts
at the dates indicated and the weighted average nominal interest rates on each
category of deposits presented. Management does not believe that the use of
fiscal year-end balances instead of average balances resulted in any material
difference in the information presented.
<TABLE>
<CAPTION>
At September 30,
2000 1999
Weighted
Weighted
Percent of Average Percent of Average
Total Nominal Total Nominal
Amount Deposits Rate Amount Deposits Rate
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook Savings $ 121,787 31.93% 4.09% $ 127,415 35.69% 3.70%
Transaction Accounts:
NOW/non-interest bearing 9,287 2.43 - 6,385 1.79 -
NOW 19,074 5.00 2.03 16,577 4.64 2.22
Money market and management 12,711 3.33 3.59 16,100 4.51 3.82
------ ----- ---- ------ ---- ----
Total transaction accounts 41,072 10.77 3.81 39,062 10.94 3.56
Certificate Accounts:
3 month 1,029 0.27 4.30 2,160 0.61 4.40
6 month 7,660 2.01 5.24 10,503 2.94 4.67
7 month 2,509 0.66 4.70 31,955 8.95 5.03
8 month 1,609 0.42 4.70 5,125 1.44 4.63
10 month 16,834 4.41 6.11 45,000 12.60 5.40
12 month 31,017 8.13 6.39 18,600 5.21 4.87
13 month 105,917 27.77 6.63 35,610 9.97 5.75
15 month 15,307 4.01 6.12 12,475 3.49 4.90
24 month 22,694 5.95 6.57 10,170 2.85 5.28
36 month 5,291 1.39 5.46 6,843 1.92 5.65
36 month rising rate 2,826 0.74 5.64 3,959 1.11 5.17
60 month 5,881 1.54 5.82 8,139 2.28 6.01
Other - - - - - -
------ ----- ---- ------ ---- ----
Total certificate accounts 218,574 57.30 6.36 190,539 53.37 5.27
------ ----- ---- ------ ---- ----
Total Deposits $ 381,433 100.00% 5.30% 357,016 100.00% 4.49%
======= ====== ==== ======= ====== ====
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
At September 30,
1998
Weighted
Percent of Average
Total Nominal
Amount Deposits Rate
(dollars in thousands)
<S> <C> <C> <C>
Passbook Savings $ 126,901 38.38% 4.16%
Transaction Accounts:
NOW/non-interest bearing 5,981 1.81 -
NOW 15,972 4.83 2.25
Money market and management 17,462 5.28 4.03
------ ----- ----
Total transaction accounts 39,415 11.92 2.70
Certificate Accounts:
3 month 2,589 0.78 4.95
6 month 18,095 5.47 5.25
7 month 4,662 1.41 5.32
8 month 39,875 12.06 5.69
10 month 17,876 5.41 5.44
12 month 28,263 8.55 5.63
13 month 3,984 1.20 5.59
15 month 15,377 4.65 5.64
24 month 11,967 3.62 5.78
36 month 7,533 2.28 5.82
36 month rising rate 4,578 1.38 5.29
60 month 9,455 2.86 5.91
Other 100 0.03 5.50
------ ----- ----
Total certificate accounts 164,354 49.70 5.59
------ ----- ----
Total Deposits $ 330,670 100.00% 4.78%
======= ====== ====
</TABLE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at September 30, 2000, 1999 and 1998 and the
periods to maturity of the certificate accounts outstanding at September 30,
2000.
<TABLE>
<CAPTION>
Period to maturity from September 30, 2000
At September 30,
Two to
Within One to Three There-
2000 1999 1998 One Year Two Years Years after Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2.99% or less $ 59 81 139 59 - - - 59
3.00% to 3.99% - - - - - - - -
4.00% to 4.99% 22,497 53,218 5,340 20,213 1,684 73 527 22,497
5.00% to 5.99% 30,333 133,805 147,841 21,905 5,213 2,688 527 30,333
6.00% to 6.99% 129,611 3,435 11,034 124,238 4,629 744 - 129,611
7.00% to 7.99% 36,074 - - 24,601 11,473 - - 36,074
8.00% to 8.99% - - - - - - - -
9.00% to 9.99% - - - - - - - -
10.00% to 10.99% - - - - - - - -
------- ------- ------- ------- ------ ----- ----- -------
Total $ 218,574 190,539 164,354 191,016 22,999 3,505 1,054 218,574
======= ======= ======= ======= ====== ===== ===== =======
</TABLE>
<PAGE> 33
BORROWINGS
Although deposits are the Bank's primary source of funds, the Bank's policy has
been to utilize borrowings, such as advances from the FHLB of Chicago when they
are a less costly source of funds or can be invested at a positive rate of
return.
The following table sets forth certain information regarding borrowings at and
for the date indicated:
<TABLE>
<CAPTION>
At and for the Years Ended September 30,
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Average balance outstanding $180,651 158,523 102,968
Maximum amount outstanding at any
month-end during the year 205,150 192,300 128,400
Balance outstanding at year end 205,150 186,250 121,400
Weighted average interest rate
during the year 6.16% 5.48% 5.73%
Weighted average interest rate
at end of year 6.72% 5.56% 5.69%
</TABLE>
The Bank obtains advances from the FHLB of Chicago secured by its capital stock
in the FHLB of Chicago and a blanket pledge of certain of its mortgage loans.
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The maximum amount
that the FHLB of Chicago will advance to member institutions, including the
Bank, for purposes other than meeting withdrawals, fluctuates from time to
time in accordance with the policies of the OTS and the FHLB of Chicago. The
maximum amount of FHLB of Chicago advances to a member institution generally is
reduced by borrowings from any other source. At September 30, 2000, the Bank's
FHLB of Chicago advances totalled $201.3 million.
Included in FHLB of Chicago advances at September 30, 2000 are $35.0 million of
fixed-rate advances which are callable at the discretion of the FHLB of Chicago
at periods from 6 months to 2 years from the origination date. The average
term to maturity on these advances is 4.7 years, while the average term to call
is 0.7 years. The Bank receives a lower cost of borrowing on such advances
than on similar non-callable long-term advances in return for granting the FHLB
of Chicago the right to call the advance prior to their final maturity. If
called, the FHLB of Chicago will provide replacement funding at the then
prevailing market rate of interest for the remaining term of the advances,
subject to standard terms and conditions.
UNSECURED TERM BANK LOAN During fiscal 2000, the Company obtained a $5.0
million unsecured line of credit from an unrelated financial institution. The
loan provides for an interest rate of the prime rate or 2% over the one, two,
or three-month LIBOR at management's discretion, adjustable and payable at the
end of the repricing period. At September 30, 2000, the loan carries an
interest rate of 2% over the three-month LIBOR. The loan requires quarterly
payments of all accrued unpaid interest due and one payment of all outstanding
principal plus all accrued unpaid interest on December 15, 2001. The financing
agreements contain covenants that, among other things, require the Company to
maintain a minimum stockholders' equity balance and to obtain certain minimum
<PAGE> 34
operating results, as well as requiring the Bank to maintain "well capitalized"
regulatory capital levels and certain non-performing asset ratios. At
September 30, 2000, the Company was in compliance with these covenants.
SUBSIDIARY ACTIVITY
Fidelity Corporation, incorporated in 1970, is a wholly-owned subsidiary of the
Bank. Fidelity Corporation's business is safe deposit box rentals, and annuity
and insurance sales primarily to customers of the Bank. In addition, in
cooperation with INVEST, full service securities brokerage services are offered
to customers and non-customers of the Bank.
Fidelity Corporation owns a 7.64% ownership interest as a limited partner and a
.08% ownership interest as a general partner in an Illinois limited partnership
formed in 1987 for the purpose of (i) developing, in the City of Evanston,
Illinois, a public parking garage containing 602 parking spaces, which was sold
in 1989 to the City of Evanston, and (ii) developing, managing and operating a
190 unit luxury rental apartment building adjacent thereto. Fidelity
Corporation's investment in this limited partnership, represented by its
capital contributions, totalled $732,100 at September 30, 2000. Losses to
Fidelity Corporation other than any liability as a general partner are limited
to its capital contributions. Profits to Fidelity Corporation, if any, are
initially expected to be derived from partnership operations and, after pro-
rata payment of "Preferred Distributions" to the partners (including Fidelity
Corporation), are to be equal to Fidelity Corporation's pro-rata ownership
interests in the partnership. The apartment complex, which was completed in
August 1990, was 99% occupied as of September 30, 2000. Fidelity Corporation's
portion of the operating losses for the year ended September 30, 2000 was
$36,000. Losses from the operations of the property were primarily due to the
expensing of certain organizational and marketing costs and non-cash expenses
such as amortization and depreciation. The losses from the partnership have
reduced the Bank's income. On November 3, 2000, Fidelity Corporation sold its
partnership interest to the other General Partner for $835,000. The Company
recorded a pre-tax gain of $105,900 in the first quarter of fiscal 2001.
Fidelity Loan Services, Inc., (FLSI), incorporated in 1989, is a wholly-owned
subsidiary of the Bank that ceased operations in October 1994.
PERSONNEL
As of September 30, 2000, the Company had 101 full-time employees and 27 part-
time employees. The employees are not represented by a collective bargaining
unit and the Company considers its relationship with its employees to be
excellent.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Office of Thrift Supervision (the "OTS"),
<PAGE> 35
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Internal Revenue
Service and state taxing authorities and the Securities and Exchange Commission
(the "SEC"). The effect of applicable statutes, regulations and regulatory
policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Bank, regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Company and the Bank establishes a
comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the stockholders, of financial institutions.
The following is a summary of the material elements of the regulatory framework
that applies to the Company and the Bank. It does not describe all of the
statutes, regulations and regulatory policies that apply to the Company and the
Bank, nor does it restate all of the requirements of the statutes, regulations
and regulatory policies that are described. As such, the following is qualified
in its entirety by reference to the applicable statutes, regulations and
regulatory policies. Any change in applicable law, regulations or regulatory
policies may have a material effect on the business of the Company and the
Bank.
RECENT REGULATORY DEVELOPMENTS
The Gramm-Leach-Bliley Act (the "Act"), which was enacted in November, 1999,
allows eligible bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Act, an eligible bank holding company that elects to
become a financial holding company may engage in any activity that the Federal
Reserve, in consultation with the Secretary of the Treasury, determines by
regulation or order is financial in nature, incidental to any such financial
activity, or complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. National banks are also authorized by the Act to
engage, through "financial subsidiaries," in certain activity that is
permissible for financial holding companies (as described above) and certain
activity that the Secretary of the Treasury, in consultation with the Federal
Reserve, determines is financial in nature or incidental to any such financial
activity.
The Act limits the nonbanking activities of unitary savings and loan holding
companies by generally prohibiting any savings and loan holding company from
engaging in any activity other than activities that are currently permitted for
multiple savings and loan holding companies or are permissible for financial
holding companies (as described above) (collectively "permissible activities").
The Act also generally prohibits any company from acquiring control of a
savings association or savings and loan holding company unless the acquiring
company engages solely in permissible activities. The Act creates an exemption
from the general prohibitions for unitary savings and loan holding companies in
existence, or formed pursuant to an application pending before the OTS, on or
before May 4, 1999.
<PAGE> 36
Although various bank regulatory agencies have issued regulations as mandated
by the Act, except for the jointly issued privacy regulations, the Act and its
implementing regulations have had little impact on the daily operations of the
Company and the Bank and, at this time, it is not possible to predict the
impact the Act and its implementing regulations may have on the Company or the
Bank.
The OTS is currently proposing to require certain savings and loan holding
companies to notify the OTS before engaging in, or committing to engage in, a
limited set of debt transactions, transactions that reduce capital, certain
asset acquisitions, and other transactions. The proposal would generally
exclude savings and loan holding companies whose subsidiary savings
associations' assets represent a small percent of consolidated assets and
holding companies that would have consolidated tangible capital of 10% or
greater following the transaction. The OTS is also currently seeking comment
on its proposal to codify its current practices for reviewing the capital
adequacy of savings and loan holding companies and, when necessary, requiring
additional capital on a case-by-case basis.
THE COMPANY
GENERAL. The Company, as the sole stockholder of the Bank, is a savings and
loan holding company. As a savings and loan holding company, the Company is
registered with, and is subject to regulation by, the OTS under the Home
Owners' Loan Act, as amended (the "HOLA"). Under the HOLA, the Company is
subject to periodic examination by the OTS. The Company is also required to
file with the OTS periodic reports of the Company's operations and such
additional information regarding the Company and the Bank as the OTS may
require.
INVESTMENTS AND ACTIVITIES. The HOLA prohibits a savings and loan holding
company, directly or indirectly, or through one or more subsidiaries from: (i)
acquiring control of, or acquiring by merger or purchase of assets, another
savings association or savings and loan holding company without the prior
written approval of the OTS; (ii) subject to certain exceptions, acquiring more
than 5% of the issued and outstanding shares of voting stock of a savings
association or savings and loan holding company except as part of an
acquisition of control approved by the OTS; or (iii) acquiring or retaining
control of a financial institution that is not FDIC-insured.
A savings and loan holding company may acquire savings associations located in
more than one state in both supervisory transactions involving failing savings
associations and nonsupervisory acquisitions of healthy institutions.
Interstate acquisitions of healthy savings associations, however, are permitted
only if the law of the state in which the savings association to be acquired is
located specifically authorizes the proposed acquisition, by language to that
effect and not merely by implication. State laws vary in the extent to which
interstate acquisitions of savings associations and savings and loan holding
companies are permitted. Illinois law presently permits savings and loan
holding companies located in any state of the United States to acquire savings
associations or savings and loan holding companies located in Illinois, subject
to certain conditions, including the requirement that the laws of the state in
which the acquiror is located permit savings and loan holding companies located
in Illinois to acquire savings associations or savings and loan holding
companies in the acquiror's state.
A savings and loan holding company that, like the Company, controls only one
savings association subsidiary and either was a savings and loan holding
company on or before May 4, 1999, or became a savings and loan holding company
<PAGE> 37
pursuant to an application pending before the OTS on or before May 4, 1999 (a
"grandfathered company"), is generally not subject to any restrictions on the
types of non-banking activities that the holding company may conduct either
directly or through a non-banking subsidiary, so long as the holding company's
savings association subsidiary constitutes a qualified thrift lender (see "--
The Bank--Qualified Thrift Lender Test"). A savings and loan holding company
that controls only one savings association subsidiary but is not a
grandfathered company is subject to certain restrictions on the non-banking
activities in which it may engage (see "Recent Regulatory Developments"). In
all cases, however, if the OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding company of a
particular activity constitutes a serious risk to the financial safety,
soundness or stability of its savings association subsidiary, the OTS may
require the holding company to cease engaging in the activity (or divest any
subsidiary which engages in the activity) or may impose such restrictions on
the holding company and the subsidiary savings association as the OTS deems
necessary to address the risk. The restrictions the OTS may impose include
limitations on (i) the payment of dividends by the savings association to the
holding company, (ii) transactions between the savings association and its
affiliates and (iii) any activities of the savings association that might
create a serious risk that liabilities of the holding company and its
affiliates may be imposed on the savings association.
Federal law also prohibits any person or company from acquiring control of a
savings association or a savings and loan holding company without prior notice
to the OTS. Control is defined generally to mean the acquisition of 25% or
more of the outstanding shares of voting stock of a savings association or
savings and loan holding company. Under certain circumstances, however, a
person or company may be presumed (subject to rebuttal) to have acquired
control of a savings association or savings and loan holding company as a
result of the acquisition of 10% or more of the outstanding shares of voting
stock of the savings association or savings and loan holding company.
DIVIDENDS. The Delaware General Corporation Law (the "DGCL") allows the
Company to pay dividends only out of its surplus (as defined and computed in
accordance with the provisions of the DGCL) or if the Company has no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Additionally, OTS policies provide
that a savings and loan holding company should not pay dividends that are not
supportable by the company's core earnings or that may be funded only by
borrowings or by sales of assets. The OTS also possesses enforcement powers
over savings and loan holding companies to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by savings and loan holding companies.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered with
the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Company is subject to the information, proxy solicitation, insider trading and
other restrictions and requirements of the SEC under the Exchange Act.
THE BANK
GENERAL. The Bank is a federally chartered savings association, the deposits
of which are insured by the FDIC's Savings Association Insurance Fund ("SAIF").
As a SAIF-insured, federally chartered savings association, the Bank is subject
to the examination, supervision, reporting and enforcement requirements of the
<PAGE> 38
OTS, as the chartering authority for federal savings associations, and the FDIC
as administrator of the SAIF. The Bank is also a member of the Federal Home
Loan Bank System, which provides a central credit facility primarily for member
institutions.
DEPOSIT INSURANCE. As an FDIC-insured institution, the Bank is required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions
are placed into one of nine categories and assessed insurance premiums based
upon their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment
period.
During the semi-annual assessment period which began January 1, 2000, SAIF
assessments ranged from 0% of deposits to 0.27% of deposits. For the semi-
annual assessment period which began July 1, 2000, SAIF assessment rates
continue to range from 0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe
or unsound condition to continue operations or (iii) has violated any
applicable law, regulation, order, or any condition imposed in writing by, or
written agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of the Bank.
FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the Financing Corporation ("FICO"). FICO was
created in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. As a result of
federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF
members and members of the FDIC's Bank Insurance Fund ("BIF") became subject to
assessments to cover the interest payments on outstanding FICO obligations.
These FICO assessments are in addition to amounts assessed by the FDIC for
deposit insurance. Between January 1, 2000, and the final maturity of the
outstanding FICO obligations in 2019, BIF members and SAIF members will share
the cost of the interest on the FICO bonds on a pro rata basis. During the
year ended September 30, 2000, the FICO assessment rate for SAIF members ranged
between approximately 0.021% of deposits and approximately 0.059% of deposits,
while the FICO assessment rate for BIF members ranged between approximately
0.012% of deposits and approximately 0.021% of deposits. During the year ended
September 30, 2000, the Bank paid FICO assessments totaling $77,300.
SUPERVISORY ASSESSMENTS. All Federal savings associations are required to pay
supervisory assessments to the OTS to fund the operations of the OTS. The
amount of the assessment is calculated using a formula which takes into account
the institution's size, its supervisory condition (as determined by the
composite rating assigned to the institution as a result of its most recent OTS
examination) and the complexity of its operations. During the year ended
<PAGE> 39
September 30, 2000, the Bank paid supervisory assessments to the OTS totaling
$117,400.
CAPITAL REQUIREMENTS. Pursuant to the HOLA and OTS regulations, savings
associations, such as the Bank, are subject to the following minimum capital
requirements: a core capital requirement, consisting of a minimum ratio of
core capital to total assets of 3% for the most highly rated institutions, with
a minimum required ratio of 4% for all others; a tangible capital requirement,
consisting of a minimum ratio of tangible capital to total assets of 1.5%; and
a risk-based capital requirement, consisting of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must
consist of core capital. Core capital consists primarily of permanent
stockholders' equity less (i) intangible assets other than certain supervisory
goodwill, certain mortgage servicing rights and certain purchased credit card
relationships and (ii) investments in subsidiaries engaged in activities not
permitted for national banks. Tangible capital is substantially the same as
core capital except that all intangible assets other than certain mortgage
servicing rights must be deducted. Total capital consists primarily of core
capital plus certain debt and equity instruments that do not qualify as core
capital and a portion of the Bank's allowances for loan and lease losses.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
OTS provide that additional capital may be required to take adequate account
of, among other things, interest rate risk or the risks posed by concentrations
of credit or nontraditional activities.
During the year ended September 30, 2000, the Bank was not required by the OTS
to increase its capital to an amount in excess of the minimum regulatory
requirement. As of September 30, 2000, the Bank exceeded its minimum
regulatory capital requirements with a core capital ratio of 6.95%, a tangible
capital ratio of 6.95% and a risk-based capital ratio of 14.55%.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators'
corrective powers include: requiring the institution to submit a capital
restoration plan; limiting the institution's asset growth and restricting its
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
between the institution and its affiliates; restricting the interest rate the
institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution. As of September 30,
2000, the Bank was well capitalized, as defined by OTS regulations.
DIVIDENDS. OTS regulations require prior OTS approval for any capital
distribution by a savings association that is not eligible for expedited
processing under the OTS's application processing regulations. In order to
qualify for expedited processing, a savings association must: (i) have a
composite examination rating of 1 or 2; (ii) have a Community Reinvestment Act
<PAGE> 40
rating of satisfactory or better; (iii) have a compliance rating of 1 or 2;
(iv) meet all applicable regulatory capital requirements; and (v) not have been
notified by the OTS that it is a problem association or an association in
troubled condition. Savings associations that qualify for expedited processing
are not required to obtain OTS approval prior to making a capital distribution
unless: (a) the amount of the proposed capital distribution, when aggregated
with all other capital distributions during the same calendar year, will exceed
an amount equal to the association's year-to-date net income plus its retained
net income for the preceding two years; (b) after giving effect to the
distribution, the association will not be at least "adequately capitalized" (as
defined by OTS regulation); or (c) the distribution would violate a prohibition
contained in an applicable statute, regulation or agreement with the OTS or the
FDIC or violate a condition imposed in connection with an OTS-approved
application or notice. The OTS must be given prior notice of certain types of
capital distributions, including any capital distribution by a savings
association that, like the Bank, is a subsidiary of a savings and loan holding
company, or by a savings association that, after giving effect to the
distribution, would not be "well-capitalized" (as defined by OTS regulation).
The payment of dividends by any financial institution or its holding company is
affected by the requirement to maintain adequate capital pursuant to applicable
capital adequacy guidelines and regulations, and a financial institution
generally is prohibited from paying any dividends if, following payment
thereof, the institution would be undercapitalized. As described above, the
Bank exceeded its minimum capital requirements under applicable guidelines as
of September 30, 2000. Further, under applicable regulations of the OTS, the
Bank may not pay dividends in an amount which would reduce its capital below
the amount required for the liquidation account established in connection with
the Bank's conversion from the mutual to the stock form of ownership in 1993.
Notwithstanding the availability of funds for dividends, however, the OTS may
prohibit the payment of any dividends by the Bank if the OTS determines such
payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Bank is subject to certain restrictions imposed by
federal law on extensions of credit to the Company, on investments in the stock
or other securities of the Company and the acceptance of the stock or other
securities of the Company as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company, to
principal stockholders of the Company, and to "related interests" of such
directors, officers and principal stockholders. In addition, federal law and
regulations may affect the terms upon which any person becoming a director or
officer of the Company or the Bank or a principal stockholder of the Company
may obtain credit from banks with which the Bank maintains a correspondent
relationship.
SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.
In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving
<PAGE> 41
and maintaining compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance
plan that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action
by the federal banking regulators, including cease and desist orders and civil
money penalty assessments.
BRANCHING AUTHORITY. Federally chartered savings associations which qualify as
"domestic building and loan associations," as defined in the Internal Revenue
Code, or meet the qualified thrift lender test (see "-The Bank -- Qualified
Thrift Lender Test") have the authority, subject to receipt of OTS approval, to
establish or acquire branch offices anywhere in the United States. If a
federal savings association fails to qualify as a "domestic building and loan
association," as defined in the Internal Revenue Code, and fails to meet the
qualified thrift lender test, the association may branch only to the extent
permitted for national banks located in the savings association's home state.
As of September 30, 2000, the Bank qualified as a "domestic building and loan
association," as defined in the Internal Revenue Code and met the qualified
thrift lender test.
QUALIFIED THRIFT LENDER TEST. The HOLA requires every savings association to
satisfy a "qualified thrift lender" ("QTL") test. Under the HOLA, a savings
association will be deemed to meet the QTL test if it either (i) maintains at
least 65% of its "portfolio assets" in "qualified thrift investments" on a
monthly basis in nine out of every 12 months or (ii) qualifies as a "domestic
building and loan association," as defined in the Internal Revenue Code. For
purposes of the QTL test, "qualified thrift investments" consist of mortgage
loans, mortgage-backed securities, education loans, small business loans,
credit card loans and certain other housing and consumer-related loans and
investments. "Portfolio assets" consist of a savings association's total
assets less goodwill and other intangible assets, the association's business
properties and a limited amount of the liquid assets maintained by the
association pursuant to the liquidity requirements of the HOLA and OTS
regulations (see "--The Bank--Liquidity Requirements"). A savings association
that fails to meet the QTL test must either convert to a bank charter or
operate under certain restrictions on its operations and activities.
Additionally, within one year following the loss of QTL status, the holding
company for the savings association will be required to register as, and will
be deemed to be, a bank holding company. A savings association that fails the
QTL test may requalify as a QTL but it may do so only once. As of September
30, 2000, the Bank satisfied the QTL test, with a ratio of qualified thrift
investments to portfolio assets of 97.26%, and qualified as a "domestic
building and loan association," as defined in the Internal Revenue Code.
LIQUIDITY REQUIREMENTS. OTS regulations currently require each savings
association to maintain, for each calendar quarter, an average daily balance of
liquid assets (including cash, certain time deposits, bankers' acceptances, and
specified United States Government, state or federal agency obligations) equal
to at least 4% of either (i) its liquidity base (i.e., its net withdrawable
accounts plus borrowings repayable in 12 months or less) as of the end of the
preceding calendar quarter or (ii) the average daily balance of its liquidity
base during the preceding calendar quarter. This liquidity requirement may be
changed from time to time by the OTS to an amount within a range of 4% to 10%
<PAGE> 42
of the liquidity base, depending upon economic conditions and the deposit flows
of savings associations. The OTS may also require a savings association to
maintain a higher level of liquidity than the minimum 4% requirement if the OTS
deems necessary to ensure the safe and sound operation of the association.
Penalties may be imposed for failure to meet liquidity ratio requirements. At
September 30, 2000, the Bank was in compliance with OTS liquidity requirements,
with a liquidity ratio of 14.02%.
FEDERAL RESERVE SYSTEM. Federal Reserve regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $44.3 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $44.3 million, the reserve
requirement is $1.329 million plus 10% of the aggregate amount of total
transaction accounts in excess of $44.3 million. The first $5.0 million of
otherwise reservable balances are exempted from the reserve requirements.
These reserve requirements are subject to annual adjustment by the Federal
Reserve. The Bank is in compliance with the foregoing requirements. The
balances used to meet the reserve requirements imposed by the Federal Reserve
may be used to satisfy liquidity requirements imposed by the OTS.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's financial statements and notes thereto presented herein have been
prepared in accordance with GAAP, which generally require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company are monetary in nature. As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
The OTS requires all regulated thrift institutions to calculate the estimated
change in the Bank's net portfolio value (NPV) assuming instantaneous, parallel
shifts in the Treasury yield curve of 100 to 300 basis points either up or down
in 100 basis point increments. The NPV is defined as the present value of
expected cash flows from existing assets less the present value of expected
cash flows from existing liabilities plus the present value of net expected
cash inflows from existing off-balance sheet contracts.
The OTS provides all institutions that file a Consolidated Maturity/Rate
schedule (CMR) as a part of their quarterly Thrift Financial Report with an
interest rate sensitivity report of NPV. The OTS simulation model uses a
discounted cash flow analysis and an option-based pricing approach to measuring
the interest rate sensitivity of NPV. The OTS model estimates the economics
value of each type of asset, liability, and off-balance sheet contact under the
assumption that the Treasury yield curve shifts instantaneously and parallel up
and down 100 to 300 basis points in 100 basis point increments. The OTS
provides thrifts the results of their interest rate sensitivity model, which is
based on information provided by the Bank, to estimate the sensitivity of NPV.
<PAGE> 43
The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage loans. The most significant embedded option in these
types of assets is the prepayment option of the borrowers. The OTS model uses
various price indications and prepayment assumptions to estimate sensitivity of
mortgage loans.
In the OTS model, the value of deposit accounts appears on the asset and
liability side of the NPV analysis. In estimating the value of certificate of
deposit accounts, the liability portion of the CD is represented by the implied
value when comparing the difference between the CD face rate and available
wholesale CD rates. On the asset side of the NPV calculation, the value of the
"customer relationship" due to the rollover of retail CD deposits represents an
intangible asset in the NPV calculation.
Other deposit accounts such as transaction accounts, money market deposit
accounts, passbook accounts, and non-interest bearing accounts also are
included on the asset and liability side of the NPV calculation in the OTS
model. The accounts are valued at 100% of the respective account balances on
the liability side. On the assets side of the analysis, the value of the
"customer relationship" of the various types of deposit accounts is reflected
as a deposit intangible.
The NPV sensitivity of borrowed funds is estimated by the OTS model based on a
discounted cash flow approach. The cash flows are assumed to consist of
monthly interest payments with principal paid at maturity.
The OTS model is based only on the Bank's balance sheet. The assets and
liabilities at the parent company level are short-term in nature, primarily
cash and equivalents, and were not considered in the analysis because they
would not have a material effect on the analysis of NPV sensitivity. The
following table sets forth the Company's interest rate sensitivity of NPV as of
June 30, 2000.
<TABLE>
<CAPTION>
Net Portfolio Value as a %
Net Portfolio Value of Present Value of Assets
------------------------------ --------------------------
Changes in
Rates $ Amount $ Change % Change NPV Ratio Change
---------- --------- -------- -------- --------- ---------
<C> <C> <C> <C> <C> <C>
+ 300 bp 20,828 (36,217) (63)% 3.61% - 553 bp
+ 200 bp 33,386 (23,658) (41)% 5.63% - 351 bp
+ 100 bp 45,924 (11,121) (19)% 7.54% - 160 bp
0 bp 57,045 9.14%
- 100 bp 65,318 8,273 15 % 10.27% + 113 bp
- 200 bp 71,041 13,996 25 % 11.00% + 186 bp
- 300 bp 79,173 22,128 39 % 12.04% + 290 bp
<PAGE> 44
ITEM 8.FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS of FINANCIAL CONDITION
(Dollars in thousands)
September 30, 2000 and 1999
</TABLE>
<TABLE>
<CAPTION>
ASSETS 2000 1999
<S> <C> <C>
Cash and due from banks $ 4,690 2,714
Interest-earning deposits 1,405 576
Federal funds sold 100 100
-------- -------
Cash and cash equivalents 6,195 3,390
FHLB of Chicago stock, at cost 10,065 9,615
Mortgage-backed securities held to maturity, at amortized cost
(approximate fair value of $3,202 and $3,637 at
September 30, 2000 and 1999) 3,179 3,585
Investment securities available for sale, at fair value 74,366 66,070
Loans receivable, net of allowance for loan losses of $950 and $780
at September 30, 2000 and 1999 533,999 507,557
Accrued interest receivable 4,161 3,665
Real estate in foreclosure 3 -
Premises and equipment 3,925 4,202
Deposit base intangible 13 34
Other assets 1,125 1,163
-------- -------
$ 637,031 599,281
======== =======
LIABILITIES and STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 381,433 357,016
Borrowed funds 205,150 186,250
Advance payments by borrowers for taxes and insurance 2,198 7,986
Other liabilities 5,447 6,008
-------- -------
Total liabilities 594,228 557,260
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; 2,025,085 and 2,207,846 shares outstanding
at September 30, 2000 and 1999, respectively 38 38
Additional paid-in capital 38,780 38,690
Retained earnings, substantially restricted 37,022 33,771
Treasury stock, at cost (1,757,265 and 1,574,504 shares at
September 30, 2000 and 1999, respectively) (31,391) (28,168)
Common stock acquired by Employee Stock Ownership Plan (189) (632)
Common stock acquired by Bank Recognition and Retention Plans (191) (198)
Accumluated other comprehensive income (loss) (1,266) (1,480)
-------- -------
Total stockholders' equity 42,803 42,021
-------- -------
Commitments and contingencies.
$637,031 599,281
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 45
CONSOLIDATED STATEMENTS of EARNINGS
(Dollars in thousands, except per share data)
Years ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable $ 38,329 33,787 30,231
Investment securities 5,236 4,951 4,759
Mortgage-backed securities 239 506 1,018
Other interest income 47 50 119
------- ------ ------
43,851 39,294 36,127
INTEREST EXPENSE:
Deposits 17,992 15,070 15,936
Borrowed funds 11,120 8,692 5,900
------- ------ ------
29,112 23,762 21,836
Net interest income before provision for loan losses 14,739 15,532 14,291
Provision for loan losses 180 165 181
------- ------ ------
Net interest income after provision for loan losses 14,559 15,367 14,110
NON-INTEREST INCOME:
Fees and commissions 452 374 332
Insurance and annuity commissions 1,063 721 717
Other 53 51 58
------- ------ ------
1,568 1,146 1,107
NON-INTEREST EXPENSE:
General and administrative expenses:
Salaries and employee benefits 5,331 5,784 5,682
Office occupancy and equipment 1,452 1,512 1,293
Data processing 521 498 524
Advertising and promotions 554 399 263
Other 1,441 1,615 1,437
Amortization of deposit base intangible 21 32 41
Recovery of impairment of investment securities
available for sale - - (22)
------- ------ ------
9,320 9,840 9,218
Income before income taxes 6,807 6,673 5,999
Income tax expense 2,565 2,543 2,219
------- ------ ------
NET INCOME $ 4,242 4,130 3,780
======= ====== ======
Earnings per share - basic $2.04 1.85 1.41
Earnings per share - diluted $1.96 1.76 1.33
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE> 46
CONSOLIDATED STATEMENTS of CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Years ended September 30, 2000, 1999, and 1998
<TABLE>
<CAPTION>
Accumu-
Common lated Other
Common Stock Compre-
Additional Stock Acquired hensive
Common Paid-in Retained Treasury Acquired By Income
Stock Capital Earnings Stock By ESOP By BRRP's (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 - - 3,780 - - - - 3,780
Change in accumulated other
comprehensive income - - - - - - 206 206
--- ------ ------- ------ ------ ------ ----- ------
Total comprehensive income 3,986
Purchase of treasury stock
(254,000 shares) - - - (5,896) - - - (5,896)
Cash dividends ($.38 per share) - - (1,073) - - - - (1,073)
Amortization of award of BRRP
stock - - - - - 229 - 229
Cost of ESOP shares released - - - - 570 - - 570
Exercise of stock options and
reissuance of treasury shares
(63,451 shares) - (170) - 541 - - - 371
Tax benefit related to vested
BRRP stock - 120 - - - - - 120
Tax benefit related to stock
options exercised - 102 - - - - - 102
Market adjustment for committed
ESOP shares - 571 - - - - - 571
--- ------ ------- ------ ------ ------ ----- ------
Balance at September 30, 1998 38 38,117 30,646 (19,210) (1,092) (242) 340 48,597
Net income - - 4,130 - - - - 4,130
Change in accumulated other
comprehensive loss - - - - - - (1,820) (1,820)
--- ------ ------- ------ ------ ------ ----- ------
Total comprehensive income 2,310
Purchase of treasury stock
(402,426 shares) - - - (9,312) - - - (9,312)
Cash dividends ($.43 per share) - - (1,005) - - - - (1,005)
Amortization of award of BRRP
stock - - - - - 44 - 44
Cost of ESOP shares released - - - - 460 - - 460
Exercise of stock options and
reissuance of treasury shares
(20,488 shares) - (145) - 354 - - - 209
Tax benefit related to vested
BRRP stock - 154 - - - - - 154
Tax benefit related to stock
options exercised - 62 - - - - - 62
Market adjustment for committed
ESOP shares - 502 - - - - - 502
--- ------ ------- ------ ------ ------ ----- ------
Balance at September 30, 1999 38 38,690 33,771 (28,168) (632) (198) (1,480) 42,021
- continued -
<PAGE> 47
Accumu-
Common lated Other
Common Stock Compre-
Additional Stock Acquired hensive
Common Paid-in Retained Treasury Acquired By Income
Stock Capital Earnings Stock By ESOP By BRRP's (loss) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 38 38,690 33,771 (28,168) (632) (198) (1,480) 42,021
Net income - - 4,242 - - - - 4,242
Change in accumulated other
comprehensive loss 214 214
--- ------ ------- ------ ------ ------ ----- ------
Total comprehensive income 4,456
Purchase of treasury stock
(191,200 shares) - - - (3,377) - - - (3,377)
Cash dividends ($.47 per share) - - (991) - - - - (991)
Amortization of award of BRRP
stock - - - - - 7 - 7
Cost of ESOP shares released - - - - 443 - - 443
Exercise of stock options and
reissuance of treasury shares
(8,439 shares) - (150) - 154 - - - 4
Tax benefit related to vested
BRRP stock - 4 - - - - - 4
Tax benefit related to stock
options exercised - 54 - - - - - 54
Market adjustment for committed
ESOP shares - 182 - - - - - 182
--- ------ ------- ------ ------ ------ ----- ------
Balance at September 30, 2000 38 38,780 37,022 (31,391) (189) (191) (1,266) 42,803
=== ====== ======= ====== ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 48
CONSOLIDATED STATEMENTS of CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended September 30, 2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,242 4,130 3,780
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation 446 447 352
Deferred income taxes 190 9 (103)
Provision for loan losses 180 165 181
Net amortization and accretion of premiums and discounts (8) 3 (37)
Amortization of cost of stock benefit plans 7 44 229
ESOP expense 625 962 1,141
Deferred loan costs, net of amortization (483) (634) (283)
Stock dividend from FHLB of Chicago (344) - -
Amortization of deposit base intangible 21 32 41
Recovery of impairment of investment securities
available for sale - - (22)
Gain on sale of real estate owned (13) (45) (24)
Increase in accrued interest receivable (496) (118) (102)
Increase(decrease) in other assets, net 38 46 (77)
(Increase) decrease in other liabilities, net (839) 1,316 (796)
------ ------ ------
NET CASH PROVIDED by OPERATING ACTIVITIES 3,566 6,357 4,280
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage-backed securities held to maturity (278) - -
Proceeds from maturities of investment securities
available for sale - 30,000 67,518
Proceeds from sale of real estate owned 86 438 702
Proceeds from redemption of Federal Home Loan Bank of Chicago stock - 740 1,390
Purchase of Federal Home Loan Bank of Chicago stock (106) (3,845) (2,200)
Purchase of investment securities available for sale (7,972) (39,951) (58,436)
Loans originated for investment (110,184) (196,859) (142,788)
Purchase of loans receivable - - (2,378)
Purchase of premises and equipment (169) (248) (1,160)
Principal repayments collected on loans receivable 84,013 115,038 107,354
Principal repayments collected on investment securities
available for sale - - 2,649
Principal repayments collected on mortgage-backed
securities held to maturity 684 7,590 5,689
------ ----- ------
NET CASH USED IN INVESTING ACTIVITIES (33,926) (87,097) (21,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 24,417 26,346 7,227
Net increase in borrowed funds 18,900 64,850 8,000
Net increase (decrease) in advance payments by borrowers for
taxes and insurance (5,788) 1,067 4,722
Purchase of treasury stock (3,377) (9,312) (5,896)
Payment of common stock dividends (991) (1,005) (1,073)
Proceeds from exercise of stock options 4 209 371
------ ----- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,165 82,155 13,351
------ ----- ------
Net change in cash and cash equivalents 2,805 1,415 (4,029)
Cash and cash equivalents at beginning of year 3,390 1,975 6,004
------ ----- ------
Cash and cash equivalents at end of year $ 6,195 3,390 1,975
====== ===== ======
CASH PAID DURING THE YEAR FOR:
Interest $ 29,180 23,256 21,820
Income taxes 2,292 1,955 2,459
NON-CASH INVESTING ACTIVITIES - Loans transferred to real
estate in foreclosure 231 262 1,163
====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 49
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fidelity Bancorp, Inc. (the Company) is a Delaware corporation incorporated on
September 7, 1993 for the purpose of becoming the savings and loan holding
company for Fidelity Federal Savings Bank (the Bank). On December 15, 1993,
the Bank converted from a mutual to a stock form of ownership, and the Company
completed its initial public offering and with a portion of the net proceeds
acquired all of the issued and outstanding capital stock of the Bank.
The Company through the branch network of the Bank provides financial and
other banking services to customers located primarily in Chicago and
surrounding suburbs of Chicago. Customers in these areas are primarily users
of the Bank's loan and deposit services. A major portion of loans is secured
primarily by real estate collateral, although borrower cash flow is expected to
be the primary source of repayment.
While the Company's principal decision makers monitor the revenue streams of
the various products and services, operations are managed and financial
performance is evaluated on a Company-wide basis. Accordingly, all of the
Company's banking operations are considered by management to be aggregated in
one reportable operating segment.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Fidelity Federal Savings Bank, and the
Bank's wholly owned operating subsidiary, Fidelity Corporation. All
intercompany accounts have been eliminated in consolidation.
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general practices
within the banking industry. A summary of significant policies follows:
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
including the allowance for loan losses, fair values of financial instruments,
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Management determines the appropriate classification of securities at the time
of purchase. The current mortgage-backed securities portfolio is designated as
held to maturity, as management has the ability and positive intent to hold
these securities to maturity. These securities are carried at cost, adjusted
for premiums and discounts. Amortization of premiums and accretion of
discounts is recognized into interest income by the interest method over the
remaining contractual lives of the securities.
INVESTMENT SECURITIES
Investment securities which the entity has the positive intent and ability to
hold to maturity are classified as "held to maturity" and measured at amortized
cost. Investments purchased for the purpose of being sold are classified as
trading securities and measured at fair value with any changes in fair value
included in earnings. All other investments that are not classified as "held
<PAGE> 50
to maturity" or "trading" are classified as "available for sale." Investments
available for sale are measured at fair value with any changes in fair value
reflected as a separate component of stockholders' equity, net of related tax
effects. The Company does not have any investment securities designated as
held to maturity or trading.
For securities classified as either available for sale or held-to-maturity, the
Company determines whether a decline in fair value below the amortized cost
basis is other than temporary in nature. If the decline in fair value is
judged by management to be other than temporary, the cost basis of the
individual security is written down to fair value as the new cost basis and the
amount of the write-down is included in earnings.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances plus net deferred loan
costs, less loans in process, unearned discounts, and allowances for loan
losses.
Loan fees are deferred, net of certain direct costs associated with loan
originations. Net deferred fees or costs are amortized as yield adjustments
over the contractual life of the loan using the interest method.
Impaired loans are measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, or, as a practical expedient,
at the loan's observable market price or at the fair value of the collateral if
the loan is collateral dependent. Factors in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
payments. Large groups of smaller balance homogeneous loans, such as
residential mortgages and consumer loans, are collectively evaluated for
impairment.
The allowance for loan losses is increased by charges to operations and
decreased by charge-offs, net of recoveries. The allowance for loan losses
reflects management's estimate of the reserves needed to cover the risks
inherent in the Bank's loan portfolio. In determining a proper level of loss
reserves, management periodically evaluates the adequacy of the allowance based
on known and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral, and current economic conditions. The Bank's recent historical
trends have resulted in no significant losses on mortgage and consumer loans
that are 90 days or greater delinquent and on loans which management believes
are uncollectible. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
losses on loans receivable. Such agencies may require the Bank to recognize
additions to the allowance for loan losses based on their judgements of
information available to them at the time of their examination.
REAL ESTATE IN FORECLOSURE
Real estate acquired through foreclosure or deed in lieu of foreclosure is
carried at the lower of fair value or the related loan balance at the date of
foreclosure, less estimated costs to dispose. Valuations are periodically
performed by management and an allowance for losses is established by a charge
to operations if the carrying value of a property subsequently exceeds its
estimated net realizable value.
<PAGE> 51
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of premises and equipment are
computed using the straight-line method over the estimated useful life of the
respective asset. Useful lives are 25 to 40 years for office buildings, and 5
to 10 years for furniture, fixtures, and equipment. Amortization of leasehold
improvements is computed on the straight-line method over the lesser of the
term of the lease or the useful life of the property.
DEPOSIT BASE INTANGIBLE
The deposit base intangible arising from the Bank's branch purchase and
assumption of the deposit liabilities is being amortized over 10 years, using
the interest method. Accumulated amortization as of September 30, 2000 and
1999 was $499,000 and $478,000, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Compensation expense under the ESOP is equal to the fair value of common shares
released or committed to be released annually to participants in the ESOP.
Common stock purchased by the ESOP and not committed to be released to
participants is included in the consolidated statements of financial condition
at cost as a reduction of stockholders' equity.
STOCK COMPENSATION
Employee compensation expense under stock option plans is reported if options
are granted below market price at grant date. Pro forma disclosures of net
income and earnings per share are shown using the fair value of SFAS No. 123 to
measure expense for options granted using an option pricing model to estimate
fair value.
INCOME TAXES
Deferred income taxes arise from the recognition of certain items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Income tax benefits
attributable to vested Bank Recognition and Retention Plans (BRRP) stock and
exercised non qualified stock options are credited to additional paid-in-
capital.
Deferred income taxes are accounted for under the asset and liability method,
whereby deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying the applicable tax rate to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date of any
such tax law change. A valuation allowance is established on deferred tax
assets when, in the opinion of management, the realization of the deferred tax
asset does not meet the "more likely than not" criteria.
INSURANCE AND ANNUITY COMMISSIONS
Insurance and annuity commissions are recognized as income as of the date of
inception of the related policy and contracts.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, interest-bearing deposits, and federal funds sold.
<PAGE> 52
EARNINGS PER SHARE
Basic earnings per share is determined by dividing net income by the weighted
average number of common shares outstanding during the period. ESOP shares are
considered outstanding for this calculation unless unearned. Diluted earnings
per share include the dilutive effect of additional potential shares issuable
under stock options.
Weighted average shares used in calculating earnings per share are summarized
below:
<TABLE>
<CAPTION>
2000 1999 1998
------ ----- -----
<S> <C> <C> <C>
Basic
Net Income $ 4,242 4,130 3,780
--------- --------- ---------
Weighted average common shares outstanding 2,092,093 2,300,562 2,797,751
Less: Average unallocated ESOP shares (15,336) (63,930) (109,065)
--------- --------- ---------
Average shares 2,076,757 2,236,632 2,688,686
Basic earnings per common share $ 2.04 $ 1.85 $ 1.41
--------- --------- ---------
Diluted
Net income $ 4,242 4,130 3,780
--------- --------- ---------
Weighted average common shares outstanding
for basic earnings per common share 2,076,757 2,236,632 2,688,686
Add: Dilutive effect of assumed exercises
of stock options 83,862 115,496 150,539
--------- --------- ---------
Average shares 2,160,619 2,352,128 2,839,225
--------- --------- ---------
Diluted earnings per common share $ 1.96 $ 1.76 $ 1.33
========= ========= =========
</TABLE>
COMPREHENSIVE INCOME
Comprehensive income consists of net income and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains and losses
on securities available for sale, net of tax effects, which are also recognized
as separate components of equity.
RECLASSIFICATIONS
Certain reclassifications have been made in prior years financial statements to
conform to the current year s presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Beginning October 1, 2000, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in the fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the
hedged item is not otherwise recorded. This standard will not affect the
Company's financial statement since the Company has no derivative holdings.
<PAGE> 53
(2) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
Gross Gross Gross Gross
Amortized unrealized unrealized Fair Amortized unrealized unrealizef Fair
cost gains losses value cost gains losses value
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage
Corporation $ 3,179 23 - 3,202 3,585 52 - 3,637
</TABLE>
There were no sales of mortgage-backed securities held to maturity during the
years ended September 30, 2000, 1999 and 1998.
(3) INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
Gross Gross Gross Gross
Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
cost gains losses value cost gains losses value
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations
due: .
Within one year $ - - - - - - - -
After one year
to five years - - - - - - - -
After 5 years
to 10 years 68,436 - 2,833 65,603 68,428 - 2,358 66,070
Corporate Securities:
After 10 years
or more years 7,972 791 - 8,763 - - - -
-------- ---- ----- ------- ------- ---- --- -------
$ 76,408 791 2,833 74,366 68,428 - 2,358 66,070
======== ==== ===== ======= ======= ==== ===== ======
</TABLE>
There were no sales of investment securities available for sale in 2000, 1999
and 1998. The fair value of investment securities available for sale is based
upon quoted market prices where available. Actual maturities may differ from
contractual maturities shown in the table above because the borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
At September 30, 2000 and 1999, there were no holdings of securities of any one
issuer, other than the U.S. Government and its agencies, in an amount greater
than 10% of stockholders' equity.
<PAGE> 54
(4) LOANS RECEIVABLE
Loans receivable are summarized as follows at September 30:
<TABLE>
<CAPTION>
2000 1999
(in thousands)
<S> <C> <C>
One-to-four family mortgages $ 390,527 388,586
Multifamily mortgages 118,309 100,412
Commercial 3,448 2,577
Construction 2,304 -
Consumer loans 17,101 14,016
--------- --------
Gross loans receivable 531,689 505,591
Less:
Loans in process (26) (16)
Deferred loan costs 3,299 2,816
Allowance for losses on loans (950) (780)
Unearned discount on consumer loans (13) (54)
--------- --------
$ 533,999 507,557
========= ========
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of these loans at September 30, 2000, 1999, and 1998 were approximately
$6,062,000, $7,314,000, and $9,845,000, respectively. Custodial balances
maintained in connection with the mortgage loans serviced for others were
included in deposits at September 30, 2000, 1999, and 1998, and were
approximately $207,000, $298,000, and $381,000, respectively. Service fee
income for the years ended September 30, 2000, 1999, and 1998 was $22,000,
$29,000, and $35,000, respectively.
Activity in the allowance for loan losses is summarized as follows for the
years ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 780 591 460
Provision for loan losses 180 165 181
Charge-offs-loans receivable (13) (8) (51)
Recoveries 3 32 1
----- ---- ----
Balance at end of year $ 950 780 591
===== ==== ====
</TABLE>
<PAGE> 55
Non-accrual loans receivable were as follows:
<TABLE>
<CAPTION>
Principal Percent of
Balance total loans
Number in thousands) receivable
<S> <C> <C> <C>
September 30, 2000:
Loans receivable 5 $ 379 0.07%
September 30, 1999:
Loans receivable 10 $ 343 0.07%
September 30, 1998:
Loans receivable 8 $ 801 0.19%
Commercial leases, Bennett Funding Group 1 30 -
--- ----- ------
9 831 0.19%
=== ===== ======
</TABLE>
The Company's non performing loan policies, which address nonaccrual loans and
any other loans where the Company may be unable to collect all amounts due
according to the contractual terms of the loan, meets the definition set forth
for impaired loans. At September 30, 2000 and 1999, there were no loans
considered to be impaired. At September 30, 1998, the recorded investment in
loans considered to be impaired was $30,000, which consisted solely of certain
commercial equipment leases as more fully discussed below. For statistical and
discussion purposes, the leases are considered to be one loan.
On September 30, 1998, the Bank's $30,000 of commercial equipment leases
originated by Bennett Funding Group met the criteria for impaired loans. The
average recorded investment in impaired loans for the year ended September 30,
1998 was $198,000. There was no related allowance for impaired loans at
September 30, 1998. There was no income recorded in 1998.
(5) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows at September 30:
<TABLE>
<CAPTION>
1999 1998
(in thousands)
<S> <C> <C>
Loans receivable $ 2,520 2,353
Mortgage-backed securities 18 22
Investment securities available for sale 1,534 1,304
FHLB Stock 110 -
Reserve for uncollected interest (21) (14)
------ -----
$ 4,161 3,665
====== =====
</TABLE>
<PAGE> 56
(6) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows at September 30:
<TABLE>
<CAPTION>
2000 1999
(in thousands)
<S> <C> <C>
Land $ 855 815
Buildings 3,851 3,888
Leasehold improvements 1,434 1,426
Furniture, fixtures, and equipment 3,937 3,806
------ -----
10,077 9,935
Less accumulated depreciation and amortization 6,152 5,733
------ -----
$ 3,925 4,202
====== =====
</TABLE>
Depreciation and amortization of premises and equipment for the years ended
September 30, 2000, 1999 and 1998 was $446,000, $447,000, and $352,000,
respectively.
The Bank is obligated under non-cancelable leases on two of its branches, and
one location for the Company's wholly owned subsidiary, Fidelity Corporation.
The leases contain renewal options and rent escalation clauses. Rent expense
under these leases for the years ended September 30, 2000, 1999, and 1998
approximated $153,000, $136,000, and $144,000, respectively. The projected
minimum rentals under existing leases as of September 30, 2000 are as follows:
<TABLE>
Year ended September 30, Amount
<S> <C>
2001 152,000
2002 153,000
2003 108,000
2004 105,000
2005 107,000
Thereafter 338,000
---------
Total $ 963,000
=========
</TABLE>
<PAGE> 57
(7) DEPOSITS
Deposits are summarized as follows at September 30:
<TABLE>
<CAPTION>
2000 1999
Stated or Stated or
Weighted Percent Weighted Percent
Average of total Average of total
Rate Amount deposits Rate Amount deposits
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts 4.09% $121,787 31.9% 3.70% $127,415 35.7%
NOW accounts 2.03 28,361 7.5 2.22 22,962 6.4
Money market and
management accounts 3.59 12,711 3.3 3.82 16,100 4.5
---- ------- ---- ----- ------ -----
162,859 42.7 166,477 46.6
Certificate accounts:
91-day certificates 4.30 1,029 0.3 4.40 2,160 0.6
6-month certificates 5.24 7,660 2.0 4.67 10,503 3.0
7-month certificates 4.70 2,509 0.7 5.03 31,955 9.0
8-month certificates 4.70 1,609 0.4 4.63 5,125 1.4
10-month certificates 6.11 16,834 4.4 5.40 45,000 12.6
12-month certificates 6.39 31,017 8.1 4.87 18,600 5.2
13-month certificates 6.63 105,917 27.8 5.75 35,610 10.0
15-month certificates 6.12 15,307 4.0 4.90 12,475 3.5
24-month certificates 6.57 22,694 6.0 5.28 10,170 2.8
36-month certificates 5.46 5,291 1.4 5.65 6,843 1.9
36-month rising rate
certificates 5.64 2,826 0.7 5.17 3,959 1.1
60-month certificates 5.82 5,881 1.5 6.01 8,139 2.3
Other certificates - - - - - -
---- ------- ---- ----- ------- -----
218,574 57.3 190,539 53.4
------- ---- ------- -----
5.30% $381,433 100.0% 4.49% $357,016 100.0%
==== ======= ===== ===== ======= =====
</TABLE>
The contractual maturities of certificate accounts are as follows at September
30:
<TABLE>
<CAPTION>
2000 1999
Amount Percent Amount Percent
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Under 12 months $ 191,016 87.4% 165,143 86.7
12 to 36 months 26,504 12.1 21,590 11.3
Over 36 months 1,054 0.5 3,806 2.0
--------- ----- ------- -----
$ 218,574 100.0% 190,539 100.0
========= ===== ======= =====
</TABLE>
The aggregate amount of certificate accounts with a balance of $100,000 or
greater at September 30, 2000 and 1999 was approximately $35,261,000 and
$26,623,000, respectively.
<PAGE> 58
(8) BORROWED FUNDS
Borrowed funds are summarized as follows at September 30:
<TABLE>
<CAPTION>
Interest rate Amount
2000 1999 2000 1999
(in thousands)
<S> <C> <C> <C> <C>
Secured advances from the
FHLB of Chicago:
Fixed rate advances due:
January 5, 2000 - % 5.65 $ - 24,000
February 21, 2000 - 5.48 - 25,000
August 8, 2000 - 5.60 - 20,000
May 8, 2001 7.16 - 25,000 -
December 5, 2001 7.12 - 25,000 -
May 8, 2002 7.40 25,000 -
June 5, 2003 (callable) 6.44 - 25,000 -
August 22, 2010 (callable) 6.22 - 5,000 -
September 7, 2010 (callable) 6.07 - 5,000 -
August 17, 2001 5.63 5.63 30,000 30,000
Open line advance, due on demand 6.81 5.56 61,300 87,250
---- ----- ------- -------
Total borrowings from FHLB of Chicago 201,300 186,250
Unsecured line of credit 8.73 - 3,850 -
---- ----- ------- -------
$205,150 186,250
======= =======
</TABLE>
FEDERAL HOME LOAN BANK OF CHICAGO ADVANCES The Bank has adopted a collateral
pledge agreement whereby the Bank has agreed to keep on hand at all times, free
of all other pledges, liens, and encumbrances, first mortgages with unpaid
principal balances aggregating no less than 167% of the outstanding secured
advances from the FHLB of Chicago. All stock in the FHLB of Chicago is pledged
as additional collateral for these advances.
Included in FHLB of Chicago advances at September 30, 2000 are $35.0 million of
fixed-rate advances which are callable at the discretion of the FHLB of Chicago
at periods from 6 months to 2 years from the origination date. The average
term to maturity on these advances is 4.7 years, while the average term to call
is 0.7 years. The Bank receives a lower cost of borrowing on such advances
than on similar non-callable long-term advances in return for granting the FHLB
of Chicago the right to call the advance prior to its final maturity.
UNSECURED TERM BANK LOAN During fiscal 2000, the Company obtained a $5.0
million unsecured line of credit from an unrelated financial institution. The
loan provides for an interest rate of the prime rate or 2% over the one, two,
or three-month LIBOR at management's discretion, adjustable and payable at the
end of the repricing period. At September 30, 2000, the loan carries an
interest rate of 2% over the three-month LIBOR. The loan requires quarterly
payments of all accrued unpaid interest due and one payment of all outstanding
principal plus all accrued unpaid interest on December 15, 2001. The financing
agreements contain covenants that, among other things, require the Company to
<PAGE> 59
maintain a minimum stockholders' equity balance and to obtain certain minimum
operating results, as well as requiring the Bank to maintain "well capitalized"
regulatory capital levels and certain non-performing asset ratios. At
September 30, 2000, the Company was in compliance with these covenants.
(9) REGULATORY MATTERS
The Bank is subject to regulatory capital requirements under the OTS. 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 Bank'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 Bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices.
Quantitative measures established by the OTS to ensure capital adequacy require
the Bank to maintain minimum amounts and ratios (as set forth in the table
below) of three capital requirements: a tangible capital (as defined in the
regulations) to adjusted total assets ratios, a core capital (as defined) to
adjusted total assets ratio, and a risk based capital (as defined) to total
risk-weighted assets ratio. Management believes, as of September 30, 2000,
that the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the federal banking agencies categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that have
changed the Bank's category.
<PAGE> 60
The Bank's actual capital amounts and ratios, as well as minimum amounts and
ratios required for capital adequacy and prompt corrective action provisions
are presented below:
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt
Actual adequacy purposes corrective action
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 2000
Total capital
(to risk weighted assets) $ 45,201 14.55% 24,859 8.00 31,074 10.00
Tier 1 capital
(to risk weighted assets) 44,251 14.24 n/a n/a 18,644 6.00
Tier 1 capital
(to adjusted assets) 44,251 6.95 19,113 3.00 31,854 5.00
Tangible capital
(to total assets) 44,251 6.95 9,541 1.50 n/a n/a
As of September 30, 1999:
Total capital
(to risk weighted assets) $ 42,135 14.26 22,922 8.00 28,653 10.00
Tier 1 capital
(to risk weighted assets) 41,355 14.43 n/a n/a 17,192 6.00
Tier 1 capital
(to adjusted assets) 41,355 6.89 17,999 3.00 29,999 5.00
Tangible capital
(to total assets) 41,355 6.89 9,000 1.50 n/a n/a
</TABLE>
(10) INCOME TAXES
Income tax expense is summarized as follows for the years ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 2,015 2,388 1,978
State 360 146 344
------ ----- -----
Total current 2,375 2,534 2,322
Deferred:
Federal 181 7 (84)
State 9 2 (19)
------ ----- -----
Total deferred 190 9 (103)
------ ----- -----
$ 2,565 2,543 2,219
====== ===== =====
</TABLE>
<PAGE> 61
The reasons for the difference between the effective tax rate and the corporate
Federal income tax rate of 34% are detailed as shown below for the years ended
September 30:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Federal income tax rate 34.0% 34.0 34.0
State income taxes, net of federal benefit 3.7 1.9 4.3
Other - 2.1 (1.3)
------ ----- -----
Effective income tax rate 37.7% 38.0 37.0
====== ===== =====
</TABLE>
Retained earnings at September 30, 2000 included $4 million of "base-year" tax
bad debt reserves for which no provision for federal or state income taxes has
been made. If in the future this amount, or a portion thereof, is used for
certain purposes, then a federal and state tax liability will be imposed on the
amount so used at the then current corporate income tax rates.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below at
September 30:
<TABLE>
<CAPTION>
2000 1999
(in thousands)
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 22 20
Allowance for loan losses 358 302
Decline in value of investment security 1,106 1,106
Retirement and pension plans 326 485
Unrealized gain on investment securities available for sale 776 914
Other 59 -
----- -----
2,647 2,827
Less valuation allowance (1,106) (1,106)
----- -----
Deferred tax assets 1,541 1,721
Deferred tax liabilities:
Deferred loan fees and costs (2,056) (1,784)
FHLB stock, due to stock dividends (87) (87)
Property and equipment, due to depreciation (304) (255)
Tax bad debt reserves (568) (710)
Tax basis in partnership less than book (187) (182)
Other - (36)
------ -----
Deferred tax liabilities (3,202) (3,054)
------ -----
Net deferred tax liability $(1,661) (1,333)
====== ======
</TABLE>
The valuation allowance for deferred tax assets was $1,106,000 as of September
30, 2000 and 1999. The valuation allowance relates to the capital loss of an
investment security. As capital losses can only be utilized to offset capital
gains, there is uncertainty as to the realization of this deferred tax asset.
<PAGE> 62
(11) PENSION PLAN
The Bank has a noncontributory defined benefit pension plan which covers
substantially all full-time employees who are 21 years of age and older and
have been employed for a minimum of one year. Pension costs are accrued and
funded as computed by the consulting actuary, using the entry age normal
actuarial cost method.
Accumulated benefit obligation, projected benefit obligation, accrued pension
liability, and net periodic pension cost, as estimated by the consulting
actuary, and plan net assets as of August 31, the date of the latest actuarial
valuation, are as follows:
<TABLE>
<CAPTION>
2000 1999
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation $ 1,754 1,537
Service cost 153 139
Interest cost 127 110
Actuarial gain (160) (2)
Benefits paid (156) (30)
----- -----
Ending benefit obligation 1,718 1,754
Change in plan assets, at fair value:
Beginning plan assets 1,409 1,281
Actual return 255 158
Employer contribution 470 -
Benefits paid (156) (30)
----- -----
Ending plan assets 1,978 1,409
Funded status 260 (345)
Unrecognized net actuarial gain (379) (101)
Unrecognized prior service cost (35) (39)
Unrecognized transition obligation (41) (47)
----- -----
Accrued benefit cost $ (195) (532)
===== =====
</TABLE>
<PAGE> 63
The component of pension expense and related Actuarial assumptions were as
follows for the years ended September 30:
<TABLE>
<CAPTION>
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Service cost $ 153 139 128
Interest cost 127 110 93
Actuarial return on plan assets (255) (158) (13)
Net amortization and deferral (10) (10) (10)
Net gain (loss) on assets 117 48 (86)
---- --- ---
Net periodic pension cost $ 132 129 112
==== === ===
Discount rate on benefit obligation 7.25% 7.25% 7.25%
Long-term expected rate of return on plan assets 8.00 8.00 8.00
Rate of compensation increase 6.00 6.00 6.00
==== ==== ====
</TABLE>
The Bank sponsors the Fidelity Federal Savings Bank Supplemental Retirement
Plan. The Supplemental Retirement Plan is intended to provide retirement
benefits and preretirement death and disability benefits for certain officers
of the Bank. Benefits accrued were $855,000 and $915,000 at September 30, 2000
and 1999, respectively. The expense for the years ended September 30, 2000,
1999, and 1998 was approximately $77,000, $129,000, and $121,000, respectively.
(12) OFFICER, DIRECTOR, AND EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) In conjunction with the Bank's
conversion, the Bank formed an ESOP. The ESOP covers substantially all full-
time employees over the age of 21 and with more than one year of employment.
The ESOP borrowed $2.9 million from the Company and purchased 290,950 common
shares of the Company issued in the conversion. The Bank has committed to make
discretionary contributions to the ESOP sufficient to service the requirements
of the loan over a period not to exceed seven years. Compensation expense
related to the ESOP was $415,000, $900,000, and $1.1 million for the years
ended September 30, 2000, 1999, and 1998, respectively.
Shares held by the ESOP were as follows for the years ended September 30,
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Allocated to participants 257,591 218,593
Unearned 18,876 63,228
-------- --------
Total ESOP shares 276,467 281,821
======== ========
Fair value of unearned shares $ 333,879 $ 1,059,069
======== =========
</TABLE>
<PAGE> 64
STOCK OPTION PLANS In conjunction with the conversion, the Company and its
stockholders adopted an incentive stock option plan for the benefit of
employees of the Company and a directors' stock option plan for the benefit of
outside directors of the Company.
The number of shares of common stock authorized under the employees' plan is
287,313. The exercise price must be at least 100% of the fair market value of
the common stock on the date of grant, and the option term cannot exceed 10
years. Under the employees' plan, options granted become exercisable at a rate
of 20% per year commencing one year from the date of the grant. A summary of
the stock option activity and related information in the employee plan follows:
<TABLE>
<CAPTION>
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 171,876 $ 10.14 188,864 $ 10.16 245,192 $ 10.12
Granted - - - - - -
Exercised (2,420) 10.00 (16,988) 10.35 (56,328) 10.00
Cancelled - - - - - -
------- ------ ------- ------ ------- -----
End of period 169,456 $ 10.15 171,876 $ 10.14 188,864 $ 10.16
======= ====== ======= ====== ======= ======
Options exercisable 168,256 169,176 179,632
======= ======= =======
</TABLE>
At September 30, 2000, options for 36,121 shares were available under the
employee plan, which includes additions to the available shares of 14,520,
representing cancelled shares.
The number of shares of common stock authorized under the directors' plan is
76,374. The exercise price must be at least 100% of the fair market value of
the common stock on the date of grant, and the option term cannot exceed 10
years. Options issued to outside directors of the Company are immediately
exercisable. A summary of the stock option activity and related information in
the director plan follows:
<TABLE>
<CAPTION>
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 34,466 $ 10.00 37,966 $ 10.00 45,089 $ 10.00
Granted 9,964 17.56 - - - -
Exercised 16,602) 10.00 (3,500) 10.00 (7,123) 10.00
Cancelled - - - - - -
------- ------ ------- ------ ------- -----
End of period 27,828 $ 12.71 34,466 $ 10.00 37,966 $ 10.00
======= ====== ======= ====== ======= ======
Options exercisable 27,828 34,466 37,966
======= ======= =======
Fair value of options granted
during period $ 2.17 $ N/A $ N/A
====== ====== ======
</TABLE>
<PAGE> 65
At September 30, 2000, there were no options available under the directors
plan.
The following table summarizes information about the stock options outstanding
at September 30, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------- -----------------
Weighted Weighted
Average Average
Remaining Remaining
Contractual Contractual
Number Life Number Life
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Range of Exercise Prices
$10.00 to $13.00 183,720 3.22 183,420 3.22
$13.01 to $17.56 13,564 8.48 12,664 8.76
-------- ----- -------- -----
197,284 3.58 196,084 3.57
======== ===== ======== =====
</TABLE>
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future in more
options granted.
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Net Income:
As reported $ 4,242 4,130 3,780
Pro forma 4,222 4,110 3,760
Earnings per share:
Basic:
As reported 2.04 1.85 1.41
Pro forma 2.03 1.84 1.40
Diluted:
As reported 1.96 1.76 1.33
Pro forma 1.95 1.75 1.32
</TABLE>
<PAGE> 66
The pro forma effects are computed using the option pricing models, using the
following weighted-average assumptions as of the grant date.
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Dividend yield 2.71% 1.96% 1.61%
Risk-free interest rate 5.90% 5.75% 4.25%
Weighted average expected life 4.8 yrs 4.8 yrs 4.8 yrs
Expected volatility 11.28% 23.38% 20.07%
</ TABLE>
(13) COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
</TABLE>
<TABLE>
<CAPTION>
Year ended September 30,
2000 1999 1998
<S> <C> <C> <C>
Unrealized holding gains and losses on
available for sale investment securities $ 316 (2,898) 326
Tax effect (102) 1,078 (120)
---- ----- ----
Other comprehensive income (loss) $ 214 (1,820) 206
==== ===== ====
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of its business. These instruments include commitments to
originate loans and letters of credit. The instruments involve credit and
interest rate risk in excess of the amount recognized in the consolidated
statements of financial condition. The Bank evaluates each customer's
creditworthiness on a case-by-case basis.
Commitments to originate mortgage loans at September 30, 2000 of $9.3 million
represent amounts which the Bank plans to fund within the normal commitment
period of 60 to 90 days of which $178,000 were fixed rate, with rates ranging
from 8.25% to 8.375%, and $9.1 million were adjustable rate.
The estimated fair value of these commitments approximates the commitment
amount. Because the creditworthiness of each customer is reviewed prior to the
extension of the commitment, the Bank adequately controls the credit risk on
these commitments, as it does for loans recorded on the consolidated statements
of financial condition. The Bank conducts substantially all of its lending
activities in the Chicagoland area in which it serves. Management believes the
Bank has a diversified loan portfolio and the concentration of lending
activities in these local communities does not result in an acute dependence
upon the economic conditions of the lending region.
The Company is involved in various litigation arising in the normal course of
business. In the opinion of management, based on the advice of legal counsel,
<PAGE> 67
liabilities arising from such claims, if any, would not have a material effect
on the Company's financial statements.
(15) FAIR VALUE DISCLOSURES
Fair value disclosures are required under Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments."
Such fair value disclosures are made at a specific point in time, based upon
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect these estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The tax ramifications related to the realization of the
unrealized gains and losses have a significant effect on the fair value
estimates and have not been considered in any estimates.
Reasonable comparability of fair values among financial institutions is not
practical due to the variety of assumptions and valuation methods used in
calculating the estimates.
CASH AND DUE FROM BANKS, INTEREST-EARNING DEPOSITS, AND FEDERAL FUNDS SOLD For
these short-term instruments, the carrying value is a reasonable estimate of
fair value.
INVESTMENT SECURITIES The fair value of investment securities, which includes
investment securities, mortgage-backed securities, and FHLB of Chicago stock,
is the quoted market price, if available, or the quoted market price for
similar securities. FHLB of Chicago stock is recorded at redemption value,
which is equal to cost.
LOANS RECEIVABLE Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated by type, such as one-
to-four family, multi-family, commercial, and consumer. For variable rate
loans that reprice frequently and for which there has been no significant
change in credit risk, fair values equal carrying values. The fair values for
fixed-rate loans were based on estimates using discounted cash flow analyses
and current interest rates being offered for loans with similar terms to
borrowers of similar credit quality.
ACCRUED INTEREST RECEIVABLE AND PAYABLE The carrying value of accrued interest
receivable and payable approximates fair value due to the relatively short
period of time between accrual and expected realization.
DEPOSITS The fair values for demand deposits with no stated maturity are equal
to the amount payable on demand as of September 30, 2000 and 1999,
respectively. The fair value for fixed-rate certificate accounts is based on
the discounted value of contractual cash flows using the interest rates
<PAGE> 68
currently being offered for certificates of similar maturities as of September
30, 2000 and 1999, respectively.
BORROWED FUNDS Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
The estimated fair value of the Company's financial instruments at September
30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
Net carrying Estimated Net carrying
Estimated
amount fair value amount fair
value
(in thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 4,690 4,690 2,714 2,714
Interest-earning deposits 1,405 1,405 576 576
Federal funds sold 100 100 100 100
Investment securities 87,610 87,633 79,270 79,322
Loans receivable 533,999 532,402 508,337 499,109
Accrued interest receivable 4,161 4,161 3,665 3,665
------- ------- ------- -------
Total financial assets $ 631,965 630,391 594,662 585,486
======= ======= ======= =======
FINANCIAL LIABILITIES:
Noninterest-bearing deposits 9,287 9,287 6,385 6,385
NOW, money market and management,
and passbook accounts 153,572 153,572 160,092 160,092
Certificate accounts 218,574 218,111 190,539 189,986
Borrowed funds 205,150 204,561 186,250 186,003
Accrued interest payable 1,277 1,277 1,345 1,345
------- ------- ------- -------
Total financial liabilities $ 587,860 586,808 544,611 543,811
======= ======= ======= =======
</TABLE>
(15) SHAREHOLDERS' RIGHTS PLAN
On February 18, 1997, the Company's Board of Directors adopted a shareholders'
rights plan (the Rights Plan). Under the terms of the Rights Plan, the Board
of Directors declared a dividend of one preferred share purchase right for each
outstanding share of common stock. Upon becoming exercisable, each right
entitles the registered holder thereof, under certain limited circumstances, to
purchase one-thousandth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $60.00. Rights do not become exercisable until
eleven business days after any person or group has acquired, commenced, or
announced its intention to commence a tender or exchange offer to acquire 15%
or more of the Company's common stock, or in the event a person or group owning
10% or more of the Company's common stock is deemed to be "adverse" to the
Company. If the rights become exercisable, holders of each right, other than
the acquiror, upon payment of the exercise price, will have the right to
purchase the Company's common stock (in lieu of preferred shares) having a
value equal to two times the exercise price. If the Company is acquired in a
merger, share exchange or other business combination or 50% or more of its
consolidated assets or earning power are sold, rights holders, other than the
acquiring or adverse person or group, will be entitled to purchase the
acquiror's shares at a similar discount. If the rights become exercisable, the
<PAGE> 69
Company may also exchange rights, other than those held by the acquiring or
adverse person or group, in whole or in part, at an exchange ratio of one share
of the Company's common stock per right held. Rights are redeemable by the
Company at any time until they are exercisable at the exchange rate of $.01 per
right. Issuance of the rights has no immediate Dilutive effect, does not
currently affect reported earnings per share, is not taxable to the Company or
its shareholders, and will not change the way in which the Company's shares are
traded. The rights expire in February 2007.
(16) CONDENSED PARENT COMPANY ONLY FINANCIAL INFORMATION
The following condensed statements of financial condition as of September 30,
2000 and 1999 and condensed statements of earnings and cash flows for the three
years ended September 30, 2000 for Fidelity Bancorp, Inc. should be read in
conjunction with the consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION
September 30,
2000 1999
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,642 468
Investment securities available for sale,
at fair value 8,763 -
Equity investment in the Bank 43,989 40,856
Accrued interest 162 -
Other assets 586 793
------- ------
$ 55,142 42,117
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Borrowed funds from Bank 8,000 -
Other borrowed funds 3,850 -
Accrued taxes and other liabilities 489 96
------- ------
12,339 96
Stockholders' equity 42,803 42,021
------- ------
$ 55,142 42,117
======= ======
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Year ended September 30,
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
Equity in earnings of the Bank $ 4,463 4,358 3,890
Interest income 103 58 141
Interest expense (165) - -
Recovery on impairment
of investment securities - - 22
Non-interest expense (307) (359) (338)
------ ----- -----
Income before income taxes 4,094 4,057 3,715
Income tax benefit (148) (73) (65)
------ ----- -----
Net income $ 4,242 4,130 3,780
====== ===== =====
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year ended September 30,
2000 1999 1998
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,242 4,130 3,780
Equity in earnings of the Bank (4,463) (4,358) (3,890)
Dividends received from the Bank 1,695 9,864 2,330
Net amortization and accretion of
premiums and discounts - - 1
Recovery of impairment of
investment securities - - (22)
Increase in accrued interest receivable (162) - -
Decrease (increase) in other assets 145 (118) (51)
Increase (decrease) in accrued taxes and
other liabilities (240) 62 (222)
------ ----- -----
Net cash provided by operating activities 1,217 9,580 1,926
INVESTING ACTIVITIES:
Purchase of investment securities available
for sale (7,972) - -
Principal repayments collected
on investment securities - - 1,134
Principal payment received on ESOP loan 443 460 570
------ ----- -----
Net cash provided by (used in)
investing activities (7,529) 460 1,704
FINANCING ACTIVITIES:
Proceeds from intercompany loans 8,000 - -
Proceeds from borrowed funds 3,850 - -
Purchase of treasury stock (3,377) (9,312) (5,896)
Payment of common stock dividends (991) (1,005) (1,073)
Proceeds from exercise of stock options 4 209 371
------ ----- -----
Net cash provided by (used in)
financing activities 7,486 (10,108) (6,598)
------- ----- -----
Net increase (decrease) in cash
and cash equivalents 1,174 (68) (2,968)
Cash and cash equivalents at beginning
of year 468 536 3,504
------- ----- -----
Cash and cash equivalents at end of year $ 1,642 468 536
====== ===== =====
</TABLE>
<PAGE> 72
(18) QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following table sets forth certain unaudited income and expense and per
share data on a quarterly basis for the three-month period indicated:
<TABLE>
<CAPTION>
Year ended September 30, 2000 Year ended September 30, 1999
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 10,689 10,815 11,020 11,327 9,270 9,525 9,974 10,525
Interest expense 6,678 6,921 7,432 8,081 5,640 5,680 5,986 6,456
----- ----- ----- ----- ----- ----- ----- -----
Net interest income
before provision
for loan losses 4,011 3,894 3,588 3,246 3,630 3,845 3,988 4,069
Provision for loan
losses 40 15 55 70 25 15 55 70
----- ----- ----- ----- ----- ----- ----- -----
Net interest income
after provision for
loan losses 3,971 3,879 3,533 3,176 3,605 3,830 3,933 3,999
Other income 338 399 415 416 262 217 360 307
Non-interest expense 2,477 2,467 2,356 2,020 2,418 2,451 2,517 2,454
----- ----- ----- ----- ----- ----- ----- -----
Income before income tax
expense 1,832 1,811 1,592 1,572 1,449 1,596 1,776 1,852
Income tax expense 699 683 586 597 540 602 666 735
----- ----- ----- ----- ----- ----- ----- -----
Net income $ 1,133 1,128 1,006 975 909 994 1,110 1,117
===== ===== ===== ===== ===== ===== ===== =====
Earnings per share $ 0.51 0.52 0.48 0.47 0.36 0.42 0.48 0.49
==== ==== ==== ==== ===== ===== ===== =====
Cash dividends declared
per share $ 0.11 0.12 0.12 0.12 0.10 0.11 0.11 0.11
==== ==== ==== ==== ===== ===== ===== =====
</TABLE>
<PAGE> 73
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Fidelity Bancorp, Inc.
Chicago, Illinois:
We have audited the accompanying consolidated statement of financial condition
of Fidelity Bancorp, Inc. (the Company) as of September 30, 2000, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2000 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fidelity
Bancorp, Inc. as of September 30, 2000, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
October 27, 2000
<PAGE> 74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Notice of change in accountants was filed under Form 8-K on September
30, 1999 to report the change in accountants from KPMG LLP to Crowe,
Chizek and Company LLP. Further discussion of the change in
accountants appears on page 17 of the Proxy Statement which is
incorporated herein by reference. No disagreements on accounting and
financial disclosure matters have occurred for the 24 months prior to,
or in months subsequent to, September 30, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors and executive officers appears
in the Company's proxy statement for the annual meeting of
stockholders to be held on January 24, 2001 and is incorporated herein
by reference.
Section 16(a) of the Exchange Act requires that our executive
officers, directors and persons who own more than 10% of our common
stock file reports of ownership and changes in ownership and changes
in ownership with the Securities and Exchange Commission. They are
also required to furnish us with copies of all Section 16(a) forms
they file. Based solely on our review of the copies of such forms,
and, if appropriate, representations made to us by any reporting
person concerning whether a Form 5 was required to be filed for 2000,
we are not aware that any of our directors, executive officers or 10%
stockholders failed to comply with the filing requirements of Section
16(a) during the fiscal year ended September 30, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation (excluding the
sections marked "Compensation Committee Report of Executive
Compensation" and "Stock Performance Graph") appears in the Company's
proxy statement for the annual meeting of stockholders to be held on
January 24, 2001 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial
owners and management appears in the Company's proxy statement for the
annual meeting of stockholders to be held on January 24, 2001 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions appears on pages 10, 11, and 12 of the Company's proxy
statement for the annual meeting of stockholders to be held on January
24, 2001 and is incorporated herein by reference.
<PAGE> 75
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) EXHIBITS
Exhibit No.
3.1 Restated Certificate of Incorporation of Fidelity Bancorp, Inc.*
3.2 Bylaws of Fidelity Bancorp, Inc.*
4.0 Stock Certificate of Fidelity Bancorp, Inc.*
10.1 Employment Agreements between the Bank and Executive and Employee
Agreement between the Company and Executive *
10.2 Special Termination Agreement between the Bank and Executive and
Special Termination Agreement between the Company and Executive *
10.6 Employee Stock Ownership Plan and Trust ***
10.8 Recognition and Retention Plan and Trust *
10.9 Incentive Stock Option Plan **
10.10 Stock Option Plan for Outside Directors **
10.11 Rights Agreement
21.0 Subsidiary information is incorporated herein by reference to "Part
II - Subsidiaries"
23.1 Consent from KPMG LLP
27.0 Financial Data Schedule
99.1 Proxy Statement and form of proxy for the 2001 Annual Meeting of
Stockholders (except such portions incorporated by reference into
this Form 10-K, the proxy materials shall not be deemed to be
"filed" with the Commission).
(b) REPORTS on FORM 8-K
None
-----------------
* Incorporated herein by reference into this document from the exhibits
to Form S-1, Registration Statement as amended, originally filed on
October 28, 1993, Registration No. 33-68670.
** Incorporated herein by reference into this document from the exhibits
to Form S-8, Registration Statement, filed on April 20, 1994,
Registration No. 33-78000.
*** Incorporated herein by reference into this document from the exhibits
to Form 10-K, filed on December 9, 1994.
**** Incorporated herein by reference into this document from the exhibits
to Form 10-K, filed on February 17, 1997.
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Raymond S. Stolarczyk
-------------------------
Raymond S. Stolarczyk
Date: December 20, 2000 Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Name Title Date
/s/ Raymond S. Stolarczyk Chairman and Chief Executive December 20, 2000
------------------------- Officer
Raymond S. Stolarczyk
/s/ Thomas E. Bentel President and Chief December 20, 2000
------------------------- Operating Officer
Thomas E. Bentel
/s/ Elizabeth A. Doolan Vice President and December 20, 2000
------------------------- Chief Financial Officer
Elizabeth A. Doolan
/s/ Judith K. Leaf Corporate Secretary December 20, 2000
-------------------------
Judith K. Leaf
/s/ Paul J. Bielat Director December 20, 2000
-------------------------
Paul J. Bielat
/s/ Edward J. Burda Director December 20, 2000
-------------------------
Edward J. Burda
/s/ Patrick J. Flynn Director December 20, 2000
-------------------------
Patrick J. Flynn
/s/ Richard J. Kasten Director December 20, 2000
-------------------------
Richard J. Kasten
