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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of
1934 (fee required)
For the fiscal year ended: December 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the Transition period from ______ to __________.
Commission File No. 0-22880
Fidelity Federal Bancorp
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(Exact name of registrant as specified in its charter)
Indiana 35-1894432
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(State of other jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
18 North West Fourth Street, PO Box 1347, Evansville, Indiana 47706-1347
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code (812) 424-0921
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1 Stated Value
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(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index is on page 16
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 past preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by checkmark 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 the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant (for purposes of such calculation, includes persons who are not
directors, executive officers, or holders of more than 10% of the registrant's
common stock) based on the average bid and asked prices of such stock at
February 28, 2001 was approximately $3,325,564.
Indicated below is the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 2001.
Common Stock - 4,607,658 shares
FIDELITY FEDERAL BANCORP
Index
PART I
Page
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ITEM 1 - Business 3
ITEM 2 - Properties 11
ITEM 3 - Legal Proceedings 11
ITEM 4 - Submission of Matters to a Vote of Security Holders 11
PART II
ITEM 5 - Market for Registrant's Common Equity
and Related Stockholder Matters 11
ITEM 6 - Selected Financial Data 12
ITEM 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 7 A Quantitative and Qualitative Disclosures About Market Risk 12
ITEM 8 - Financial Statements and Supplementary Data 12
ITEM 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures 12
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 12
ITEM 11 - Executive Compensation 12
ITEM 12 - Security Ownership of Certain Beneficial
Owners and Management 12
ITEM 13 - Certain Relationships and Related Transactions 13
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
SIGNATURES 15
PART I
ITEM 1. BUSINESS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This discussion contains certain forward-looking statements that are subject to
risks and uncertainties and includes information about possible or assumed
future results of operations. Many possible events or factors could affect our
future financial results and performance. This could cause results or
performance to differ materially from those expressed in our forward-looking
statements. Words such as "expects", "anticipates", "may", "could", "intends",
"projects", "believes", "estimates", and variations of such words and other
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in, or implied by, such forward-looking statements. Investors and
readers should not rely solely on or place undue reliance on the forward-looking
statements and should consider all uncertainties and risks discussed throughout
this document. These statements are representative only on the date hereof.
The possible events or factors include the following: the restrictions imposed
by the Supervisory Agreement between the OTS and our savings bank subsidiary,
United Fidelity Bank; our loan growth is dependent on economic conditions, as
well as various discretionary factors, such as decisions to sell or purchase
certain loans or loan portfolios; syndications or participations of loans;
retention of residential mortgage loans; and the management of a borrower. The
rate of charge-offs and provision expense can be affected by local, regional and
international economic and market conditions, concentrations of borrowers,
industries, products and geographic locations, the mix of the loan portfolio and
management's judgments regarding the collectibility of loans. Liquidity
requirements may change as a result of fluctuations in assets and liabilities
and off-balance sheet exposures, which will impact our capital and debt
financing needs and the mix of funding sources. Decisions to purchase, hold or
sell securities are also dependent on liquidity requirements and market
volatility, as well as on- and off-balance sheet positions. Factors that may
impact interest rate risk include local, regional and international economic
conditions, levels, mix, maturities, yields or rates of assets and liabilities,
utilization and effectiveness of interest rate contracts and the wholesale and
retail funding sources of United. We are also exposed to the potential of losses
arising from adverse changes in market rates and prices which can adversely
impact the value of financial products, including securities, loans, deposits,
debt and derivative financial instruments, such as futures, forwards, swaps,
options and other financial instruments with similar characteristics.
In addition, the banking industry in general is subject to various monetary and
fiscal policies and regulations, which include those determined by the Federal
Reserve Board, the OCC, the FDIC, state regulators and the Office of Thrift
Supervision, whose policies and regulations could affect our results. Other
factors that may cause actual results to differ from the forward-looking
statements include the following: competition with other local, regional and
international banks, thrifts, credit unions and other nonbank financial
institutions, such as investment banking firms, investment advisory firms,
brokerage firms, investment companies and insurance companies, as well as other
entities which offer financial services, located both within and outside the
United States and through alternative delivery channels such as the World Wide
Web; interest rate, market and monetary fluctuations; inflation; market
volatility; general economic conditions and economic conditions in the
geographic regions and industries in which we operate; introduction and
acceptance of new banking-related products, services and enhancements; fee
pricing strategies, mergers and acquisitions and our ability to manage these and
other risks.
Overview
Fidelity Federal Bancorp, incorporated in 1993 under the laws of the State of
Indiana, is a registered savings and loan holding company with its principal
office in Evansville, Indiana. Fidelity's savings bank subsidiary, United
Fidelity Bank, fsb ("United"), was organized in 1914 and is a
federally-chartered stock savings bank located in Evansville, Indiana. Fidelity,
through its savings bank subsidiary, is engaged in the business of obtaining
funds in the form of savings deposits and other borrowings and investing such
funds in consumer, commercial, and mortgage loans, and in investment and money
market securities.
United's subsidiaries, Village Housing Corporation and Village Management
Corporation (the "Affordable Housing Group"), and Village Capital Corporation
have been involved in various aspects of financing, owning, developing, and
managing affordable housing projects. Currently, they are involved only in the
business of owning affordable housing properties. In May 2000, Pedcor Management
Corporation, began providing management and certain accounting services for the
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properties previously managed by Village Management Corporation. Village
Management completed this transition by the end of June 2000 and is currently
inactive. Village Capital Corporation has earned fees by providing real estate
mortgage banking services but has not provided any new services for the past two
years, but records fee income on transactions previously completed. Another
subsidiary of United, Village Insurance Corporation, receives fee income for
credit life and accident health insurance sales.
The other subsidiary of Fidelity, Village Affordable Housing Corporation,
was formed during the third quarter of fiscal 1998. This company was formed for
the purpose of owning interest in real estate housing, and recently, in 2001,
acquired certain real estate from United and its subsidiaries to assist in
United's divesture efforts.
Fidelity had consolidated total assets of $166.5 million and total
shareholders' equity of $8.8 million as of December 31, 2000.
Fidelity's subsidiaries at December 31, 2000, are listed below:
Subsidiary Principal Office Year Organized Assets (in thousands)
1. United Fidelity Bank, fsb Evansville, IN 1914 $161,769
Subsidiaries of United Fidelity Bank, fsb:
Village Capital Corporation Evansville, IN 1994 834
Village Insurance Corporation Evansville, IN 1980 97
Village Management Corporation Evansville, IN 1992 260
Village Housing Corporation Evansville, IN 1992 2,680
2. Village Affordable Housing Corporation Evansville, IN 1998 36
Fidelity's home office is located at 18 North West Fourth Street, Evansville,
Indiana, 47708 and its telephone number is (812) 424-0921.
Competition
Fidelity and United face strong direct competition for deposits, loans and
other financial-related services. United competes in Indiana, Kentucky and
Illinois with other thrifts, commercial banks, credit unions, stockbrokers,
finance companies and insurance companies. Some of these competitors are local,
while others are statewide or national. United competes for deposits principally
by offering depositors a variety of deposit programs, convenient office
locations, hours and other services, and for loan originations primarily through
competitive interest rates and fees, the efficiency and quality of service
provided and the variety of loan products offered. Some of the non-bank
financial institutions and financial services organizations with which United
competes are not subject to the same degree of regulation as that imposed on
federal savings banks, thrifts, or thrift-holding companies. As a result, such
competitors may have advantages over United in providing certain services. As of
February 28, 2001, approximately 4 banks, 2 thrifts, and 11 credit unions
operated in the Evansville, Indiana metropolitan area, which is United's
principal deposit market area. Many competitors are substantially larger or have
significantly greater capital resources than United. Due to enacted legislation
to allow unlimited interstate branching, Fidelity and United may experience
heightened competition from existing competitors and other major financial
institutions seeking to expand their regional banking presence in Indiana.
SUPERVISION AND REGULATION
In addition to the general provisions discussed below, Fidelity and United are
also subject to the provisions of the Supervisory Agreement entered into with
the OTS in February 1999, which also impacts the operations of Fidelity and
United. See the "Other Restrictions" footnote in Fidelity's Notes to
Consolidated Financial Statements.
Regulation of the Company
Fidelity is a savings and loan holding company within the meaning of the Home
Owners' Loan Act of 1933. Fidelity is registered with the Office of Thrift
Supervision and is subject to OTS regulations, examinations, supervision and
reporting requirements
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The Home Owners' Loan Act generally prohibits a savings and loan holding
company, without prior approval of the OTS, from (i) acquiring control of any
other savings association or savings and loan holding company; or (ii) acquiring
more than 5% of the voting shares of a savings association or savings and loan
holding company which is not a subsidiary. Except with the prior approval of the
OTS, no director or officer of a savings and loan holding company or person
owning or controlling more than 25% of such company's stock, may acquire control
of any savings association, other than a subsidiary association, or any other
savings and loan holding company.
Fidelity operates as a unitary savings and loan holding company. There are
generally no restrictions on the activities of a unitary savings and loan
holding company. However, if the OTS determines that there is reasonable cause
to believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness, or
stability of its subsidiary savings association, the OTS may impose restrictions
it considers necessary to address such risk, which may include a limitation on
the payment of dividends. If the savings association subsidiary of a unitary
savings and loan holding company fails to meet the Qualified Thrift Lender Test
("QTL test"), as discussed below, then the holding company would be required to
register as, and become subject to the activities restrictions applicable to,
bank holding companies.
If Fidelity were to acquire control of another savings association it would
become a multiple savings and loan holding company. In general, the activities
of Fidelity and any of its subsidiaries (other than United or other subsidiary
savings associations) would be subject to further restrictions. The Home Owners'
Loan Act generally provides that, among other things, no multiple savings and
loan holding company or subsidiary which is not a savings association may engage
in any business activity other than (i) furnishing or performing management
services for a subsidiary savings association, (ii) conducting an insurance
agency or escrow business, (iii) holding, managing or liquidating assets owned
by or acquired from a subsidiary savings association, (iv) holding or managing
properties used or occupied by a subsidiary savings association, (v) acting as
trustee under deeds of trust, (vi) those activities previously directly
authorized by regulation as of March 5, 1987, to be engaged in by multiple
savings and loan holding companies, or (vii) those activities authorized by
regulation of the Board of Governors of the Federal Reserve System as
permissible for bank holding companies, unless the OTS by regulation prohibits
or limits such activities for savings and loan holding companies. Those
activities described in (vii) above must also be approved by the OTS prior to
being engaged in by a multiple savings and loan holding company.
The OTS may also approve acquisitions resulting in the formation of a multiple
savings and loan holding company which controls savings associations in more
than one state. Generally, this may only occur if the state in which the
association to be acquired is located specifically permits associations to be
acquired by state-chartered associations or savings and loan holding companies
located in the state where the acquiring entity is located or by a holding
company that controls that state-chartered savings association.
Indiana law permits federal and state savings association holding companies with
their home offices located outside of Indiana to acquire savings associations
whose home offices are located in Indiana and savings and loan holding companies
with their principal place of business in Indiana. Indiana savings and loan
holding companies also may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana.
Savings Bank Regulation
General. As a federally chartered, SAIF-insured savings association, United is
subject to extensive regulation by the OTS and the FDIC. The OTS periodically
examines the books and records of United and, in conjunction with the FDIC in
certain situations, has examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds.
United's activities and operations are subject to a number of detailed, complex
and sometimes overlapping federal and state laws and regulations. These include
state usury and consumer credit laws, state laws relating to fiduciaries, the
Federal Truth-In-Lending Act and Regulation Z, the Federal Equal Credit
Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Community
Reinvestment Act, anti-redlining legislation and antitrust laws. The earnings of
financial institutions are also affected by general economic conditions and
prevailing interest rates, both domestic and foreign and by the monetary and
fiscal policies of the United States Government and its various agencies,
particularly the Federal Reserve.
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Additional legislation and administrative action affecting the banking industry
is often considered by Congress, state legislatures and various regulatory
agencies. It cannot be predicted with certainty whether such legislation or
administrative action will be enacted or the extent to which the banking
industry in general or Fidelity and United in particular would be affected.
Financial Modernization Legislation: The Gramm Leach Bliley Act. Effective as of
March 11, 2000, the Gramm-Leach-Bliley Act:
(i) allows bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of nonbanking
activities then was previously permissible, including insurance
underwriting and agency, and underwriting and making merchant banking
investments in commercial and financial companies;
(ii) allows insurers and other financial services companies to acquire
banks and thrifts;
(iii) removes various restrictions that previously applied to bank holding
company ownership of securities firms and mutual fund advisory
companies; and
(iv) establishes the overall regulatory structure applicable to bank
holding companies that also engage in insurance and securities
operations.
In order for a bank holding company to engage in the broader range of activities
that are permitted by the Gramm-Leach-Bliley Act, (1) all of its depository
institutions must be well capitalized and well managed and (2) it must file a
declaration with the Federal Reserve Board that it elects to be a "financial
holding company". In addition, to commence any new activity permitted by the
Gramm-Leach-Bliley Act, each insured depository institution of the financial
holding company must have received at least a "satisfactory" rating in its most
recent examination under the Community Reinvestment Act.
In addition, the Gramm-Leach-Bliley Act provides that no company may acquire
control of an insured savings association after May 4, 1999, unless that company
either (i) engages only in the financial activities permissible for a financial
holding company or (ii) is a grandfathered, unitary savings and loan holding
company. The Gramm-Leach-Bliley Act generally grandfathers any company that was
a unitary savings and loan holding company on May 4, 1999. Such a company may
continue to operate under present law as long as (i) the company continues to
control only one savings institution or its successor (excluding supervisory
acquisitions) that it controlled on May 4, 1999 and (ii) each controlled
institution meets the qualified thrift lender test. The Company is a
grandfathered unitary savings and loan holding company.
The Gramm-Leach-Bliley Act also modified laws related to financial privacy. The
new financial privacy provisions generally prohibit financial institutions,
including United, from disclosing nonpublic personal financial information to
third parties unless customer have the opportunity to "opt out" of the
disclosure.
Fidelity does not believe that the Gramm-Leach-Bliley Act will have any
immediate, material impact on its operations. However, to the extent that the
Gramm-Leach-Bliley Act permits commercial banks, securities firms and insurance
companies to affiliate, the Act may have the effect of increasing the amount of
competition that Fidelity faces from other companies offering financial
products, many of which may have substantially more financial resources.
Qualified Thrift Lender Requirement. In order for United to exercise the powers
granted to federally-chartered savings associations, it must be a "qualified
thrift lender", or a "QTL". A savings association is a QTL if its qualified
thrift investments equal or exceed 65% of the savings association's portfolio
assets on a monthly basis in 9 out of every 12 months. Qualified thrift
investments generally consist of (i) various housing related loans and
investments (such as residential construction and mortgage loans, home
improvement loans, manufactured housing loans, home equity loans and
mortgage-backed securities), (ii) certain obligations of the FSLIC, the FDIC,
the FSLIC Resolution Fund and the Resolution Trust Corporation (for limited
periods), and (iii) shares of stock issued by any Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association. At December 31, 2000, the qualified thrift investment percentage
test for United was 83.75%.
Liquidity. Savings associations are required to maintain an average daily
balance of liquid assets (including cash, certain time deposits, certain
banker's acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified United States
government, state or federal agency obligations) of not less than 4% of the
average daily balance of the savings association's net withdrawable deposits
plus short-term borrowings during the
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preceding calendar month. Under the Home Owners' Loan Act, this liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10%, depending upon economic conditions and the deposit flows of
member associations. At December 31, 2000, United was in compliance with these
liquidity requirements.
Loans-to-One-Borrower Limitations. The Home Owners' Loan Act generally requires
savings associations to comply with the loans-to-one-borrower limitations
applicable to national banks. In general, national banks may make loans to one
borrower in amounts up to 15% of the bank's unimpaired capital and surplus, plus
an additional 10% of capital and surplus for loans secured by readily marketable
collateral. At December 31, 2000 United's loan-to-one-borrower limitation was
approximately $3.2 million and no loans to a single borrower exceeded that
amount, except as provided herein. Under certain conditions, a savings
association may make loans to one borrower for residential housing developments
in amounts up to 30% of the bank's unimpaired capital and surplus provided that
all loans made in reliance upon the increased lending limit do not, in the
aggregate, exceed 150% of the bank's unimpaired capital and surplus. At December
31, 2000 under this component of the higher lending limit, United had made $6.2
million in such loans.
Commercial Real Property Loans. The Home Owners' Loan Act limits the aggregate
amount of commercial real estate loans that a federal savings association may
make to an amount not in excess of 400% of the savings association's capital.
Consumer Loans. The Home Owners' Loan Act limits the aggregate amount of
consumer loans that a federal savings association may make to an amount not in
excess of 35% of the savings association's total assets. Under the terms of the
Supervisory Agreement with the OTS, United's consumer loans may not in the
aggregate exceed 30% of its total assets.
Limitation on Capital Distributions. Under OTS regulations, a savings
association must file an application with the OTS for a capital distribution,
including cash dividends, if (i) it is not eligible for expedited treatment of
its application, (ii) the proposed capital distribution, plus all other capital
distributions of the savings association during the calendar year, exceeds its
net income for that year to date plus its retained net income for the preceding
two years, (iii) it would not be at least adequately capitalized, as defined in
the prompt corrective action regulations of the OTS, or (iv) the proposed
distribution would be in violation of any applicable law, regulation, or
agreement with the OTS. A savings association has no restrictions on capital
distributions as long as, after the distribution, it is still classified as
adequately capitalized. Although no application is required, a prior notice must
filed with the OTS if the savings association would not be well capitalized
after the distribution, or if the savings association is a subsidiary of a
savings and loan holding company. United is currently restricted by the terms of
the Supervisory Agreement with the OTS from paying dividends.
Insurance of Deposits. The FDIC is an independent federal agency that insures
the deposits, up to $100,000 per depositor subject to aggregation rules, of
banks and thrifts and safeguards the safety and soundness of the banking and
thrift industries. The FDIC administers two separate insurance funds, the Bank
Insurance Fund (the "BIF") for commercial banks and state savings banks and the
SAIF for savings associations such as United. The FDIC is required to maintain
designated levels of reserves in each fund.
The FDIC is authorized to establish separate annual assessment rates for deposit
insurance for members of the BIF and members of the SAIF. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. An institution's risk level is determined based on its
capital level and the FDIC's level of supervisory concern about the institution.
Annual deposit insurance premiums range between $0.00 and $0.27 per $100 of
deposits are in effect, based on the assessment determined in accordance with
the risk-assessment system discussed above.
The Financing Corporation ("FICO") assessment to service the interest on its
bond obligations is separate from the SAIF assessment. As part of the deposit
insurance assessments, institutions pay a FICO assessment for debt service
requirements. The FICO assessment rate is subject to change on a quarterly
basis, depending on the debt service requirements. In 2000, United paid $0.05
per $100 of deposits to comply with this assessment. The total deposit insurance
expense paid was $243,000, for the year ended December 31, 2000, $156,000 for
the six months ended December 31, 1999 and $244,000 for fiscal 1999.
Commonly Controlled Banks and Savings Associations. Subject to certain
exceptions, commonly controlled banks and savings associations must reimburse
the FDIC for any losses suffered in connection with a failed bank or savings
association affiliate. Institutions are commonly controlled if one is owned by
another or if both are owned by the same holding company.
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Community Reinvestment Act. Ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") must be disclosed. The disclosure
includes both a four-tier descriptive rating using terms such as "outstanding,"
"satisfactory," "needs to improve," or "substantial non-compliance" and a
written evaluation of each institution's performance. United received a
satisfactory rating from the OTS in its most recent CRA examination. Also, the
Federal Housing Finance Board has adopted regulations establishing standards of
community investment and service for members of the FHLB System to meet to be
eligible for long-term advances. These regulations take into account a savings
association's CRA record and the member's record of lending to first-time home
buyers.
Brokered Deposits. Pursuant to the FDIC regulations, well-capitalized
institutions are subject to no brokered deposits limitations, while adequately
capitalized institutions are able to accept, renew or rollover brokered deposits
only (i) with a waiver from the FDIC, and (ii) subject to certain restrictions
on payment of rates. Undercapitalized institutions are not permitted to accept
brokered deposits and may not solicit deposits by offering an effective yield
that significantly exceeds the prevailing effective yields on insured deposits
of comparable maturity in the institution's normal market area or in which such
deposits are being solicited. United is currently restricted by the terms of the
Supervisory Agreement with the OTS from accepting brokered deposits.
Enforcement. The OTS has primary enforcement responsibility over savings
associations and has the authority to bring enforcement action against all
"institution-affiliated parties," including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Civil
penalties cover a wide range of violations and actions and range up to $25,000
per day unless a finding of reckless disregard is made, in which case penalties
may be as high as $1 million per day. In addition, regulators are provided with
flexibility to impose enforcement action on an institution that fails to comply
with its regulatory requirements, particularly with respect to the capital
requirements. Possible enforcement action ranges from the imposition of a
capital directive to receivership, conservatorship or the termination of deposit
insurance. The FDIC has the authority to recommend to the OTS that enforcement
action to be taken with respect to a particular savings institution. If action
is not taken by the OTS, the FDIC has authority to take such action under
certain circumstances.
Standards for Safety and Soundness. The federal banking agencies have prescribed
for all insured depository institutions safety and soundness standards in the
form of guidelines, relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
risk exposure, asset quality and growth, earnings, and compensation, fees and
benefits, and safekeeping of customer information. If an insured depository
institution fails to meet any of the standards described above, it will be
required to submit to the appropriate federal banking agency a plan specifying
the steps that will be taken to cure the deficiency. If an institution fails to
submit an acceptable plan or fails to implement the plan, the appropriate
federal banking agency will issue an order requiring the institution to take
immediate steps to correct a safety and soundness deficiency.
Real Estate Lending Standards. OTS regulations require savings associations to
establish and maintain written internal real estate lending policies. Each
association's lending policies must be consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its operations. The policies must establish loan portfolio
diversification standards; establish prudent underwriting standards, including
loan-to-value limits that are clear and measurable; establish loan
administration procedures for the association's real estate portfolio; and
establish documentation, approval, and reporting requirements to monitor
compliance with the association's real estate lending policies. The
association's written real estate lending policies must be reviewed and approved
by the association's Board of Directors at least annually. Further, each
association is expected to monitor conditions in its real estate market to
ensure that its lending policies continue to be appropriate for current market
conditions.
Prompt Corrective Action. The Federal Deposit Insurance Act establishes a system
of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, the banking regulators are required to take
certain supervisory actions against undercapitalized institutions, the severity
of which depends upon the institution's degree of capitalization.
Under the OTS prompt corrective action regulation, generally, a savings
association that has a total risk-based capital of less than 8.0% or a tier 1
risk-based capital ratio or leverage ratio of less than 4.0% is considered to be
undercapitalized. A savings association that has a total risk-based capital of
less than 6.0%, a tier 1 risk-based capital ratio of less than 3%, or a leverage
ratio that is less than 3.0% is considered to be "significantly
undercapitalized" and a savings association that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Generally, a capital restoration plan must be filed with the
OTS within 45 days of the date an association receives notice that it is
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"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the associations, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The OTS could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.
Capital Requirements. The OTS has adopted capital standards under which savings
associations must maintain (i) "core capital" in an amount not less than 3% of
total adjusted assets for a savings association with a composite rating of 1,
and not less than 4% for all other savings associations, (ii) "tangible capital"
in an amount not less than 1.5% of total adjusted assets, and (iii) a level of
risk-based capital equal to 8.0% of risk-weighted assets.
Under OTS regulations "core capital" includes common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, and minority
interests in the equity accounts of consolidated subsidiaries, less
nonqualifying intangible assets. In determining compliance with the capital
standards, a savings association must deduct from capital its entire investment
in and loans to any subsidiary engaged in activities not permissible for a
national bank, other than subsidiaries (i) engaged in such non-permissible
activities solely as agent for their customers; (ii) engaged in mortgage banking
activities; or (iii) that are themselves savings associations or companies, the
only investment of which is another savings association, acquired prior to May
1, 1989.
Capital requirements higher than the generally applicable minimum requirement
may be established for a particular savings association if the OTS determines
that the association's capital was or may become inadequate in view of its
particular circumstances. Individual minimum capital requirements may be
appropriate where the savings association is receiving special supervisory
attention, has a high degree of exposure to interest rate risk, losses resulting
in capital inadequacy, poor liquidity or cash flow, or poses other safety or
soundness concerns.
In determining compliance with the risk-based capital requirements, a savings
association must determine its interest rate risk and, if such risk exceeds a
certain level, it must deduct an interest rate risk component in calculating its
total capital for purposes of determining whether it meets its risk-based
capital requirements. An association's interest rate risk (IRR) is measured by
the decline in the net portfolio value resulting from a 200 basis point increase
or decrease in market interest rates. If an association's measured IRR exposure
exceeds 2%, it must then deduct an IRR component from total capital for
determining its risk-based capital requirement.
The Savings Bank's Subsidiaries. The OTS regulations permit federal savings
associations to invest in the capital stock, obligations or specified types of
securities of subsidiaries known as "service corporations" and as "operating
subsidiaries". Operating subsidiaries may engage in any activity in which the
savings association may engage. There is no limit as to the amount of the
investment in an operating subsidiary. A service corporation may engage in
certain specified activities. The savings association may make loans to a
service corporation and joint ventures in which a service corporation is a
participant in an aggregate amount not exceeding 3% of an association's assets,
provided any investment over 2% is used for specified community or inner-city
development purposes. The FDIC may, after consultation with the OTS, prohibit
specific activities if it determines such activities pose a serious threat to
SAIF.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general assessment
is computed upon the savings association's total assets, condition, and
complexity of its operations, including consolidated subsidiaries, as reported
in the Saving Bank's latest quarterly Thrift Financial Report. United's total
assessment for the year ended December 31, 2000 was $63,000.
Acquisitions and Branching
The Bank Holding Company Act specifically authorizes a bank holding company,
upon receipt of appropriate regulatory approvals, to acquire control of any
savings association or holding company thereof wherever located. Similarly, a
savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the Federal Reserve Board
restrict the branching authority of savings associations acquired by bank
holding companies.
The OTS has adopted regulations which permit nationwide branching to the extent
permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in Section 7701(a)(19) of the Internal Revenue
Code or the asset composition test of Section 7701(c) of the
9
Internal Revenue Code. Branching that would result in the formation of a
multiple savings and loan holding company controlling savings associations in
more than one state is permitted if the law of the state in which the savings
association to be acquired is located specifically authorizes acquisitions of
its state-chartered associations by state-chartered associations or their
holding companies in the state where the acquiring association or holding
company is located. Moreover, Indiana banks and savings associations are
permitted to acquire other Indiana banks and savings associations and to
establish branches throughout Indiana.
Transactions with Affiliates
Pursuant to the Home Owners' Loan Act, transactions engaged in by a savings
association or one of its subsidiaries with affiliates of the savings
association generally are subject to the affiliate transaction restrictions
contained in Sections 23A and 23B of the Federal Reserve Act in the same manner
and to the same extent as such restrictions now apply to transactions engaged in
by a member bank or one of its subsidiaries with affiliates of the member bank.
Section 23A of the Federal Reserve Act imposes both quantitative and qualitative
restrictions on transactions engaged in by a member bank or one of its
subsidiaries with an affiliate, while Section 23B of the Federal Reserve Act
requires, among other things, that all transactions with affiliates be on terms
substantially the same, and at least as favorable to the member bank or its
subsidiary, as the terms that would apply to or would be offered in a comparable
transaction with an unaffiliated party. Loans to executive officers, directors,
and principal shareholders must comply with Section 22(h) of the Federal Reserve
Act, which requires these loans be made on terms substantially the same as
offered in comparable transactions to other persons. United was in compliance
with these rules at December 31, 2000.
Federal Home Loan Bank System
United is a member of the Federal Home Loan Bank of Indianapolis. The Federal
Home Loan Bank System consists of 12 regional Federal Home Loan Banks ("FHLBs"),
each subject to supervision and regulation by the Federal Housing Finance Board
(the "FHFB"). The FHLBs provide a central credit facility for members. As a
member of the FHLB of Indianapolis, United is required to own shares of capital
stock in the FHLB in an amount at least equal to 1% of the aggregate principal
amount of its unpaid residential mortgage loans, home purchase contracts, and
similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. As of December 31, 2000,
United was in compliance with this requirement.
Personnel
As of December 31, 2000 Fidelity had 65 full-time equivalent employees. The
employees are not represented by any collective bargaining unit. Fidelity
believes its relations with its employees are good.
Fidelity maintains group life, hospital, surgical, dental, major medical,
and long-term disability programs for full-time employees. Fidelity also
participates in a defined benefit pension plan covering all eligible employees,
as well as a defined contribution 401(k) plan.
10
ITEM 2. PROPERTIES
The following table sets forth the location of Fidelity's savings bank offices,
all of which are owned by United, as well as certain additional information
relating to these offices as of December 31, 2000.
- ----------------------------------------------------------------------------------------------------
Office Location Year Facility Opened Net Book Value
- ----------------------------------------------------------------------------------------------------
Home Office 1974 $963,000
18 NW Fourth Street
Evansville, IN 47708
- ----------------------------------------------------------------------------------------------------
Eastside Branch 1997 1,811,000
700 S. Green River Rd
Evansville, IN 47715
- ----------------------------------------------------------------------------------------------------
Northside Branch 1976 83,000
4441 First Avenue
Evansville, IN 47710
- ----------------------------------------------------------------------------------------------------
Westside Branch 1979 81,000
4801 W. Lloyd Expressway
Evansville, IN 47712
- ----------------------------------------------------------------------------------------------------
Bell Oaks Branch Opened in March 2001 700,000
8533 Bell Oaks Drive
Newburgh, IN 47630
- ----------------------------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Registrant's business, to which the
Registrant or its subsidiaries is a party or of which any of their property is
the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's security holders
during the fourth quarter of the year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The discussion concerning the market for the registrant's common equity and
related shareholder matters under the heading "Market Summary" is included in
the 2000 Annual Report to Stockholders on page 4 and is incorporated herein by
reference. Cash dividends by quarter for the current and previous year appear
under the heading "Quarterly Results of Operations" included in the 2000 Annual
Report to Stockholders on page 9 and is incorporated herein by reference.
Additional information relating to stockholder matters can be found under the
heading "Corporate Information" included in the 2000 annual Report to
Stockholders on page 66 and is incorporated herein by reference.
On May 19th, 2000, following receipt of shareholder approval on May 19th,
Fidelity sold 1,460,000 shares of common stock to Pedcor Holdings, LLC and
Pedcor Bancorp. Bruce A. Cordingley, Gerald K. Pedigo, and Phillip J. Stoffregen
were named directors of Fidelity as a part of the transaction. These shares were
not registered under the Securities Act of 1933 in reliance upon the private
placement exemption from such registration afforded by Section 4(2) of the
Securities Act of 1933. No underwriters were utilized in connection with this
transaction.
In exchange for the 1,460,000 shares, Fidelity received: (1) cash in the amount
of $3,000,000; (2) a five year guarantee to United in an aggregate amount up to
$1,500,000 against any negative cash flow from operations of certain specified
development properties in United's portfolio; and (3) an agreement to provide
management services and certain accounting services to the specified properties
for ten years.
11
Pedcor Holdings, LLC, Pedcor Bancorp or their permitted assigns also received as
a part of the transaction an option to purchase additional shares from Fidelity
in an aggregate amount of up to $5 million until May 19, 2003. For shares
purchased prior to May 19, 2001, the price for such shares will be $3.00 per
share. For shares purchased after May 19, 2001 until May 19, 2003, the price for
such shares will be the fair market value of the shares.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial and Other Data included in the 2000 Annual Report to
Stockholders on page 5 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management' Discussion and Analysis of Financial Condition and Results of
Operation included in the 2000 Annual Report to Stockholders on pages 6 through
32 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOVE MARKET RISK
The discussion concerning quantilative and qualitative disclosures about market
risk under the heading "Asset/Liability Management" included in the 2000 Annual
Report to Stockholders on pages 31 and 32, and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required under this item are
incorporated herein by reference to pages 33 through 65 of the 2000 Annual
Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No response to this item is required.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information is to be provided under this Item is incorporated by reference
to the information under the heading "Information Concerning Nominees, Directors
and Executive Officers" on pages 5 and 6 (up to but exclusive of the information
presented under the caption "Certain Transactions and Other Matters Between
Management and Fidelity") and under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 17, (up to but exclusive of the
information presented under the caption "Item 2. Ratification of Independent
Auditors of Fidelity"), of the Company's definitive proxy statement dated March
26, 2001, as filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information to be provided under this Item is incorporated by reference to
the information under the heading "Executive Compensation and Other Information"
on pages 8 through 15 of the Company's definitive proxy statement dated March
26, 2001, as filed with the Securities and Exchange Commission pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be provided under this Item is incorporated by reference to
the information under the heading "Beneficial Ownership" on pages 3 and 4 (up to
but exclusive of the information presented under the caption "Proxies" on page
4) and under the heading "Security Ownership of Management" on pages 16 and 17
(up to but exclusive of the information presented under the caption "Section
16(a) Beneficial Ownership Reporting Compliance" on page 17), of the definitive
proxy statement dated March 26, 2001 as filed with the Securities and Exchange
Commission pursuant to regulation 14A.
12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be provided under this Item is incorporated by reference to
the information under the heading "Certain Transactions and Other Matters
Between Management and Fidelity" on page 6 and 7 (up to but exclusive of the
information presented under the caption "Board Meetings" on page 7) of the
Company's definitive proxy statement dated March 26, 2001 as filed with The
Securities and Exchange Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements are included in Item 8:
Page Number in
Annual report
Independent Auditor's Report on
Consolidated Financial Statements 33
Consolidated Balance Sheet
December 31, 2000 and December 31, 1999 34
Consolidated Statement of Income-
For the year ended December 31, 2000, the six months ended
December 31, 1999 and the fiscal ended June 30, 1999 35, 36
Consolidated Statement of Changes in Stockholders' Equity-
For the year ended December 31, 2000, the six months ended
December 31, 1999 and the fiscal ended June 30, 1999 37
Consolidated Statement of Cash Flows -
For the year ended December 31, 2000, the six months ended
December 31, 1999 and the fiscal ended June 30, 1999 38, 39
Notes to consolidated Financial Statements 40 - 65
(2) See response to Item 14 (a) (1). All other financial statement schedules
have been omitted because they are not applicable, or the required information
is shown in the consolidated financial statements or notes thereto.
(3) List of Exhibits
Exhibit Number Description
-------------- -----------
3(i) (a) Articles of Incorporation of Fidelity, filed as exhibit 3(a)
to Fidelity's 1995 Annual Report on Form 10-K, are
incorporated herein by reference
3(i) (b) Articles of Amendment of the Articles of Incorporation, filed
as exhibit 4.1 with Fidelity's Registration Statement on Form
S-3 (file no. 333-53668), are incorporated by reference
3(ii) By-Laws of Fidelity, filed as exhibit 4.2 with Fidelity's
Registration Statement on Form S-3 (file no. 333-53668), are
incorporated by reference
10(a) The 1993 Director's Stock Option Plan, filed as exhibit 10(d)
to Fidelity's 1995 Annual Report on Form 10-K, is
incorporated herein by reference.
(b) The 1995 Key Employee's Stock Option Plan, filed as
exhibit 10(c) to Fidelity's 1996 Annual Report on Form
10-K, is incorporated herein by reference.
(c) Employment agreement between Fidelity and M. Brian Davis,
filed as exhibit 10(c) to Fidelity's 2000 Annual Report on
Form 10-K
(d) Employment agreement between Fidelity and Donald R. Neel,
filed as exhibit 10(d) to Fidelity's 2000 Annual Report on
Form 10-K
13
13 Annual report to shareholders
21 Subsidiaries of Fidelity Federal Bancorp
23 Independent Auditor's Consent
(b) A Form 8-K was filed on October 5, 2000, announcing that President and
CEO M. Brian Davis would cease to serve in those roles effective
September 29, 2000.
(c) See the list of exhibits in Item 14 (a) (3).
(d) No other financial statement schedules are required to be submitted.
SIGNATURES
Pursuant to the requirements of Section 13 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 on the 29th day of March, 2001.
FIDELITY FEDERAL BANCORP
Registrant
By /S/ BRUCE A. CORDINGLEY
----------------------------------
Bruce A. Cordingley
Executive Committee Chairman
(Acting Principal Executive Officer)
By /S/ DONALD R. NEEL
----------------------------------
Donald R. Neel, Executive Vice President,
Treasurer and Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 29, 2001, by the following persons on behalf of
the registrant and in the capacities indicated.
By /S/ JACK CUNNINGHAM
----------------------------------
Jack Cunningham,
Chairman
By /S/ BRUCE A. CORDINGLEY
----------------------------------
Bruce A. Cordingley, Director
By /S/ WILLIAM R. BAUGH
----------------------------------
William R. Baugh, Director
By /S/ DONALD R. NEEL
----------------------------------
Donald R. Neel, Director
By /S/ GERALD K. PEDIGO
----------------------------------
Gerald K. Pedigo, Director
By /S/ BARRY A. SCHNAKENBURG
----------------------------------
Barry A. Schnakenburg, Director
By /S/ PHILLIP J. STOFFREGEN
----------------------------------
Phillip J. Stoffregen, Director
By
----------------------------------
M. Brian Davis, Director
By
----------------------------------
Curt J. Angermeier, Director
15
INDEX TO EXHIBITS
- -----------------
Page Exhibit Number Exhibit
- --------------------------------------------------------------------------------
10(c) Employment agreement between Fidelity and M. Brian Davis
10(d) Employment agreement between Fidelity and Donald R. Neel
13 Annual report to shareholders
21 Subsidiaries of Fidelity Federal Bancorp.
23 Independent Auditor's Consent