SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
MARK ONE
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-26196
FIDELITY FINANCIAL BANKSHARES CORPORATION
(exact name of registrant as specified in its charter)
Virginia 54-1746028
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2809 Emerywood Parkway, Suite 500, Richmond, VA 23294
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number - (804) 756-0200
Indicate the number of shares outstanding of each of the issuer's classes of
capital stock, as of the latest practicable date:
Common Stock, Par Value $1.00 per share,
2,291,681 shares outstanding as of May 9, 1996
Indicate by check mark whether 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 preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
<PAGE>
FIDELITY FINANCIAL BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page Number
ITEM 1 Consolidated Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 12
ITEM 2 Changes in Securities 12
ITEM 3 Defaults Upon Senior Securities 12
ITEM 4 Submission of Matters to a Vote of Security Holders 12
ITEM 5 Other Information 12
ITEM 6 Exhibits and Reports on Form 8-K 12
SIGNATURES
FIDELITY FINANCIAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
March 31, December 31,
1996 1995
--------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Cash and due from banks $ 4,647 $ 5,067
Investment securities available-for-sale 30,985 36,649
Investment securities held-to-maturity 6,472 6,462
Mortgage-backed securities available-for-sale 6,617 4,871
Loans receivable, net 253,378 247,194
Loans receivable held-for-sale 7,220 4,147
Real estate acquired in settlement of loans, net 953 822
Premises and equipment, net 4,673 4,681
Accrued interest receivable 2,215 2,108
Prepaid expenses and other assets 4,398 2,412
--------------- ---------------
$ 321,558 $ 314,413
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 241,935 $ 239,121
Advances from the Federal Home Loan Bank 40,249 37,210
Securities sold under agreements to repurchase 7,937 8,115
Advance payments by borrowers for taxes and insurance - 867
Other liabilities 4,077 2,263
--------------- ---------------
Total Liabilities 294,198 287,576
--------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value per share (1,000,000 shares
authorized; none issued) - -
Common stock, $1.00 par value per share (4,000,000 shares
authorized; 2,279,047 and 2,276,992 shares issued and
outstanding at March 31, 1996 and December 31, 1995,
respectively) 2,279 2,277
Additional paid-in capital 9,648 9,632
Retained earnings 15,601 14,912
Net unrealized gain(loss) on securities available-for-sale (168) 16
--------------- ---------------
Total Stockholders' Equity 27,360 26,837
--------------- ---------------
$ 321,558 $ 314,413
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
FIDELITY FINANCIAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(Dollars in thousands except per share data)
THREE MONTHS ENDED
March 31,
--------------------------------------
1996 1995
---------------- ---------------
(unaudited) (unaudited)
<S> <C> <C>
Interest Income
Real estate loans $ 4,815 $ 4,486
Other loans 910 940
Mortgage-backed securities 100 97
Investment securities 301 273
Other investments 331 256
------------- -------------
Total interest income 6,457 6,052
------------- -------------
Interest Expense
Deposits 2,933 2,491
Short-term borrowings 257 250
Long-term borrowings 397 401
------------- -------------
Total interest expense 3,587 3,142
------------- -------------
Net Interest Income 2,870 2,910
Provision for loan losses 85 108
------------- -------------
Net Interest Income After Provision
for Loan Losses 2,785 2,802
------------- -------------
Noninterest income
Gain (Loss) on loans and mortgage-backed
securities, net 42 (48)
Gain on sale of investment securities, net 26 -
Operations of real estate acquired in settlement of loans (1) -
Other 156 163
------------- -------------
Total noninterest income 223 115
------------- -------------
Noninterest expense
Compensation and employee benefits 1,016 1,005
Occupancy and equipment 333 320
FDIC insurance premiums 135 119
Data processing services 119 123
Professional services 43 37
Marketing 9 29
Other 121 124
------------- -------------
Total noninterest expense 1,776 1,757
------------- -------------
Earnings Before Income Tax Expense 1,232 1,160
Income tax expense 452 425
------------- -------------
Net Earnings $ 780 $ 735
============= =============
Net Earnings Per Share $ .34 $ .32
============= =============
Dividends Declared Per Share $ .04 $ .04
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
FIDELITY FINANCIAL BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands) March 31,
--------------------------------------
1996 1995
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Operating activities
Net income $ 780 $ 735
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 85 108
Depreciation and amortization 123 118
Purchase of mortgage-backed securities (1,863) -
Originations of loans held-for-sale (9,394) (1,294)
Proceeds from sale of loans held-for-sale 790 654
Proceeds from sale of mortgage-backed securities
available-for-sale 5,478 -
(Increase) Decrease in prepaid expenses and other assets (2,089) 260
(Increase) Decrease in excess servicing (4) 9
Increase in deferred loan fees 42 7
Increase in other liabilities 373 611
Other, net 7 90
--------------- --------------
Net cash (absorbed) provided by operating activities (5,672) 1,298
--------------- --------------
Investing activities
Purchase of investment securities available-for-sale (2,000) -
Proceeds from sales of investment securities available-for-sale 3,026 -
Loan and mortgage-backed securities principal repayments 26,081 22,077
Loan disbursements (32,417) (29,025)
Loans purchased - (3,445)
Redemption of stock in FHLB - 127
Purchase of premises and equipment (115) (80)
--------------- --------------
Net cash absorbed by investing activities (5,425) (10,346)
--------------- --------------
Financing activities
Cash dividends paid (91) (85)
Exercise of stock options 18 9
Net increase in deposits 2,814 11,376
Net (increase) decrease in short-term borrowings (178) 8,476
Proceeds from FHLB advances 15,429 13,390
Repayment of FHLB advances (12,390) (24,000)
Increase in advance payments by borrowers for
taxes and insurance 574 564
--------------- --------------
Net cash provided by financing activities 6,176 9,730
--------------- --------------
Increase (decrease) in cash and cash equivalents (4,921) 682
Cash and cash equivalents at beginning of period 31,558 19,671
--------------- --------------
Cash and cash equivalents at end of period $ 26,637 $ 20,353
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
FIDELITY FINANCIAL BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts
of Fidelity Financial Bankshares Corporation and its wholly-owned
subsidiary, Fidelity Federal Savings Bank and its wholly-owned
subsidiary Fidelity Service Corporation (collectively "the
Corporation"). All significant intercompany balances and transactions
have been eliminated in consolidation.
The reorganization of Fidelity Federal Savings Bank ( the "Bank") into
the holding company form of ownership was completed effective May 26,
1995, following regulatory and stockholder approval. The financial
statements presented are the unaudited consolidated financial
statements of the Corporation as if the reorganization had occurred on
January 1, 1995. Fidelity Financial Bankshares Corporation had no
properties or operations prior to May 26, 1995.
Earnings per share of common stock are computed based on the weighted
average number of shares outstanding for the period. The weighted
average number of shares outstanding were 2,278,957 and 2,238,781 for
the three months ended March 31, 1996 and 1995, respectively.
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management of the Corporation, all adjustments (which
include only normal recurring accruals) necessary for a fair
presentation of the consolidated financial statements have been
included. The results of operations for the three month period ended
March 31, 1996 is not necessarily indicative of the results which may
be expected for the entire year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Corporation's 1995 annual report.
3. Stockholders' Equity and Dividend Restrictions
Payment of dividends to Fidelity Financial Bankshares Corporation by
the Bank is limited by federal regulations. See Note 13 in Notes to
Consolidated Financial Statements of the 1995 annual report for
information regarding payment of cash dividends.
On January 31, 1996, the Corporation paid to stockholders of record
January 17, 1996, a quarterly cash dividend of $.04 per share. On March
25, 1996, the Board of Directors declared a quarterly cash dividend of
$.04 per share, payable April 30, 1996 to stockholders of record April
16, 1996.
6
4. Supplemental Disclosures of Cash Flow Information
Total interest paid for the three months ended March 31, 1996 and 1995
was $3,577,000 and $3,146,000, respectively.
There were no income taxes paid during the three months ended March 31,
1996 or 1995.
Loans receivable exchanged for mortgage-backed securities totaled
$5,559,000 and none for the three months ended March 31, 1996 and 1995,
respectively.
Real estate acquired in settlement of loans totaled $132,000 for the
three months ended March 31, 1996, as compared to none for the
comparable period in 1995.
For purposes of reporting cash flows, cash and cash equivalents include
cash, adjustable rate mortgage mutual funds, FHLB overnight funds and
federal funds.
5. Loans Receivable
<TABLE>
<CAPTION>
March 31, December 31,
-----------------------------------
(Dollars in thousands) 1996 1995
------------- ----------------
(unaudited)
<S> <C> <C>
Real estate loans
First mortgage conventional
One to four family $ 107,708 $ 107,103
Multifamily 13,560 12,240
Nonresidential 46,512 46,415
Construction and development 66,876 61,103
Second mortgage conventional 880 750
------------- ----------------
Total real estate loans 235,536 227,611
Less
Loans in process 20,386 17,467
Deferred loan fees, net 798 754
Allowance for loan losses 1,817 2,032
------------- ----------------
Net real estate loans 212,535 207,358
------------- ----------------
Other Loans
Consumer and installment 16,492 16,991
Commercial 25,540 23,723
------------- ----------------
Total other loans 42,032 40,714
Less
Deferred loan fees, net (154) (152)
Allowance for loan losses 1,343 1,030
------------- ----------------
Net other loans 40,843 39,836
------------- ----------------
$ 253,378 $ 247,194
============= ================
</TABLE>
7
<PAGE>
6. Impaired Loans
As of January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114 Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118. Under the new
standard, a loan is considered impaired, based on current information
and events, if it is probable that the Corporation will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured
for impairment based on the fair value of the collateral.
As of March 31, 1996 the Corporation's recorded investment in loans for
which impairment has been recognized in accordance with SFAS No. 114
totaled $652,000, as compared to none for the same period in 1995. For
the quarters ended March 31, 1996 and 1995, the average recorded
investment in impaired loans was $217,000 and none, respectively. For
the quarters ended March 31, 1996 and 1995, interest income recognized
on impaired loans totaled $4,000 and none, respectively.
8
FIDELITY FINANCIAL BANKSHARES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
Fidelity Financial Bankshares Corporation was incorporated in Virginia in 1995
to serve as the holding company of the Bank. The stockholders of the Bank
approved the Plan of Reorganization at the Annual Meeting on April 25, 1995, and
the reorganization was consummated on May 26, 1995 with the Bank becoming the
wholly-owned subsidiary of Fidelity Financial Bankshares Corporation. The Bank,
incorporated in 1986, is a federally chartered capital stock savings bank with
its principal offices in Richmond, Virginia.
This Management's Discussion and Analysis should be read in conjunction with
Management's Discussion and Analysis contained in the Corporation's annual
report to stockholders, which focuses upon relevant matters occurring during the
year commencing January 1, 1995 and ending December 31, 1995. The ensuing
discussion focuses upon material matters as of and for the three months ended
March 31, 1996.
FINANCIAL CONDITION AND CAPITAL ADEQUACY
FINANCIAL CONDITION
Assets of the Corporation were $321.6 million at March 31, 1996, an increase of
2% over assets of $314.4 million at December 31, 1995. Loans receivable and
mortgage-backed securities totaled $267.2 million at March 31, 1996, an increase
of 4% over loans receivable and mortgage-backed securities of $256.2 million at
December 31, 1995. Deposits increased 1% from $239.1 million at December 31,
1995, to $241.9 million at March 31, 1996. Stockholders' equity totaled $27.4
million at March 31, 1996, which represents a book value of $12.01 per share.
Loan disbursements increased sharply during the three months ended March 31,
1996 as compared to the same period in 1995. Closings were $47.5 million for the
quarter ended March 31, 1996, as compared to $30.2 million for the same period
of 1995. Such increase resulted from stronger loan demand.
During the first quarter of 1996, the Bank experienced a moderation in the 1995
preference by its customers for longer term certificates. Of the first quarter's
deposit growth of $2.8 million, nine months and longer certificates increased
$.5 million, while certificates under nine months and transaction accounts and
money market deposit accounts collectively increased $2.3 million.
CAPITAL ADEQUACY
The following regulatory capital requirements of the Bank are based on analysis
of the applicable regulations, but interpretative guidance may alter the Bank's
analysis. Based upon the following levels of regulatory capital the Bank
continues to meet the regulatory definition of "well capitalized." This
classification is determined solely for the purposes of applying certain
regulations and may not constitute an accurate representation of the Bank's
overall financial condition.
9
CAPITAL ADEQUACY, (Continued)
At March 31, 1996, the Bank's tangible capital totaled $25,982,000, (7.99% of
adjusted assets) which exceeded the regulatory requirement of $4,878,000, (1.50%
of adjusted assets) by $21,104,000.
The Bank's core capital at March 31, 1996, totaled $25,982,000, (7.99% of
adjusted assets) which exceeded the regulatory requirement of $9,756,000 (3.00%
of adjusted assets) by $16,226,000.
The risk-based capital of the Bank was $28,656,000 (12.64% of risk-weighted
assets) at March 31, 1996, which exceeded the regulatory requirement of
$18,135,000 (8.00% of risk-weighted assets) by $10,521,000.
RESULTS OF OPERATIONS
Net earnings for the quarter ended March 31, 1996, increased 6% to $780,000 or
$.34 per share as compared to $735,000 or $.32 per share for the comparable
period in 1995.
Net interest income decreased 1% from $2,910,000 in the first quarter of 1995 to
$2,870,000 in the comparable period of 1996. Such decrease occurred because the
net interest margin decreased from 4.17% in the first quarter of 1995 to 3.81%
in the first quarter of 1996, more than offsetting the increase in average
interest-earning assets from $282.8 million in the first quarter of 1995 to
$303.0 million in 1996. However, the net interest margin increased from 3.68%
for the quarter ended December 31, 1995, to 3.81% for the quarter ended March
31, 1996. The net interest margin is expected to increase during the remainder
of 1996, primarily because of adjustable rate loans originated below the fully
indexed rate, adjusting to higher levels.
Nonperforming assets increased to $3.7 million or 1.16% of assets at March 31,
1996 as compared to $2.9 million or .91% of assets at December 31, 1995. These
nonperforming assets consist of real estate acquired in settlement of loans of
$1.0 million and nonperforming loans of $2.7 million.
The provision for loan losses was $85,000 for the first quarter of 1996, as
compared to $108,000 for the comparable period in 1995. During the first quarter
of 1996, there were no loan chargeoffs as compared to $86,000 for the first
quarter of 1995. The total allowance for loan losses at March 31, 1996 was
$3,160,000 or 1.20% of loans receivable, as compared to $3,062,000 or 1.20% of
loans receivable at December 31, 1995.
Noninterest income for the quarter ended March 31, 1996 was $223,000, compared
to $115,000 for the first quarter of 1995. During the first quarter of 1996, the
Bank had gains on sale of investment securities of $26,000, compared to none
during the same period of 1995. The gain on the sale of loans and
mortgage-backed securities was $42,000 for the quarter ended March 31, 1996, as
compared to a loss of $48,000 for the same period in 1995.
10
RESULTS OF OPERATIONS, (Continued)
Noninterest expenses were $1,776,000 for the three months ended March 31, 1996,
compared to $1,757,000 for the same period in 1995. Such increase of 1% was the
Corporation's smallest increase ever over a quarter to quarter comparison.
Increased loan activity in 1996 is helping to reduce noninterest expenses, as
capitalized loan origination expenses were $143,000 during the first quarter of
1996 compared to $112,000 in the first quarter of 1995. Noninterest expenses are
expected to increase during 1996 at a greater rate over 1995 than experienced
during the first quarter of 1996.
Income tax expense for the quarter ended March 31, 1996 was $452,000 or an
effective rate of 36.7% as compared to $425,000 or an effective rate of 36.7%
for the comparable period in 1995.
LIQUIDITY
Liquidity represents the Bank's ability to fund loans and withdrawals of
deposits. Total assets qualifying as regulatory liquidity as of March 31, 1996
were $19.4 million. This is $6.2 million in excess of the regulatory required
liquidity amount of $13.2 million. The Bank is in compliance with all regulatory
liquidity requirements at March 31, 1996.
The Bank increased its advances from the FHLB and other borrowings by $2.9
million from December 31, 1995 to March 31, 1996. Such increase in borrowings
was used to partially fund the growth in loans receivable and mortgage-backed
securities.
11
FIDELITY FINANCIAL BANKSHARES CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Corporation is not engaged in any material legal
proceedings at the present time.
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Are Not Applicable
(b) No Form 8-K was filed during the quarter ended March 31,
1996.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIDELITY FINANCIAL BANKSHARES CORPORATION
/s/ Barry D. Crawford
Barry D. Crawford
President, Principal Executive Officer
and a Director
DATE: May 10, 1996
/s/ Gerald L. Martin
Gerald L. Martin
Executive Vice President, Principal
Financial Officer, Treasurer and a
Director
DATE: May 10, 1996
/s/ William S. Miller, Jr.
William S. Miller, Jr.
Principal Accounting Officer
DATE: May 10, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,647
<INT-BEARING-DEPOSITS> 230,744
<FED-FUNDS-SOLD> -0-
<TRADING-ASSETS> -0-
<INVESTMENTS-HELD-FOR-SALE> 37,602
<INVESTMENTS-CARRYING> 6,472
<INVESTMENTS-MARKET> 6,504
<LOANS> 260,598
<ALLOWANCE> (3,160)
<TOTAL-ASSETS> 321,558
<DEPOSITS> 241,935
<SHORT-TERM> 34,176
<LIABILITIES-OTHER> 4,077
<LONG-TERM> 14,010
-0-
-0-
<COMMON> 2,279
<OTHER-SE> 25,081
<TOTAL-LIABILITIES-AND-EQUITY> 321,558
<INTEREST-LOAN> 5,725
<INTEREST-INVEST> 632
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 6,457
<INTEREST-DEPOSIT> 2,933
<INTEREST-EXPENSE> 3,587
<INTEREST-INCOME-NET> 2,870
<LOAN-LOSSES> 85
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 1,776
<INCOME-PRETAX> 1,232
<INCOME-PRE-EXTRAORDINARY> 1,232
<EXTRAORDINARY> -0-
<CHANGES> -0-
<NET-INCOME> 780
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 3.81
<LOANS-NON> 2,737
<LOANS-PAST> -0-
<LOANS-TROUBLED> 652
<LOANS-PROBLEM> 1,876
<ALLOWANCE-OPEN> 3,062
<CHARGE-OFFS> -0-
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 3,160
<ALLOWANCE-DOMESTIC> 3,160
<ALLOWANCE-FOREIGN> -0-
<ALLOWANCE-UNALLOCATED> -0-
</TABLE>
