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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20552
--------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________to___________________
Commission File Number 0-29040
--------
Fidelity Bankshares, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0717085
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
205 Datura Street, West Palm Beach, Florida 33401
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code.)
(561) 803-9900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the Registrant has filed all reports
required to be filed by Sections 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: There were 15,132,046 shares
of the Registrant's common stock par value $.10 per share outstanding as of
November 4, 2004.
FIDELITY BANKSHARES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................1
Unaudited Condensed Consolidated Statements of Financial Condition as
of December 31, 2003 and September 30, 2004......................2
Unaudited Condensed Consolidated Statements of Operations for the
three and the nine months ended September 30, 2003 and 2004......3
Unaudited Condensed Consolidated Statements of Comprehensive
Operations for the three and the nine months ended September 30,
2003 and 2004....................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2003 and 2004.........................5
Notes to Unaudited Condensed Consolidated Financial Statements.......6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................14
Item 3. Quantitative and Qualitative Disclosure About Market Risk...........20
Item 4. Controls and Procedures.............................................25
PART II. OTHER INFORMATION...............................................26
Item 1. Legal Proceedings....................................26
Item 2. Changes in Securities................................27
Item 3. Default Upon Senior Securities.......................27
Item 4. Submission of matters to a Vote of Security..........27
Item 5. Other Information....................................27
Item 6. Exhibits and Reports on Form 8-K.....................27
EXHIBITS
Section 302 Certification
Section 906 Certification
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
FIDELITY BANKSHARES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
December 31, September 30,
2003 2004
================ =================
ASSETS (In thousands, except share
and per share data)
CASH AND CASH EQUIVALENTS:
Cash and amounts due from depository institutions........................ $ 76,090 $ 65,261
Interest-earning deposits................................................ 33,797 11,326
----------- -----------
Total cash and cash equivalents...................................... 109,887 76,587
----------- -----------
ASSETS AVAILABLE FOR SALE (At Fair Value):
Municipal bonds and government and agency securities..................... 122,731 176,212
Mortgage-backed securities............................................... 471,228 474,118
----------- ------------
Total assets available for sale...................................... 593,959 650,330
LOANS RECEIVABLE, Net......................................................... 2,191,696 2,555,173
OFFICE PROPERTIES AND EQUIPMENT, Net.......................................... 73,553 77,158
FEDERAL HOME LOAN BANK STOCK, At cost, which approximates market.............. 13,322 19,263
ACCRUED INTEREST RECEIVABLE................................................... 11,127 13,512
DEFERRED INCOME TAX ASSET..................................................... 7,598 5,185
OTHER ASSETS 47,080 47,357
----------- -----------
TOTAL ASSETS $ 3,048,222 $ 3,444,565
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
DEPOSITS ..................................................................... $ 2,460,101 $ 2,693,526
OTHER BORROWED FUNDS.......................................................... 42,089 37,816
ADVANCES FROM FEDERAL HOME LOAN BANK.......................................... 264,561 385,250
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE................................. 2,816 23,996
DRAFTS PAYABLE................................................................ 202 2,472
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
JUNIOR SUBORDINATED DEBENTURES........................................... 52,320 52,320
OTHER LIABILITIES............................................................. 41,624 46,946
----------- -----------
TOTAL LIABILITIES........................................................ 2,863,713 3,242,326
----------- -----------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, 2,000,000 shares authorized, none issued..................... - -
COMMON STOCK ($.10 par value) 30,000,000 authorized shares:
15,024,648 shares issued at December 31, 2003 and 15,131,946 shares issued
at September 30, 2004................................................ 1,502 1,513
ADDITIONAL PAID IN CAPITAL.................................................... 106,392 107,296
RETAINED EARNINGS - substantially restricted.................................. 89,793 102,941
TREASURY STOCK - at cost, 314,694 shares at December 31, 2003 and
294,865 shares at September 30, 2004..................................... (1,794) (1,748)
COMMON STOCK ALLOCATED TO:
Employee stock ownership plan............................................ (4,257) (3,996)
Recognition and retention plan........................................... (4,410) (3,360)
ACCUMULATED OTHER COMPREHENSIVE LOSS.......................................... (2,717) (407)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY............................................... 184,509 202,239
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 3,048,222 $ 3,444,565
============= =============
See Notes to Unaudited Condensed Consolidated Financial Statements.
FIDELITY BANKSHARES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2004 2003 2004
=================================================
(In Thousands, except per share data)
Interest income:
Loans............................................................. $ 32,320 $ 36,778 $ 96,056 $ 103,458
Investment securities............................................. 129 1,022 752 2,517
Other investments................................................. 419 234 1,410 876
Mortgage-backed and corporate debt securities..................... 2,560 4,952 8,377 13,288
--------- --------- ---------- ----------
Total interest income......................................... 35,428 42,986 106,595 120,139
--------- --------- ---------- ----------
Interest expense:
Deposits.......................................................... 9,728 9,945 29,153 28,909
Advances from Federal Home Loan Bank and other borrowings......... 4,643 5,301 13,914 14,992
--------- --------- ---------- ----------
Total interest expense........................................ 14,371 15,246 43,067 43,901
--------- --------- ---------- ----------
Net interest income.................................................... 21,057 27,740 63,528 76,238
Provision for loan losses.............................................. 558 783 2,041 2,174
--------- --------- ---------- ----------
Net interest income after provision for loan losses.................... 20,499 26,957 61,487 74,064
--------- --------- ---------- ----------
Other income:
Service charges on deposit accounts............................... 2,957 2,740 7,061 8,374
Fees for other banking services................................... 2,555 2,830 7,412 8,499
Net gain on sale of loans......................................... 118 134 3,731 391
Net gain on sale of investments................................... - 81 - 1,134
Miscellaneous..................................................... 239 460 696 1,467
--------- --------- --------- --------
Total other income............................................ 5,869 6,245 18,900 19,865
--------- --------- --------- --------
Operating expense:
Employee compensation and benefits................................ 11,235 13,110 33,635 37,576
.
Occupancy and equipment.......................................... 3,703 4,403 10,534 12,356
(Gain)/loss on real estate owned and other repossessed assets..... (7) (8) 27 (18)
Marketing......................................................... 482 523 1,482 1,631
Federal deposit insurance premium................................. 82 96 236 279
Miscellaneous..................................................... 3,650 4,953 10,777 13,266
--------- -------- ------- --------
Total operating expense....................................... 19,145 23,077 56,691 65,090
--------- -------- ------- --------
Income before provision for income taxes............................... 7,223 10,125 23,696 28,839
--------- -------- ------- --------
Provision for income taxes............................................. 2,838 3,943 9,263 11,282
--------- -------- ------- --------
Net income............................................... $ 4,385 $6,182 $ 14,433 $ 17,557
========= ======== ======== ========
Earnings per share:
Basic............................................................. $ 0.30 $ 0.42 $ 1.00 $ 1.20
========= ======== ======== =========
Diluted........................................................... $ 0.30 $ 0.41 $ 0.99 $ 1.16
========= ======== ======== =========
Dividends declared per share........................................... $ 0.10 $ 0.10 $ 0.00 $ 0.30
========= ======== ======== =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
FIDELITY BANKSHARES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
- -------------------------------------------------------------------------------
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2004 2003 2004
==========================================================
(In Thousands)
Net Income........................................................... $ 4,385 $ 6,182 $ 14,433 $ 17,557
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on assets available for sale.......... (1,063) 7,738 (1,165) 2,310
--------- --------- --------- ---------
Comprehensive income................................................. $ 3,322 $13,920 $ 13,268 $ 19,867
======== ========= ========= =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
FIDELITY BANKSHARES, INC.
- --------------------------------------------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
2003 2004
=========================
(In Thousands)
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net Income............................................................. $ 14,433 $ 17,557
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................ 3,060 4,354
ESOP and recognition and retention plan compensation expense........ 1,796 1,998
Accretion of discounts, amortization of premiums and goodwill, and (497) (2,719)
other deferred yield items.........................................
Provision for loan losses........................................... 2,041 2,174
Provisions for losses and net (gains) losses on sales of real estate (29) (12)
owned
Net (gain) loss on sale of:
Loans......................................................... (3,731) (391)
Government & Agency Securities................................ - (126)
Mortgage Backed Securities.................................... - (1,008)
Office properties and equipment............................... 59 (394)
Increase in accrued interest receivable............................. (865) (2,385)
Increase in other assets............................................ (8,264) (385)
(Decrease) increase in drafts payable............................... (4,118) 2,270
Decrease in deferred income taxes................................... 766 936
Increase in other liabilities....................................... 6,998 5,308
-------- --------
Net cash provided by operating activities..................... 11,649 27,177
-------- --------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans...................... (287,480) (358,670)
Principal payments received on mortgage-backed securities.............. 223,586 148,065
Purchases of:
Loans............................................................... (30,988) (29,020)
Mortgage-backed securities.......................................... (584,009) (323,446)
Federal Home Loan Bank stock........................................ (955) (16,567)
Investment securities............................................... (55,104) (59,755)
Office properties and equipment..................................... (6,505) (9,252)
Proceeds from sales of:
Loans............................................................... 175,746 26,559
Federal Home Loan Bank stock........................................ 229 10,626
Investment securities............................................... - 4,922
Repossessed assets acquired in settlement of loans.................. 840 74
Mortgage backed securities.......................................... - 177,606
Office properties and equipment..................................... 550 502
Proceeds from maturities of municipal bonds and government and agency 119,000 -
securities
Purchase of insurance company assets................................... (191) -
Other.................................................................. (518) 1,088
--------- --------
Net cash used for investing activities........................ (445,799) (427,268)
--------- ---------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Proceeds from the sale of common stock and exercise of stock options, 308 164
net of issuance costs..................................................
Purchase of treasury stock............................................. (10) -
Cash dividends paid.................................................... (4,335) (4,394)
Net increase (decrease) in:
NOW accounts, demand deposits and savings accounts.................. 517,660 280,666
Certificates of deposit............................................. (58,035) (47,241)
Advances from Federal Home Loan Bank................................ 14,375 120,689
Other borrowed funds................................................ (15,691) (4,273)
Advances by borrowers for taxes and insurance....................... 18,025 21,180
-------- --------
Net cash provided by financing activities..................... 472,297 366,791
-------- --------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS.................... 38,147 (33,300)
CASH AND CASH EQUIVALENTS, Beginning of period......................... 129,666 109,887
-------- --------
CASH AND CASH EQUIVALENTS, End of period............................... $167,813 $ 76,587
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
The accounting and reporting policies of Fidelity Bankshares, Inc. (the
"Company") and its subsidiary Fidelity Federal Bank & Trust (the "Bank") conform
with accounting principles generally accepted in the United States of America
and with predominant practices within the thrift industry. The Company has not
changed its accounting and reporting policies from those disclosed in its 2003
Annual Report on Form 10-K.
The Company conducts no significant business other than holding the common stock
of the Bank and its special purpose trusts, Fidelity Capital I and Fidelity
Capital II. Consequently, its net income is derived from the operations of the
Bank. In the opinion of the Company's management, all adjustments necessary to
fairly present the consolidated financial position of the Company at September
30, 2004 and the results of its consolidated operations and cash flows for the
period then ended, all of which are of a normal and recurring nature, have been
included.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" which addresses consolidation of variable interest entities ("VIEs")
certain of which are also referred to as special purpose entities ("SPEs"). The
FASB revised FIN 46 in December 2003. VIEs are entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. Under the
provisions of FIN 46, a company is to consolidate a VIE if the company has a
variable interest (or combination of variable interests) that will absorb a
majority of the VIE's expected losses if they occur, receive a majority of the
VIE's expected returns if they occur, or both. The implementation of FIN 46 is
required for public entities at the end of the first interim period ending after
March 15, 2004 if the VIE was created before February 1, 2003, with early
adoption allowed, and immediately for entities created after February 1, 2003.
The Company early adopted FIN 46 and has deconsolidated the Fidelity Capital
Trust I at December 31, 2003. The deconsolidation of Fidelity Capital Trust I
did not have a material impact on the Company's consolidated financial position
or results of operations.
In November 2003, the EITF reached a consensus on the disclosure provisions of
EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." EITF No. 03-1 requires that certain
quantitative and qualitative disclosures be made for certain debt securities
classified as available-for-sale under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," that are impaired at the balance
sheet date but for which an other-than-temporary impairment has not been
recognized. Debt securities within the scope of EITF Issue No. 99-20, are not
subject to these disclosure provisions. The disclosures are required for fiscal
years ending after December 15, 2003, and accordingly the Company has adopted
the disclosure provisions of EITF No. 03-1 for the year ended December 31, 2003.
Certain amounts in the financial statements have been reclassified to conform
with the September 30, 2004 presentation.
2. STOCK OPTION PLANS
At September 30, 2004, the Company has one stock-based compensation plan. At
September 30, 2003, the Company had three stock-based compensation plans, of
which two expired on January 7, 2004. The Company accounts for these plans using
the intrinsic value method. Accordingly, no stock option-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions to stock-based employee compensation using the
Black-Scholes model.
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2004 2003 2004
========== =========== ========== ==========
(In Thousands) (In Thousands)
Net Income, as reported............................................... $ 4,385 $ 6,182 $ 14,433 $ 17,557
Add: Total stock-based employee compensation expense
included
in reported net earnings, net of related tax effects............ 231 192 731 640
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects...................... (376) (317) (1,126) (1,190)
--------- --------- ---------- ---------
Pro forma net income.................................................. $ 4,240 $ 6,057 $ 14,038 $ 17,007
========= ========= ========== ==========
Basic - as reported................................................ 0.30 0.42 1.00 1.20
Basic - pro forma.................................................. 0.29 0.41 0.97 1.16
Diluted - as reported.............................................. 0.30 0.41 0.99 1.16
Diluted - pro forma................................................ 0.29 0.40 0.96 1.13
3. LOANS RECEIVABLE
Loans receivable at December 31, 2003 and September 30, 2004, consist of the
following:
December 31, September 30,
2003 2004
============== ===============
(In Thousands)
One-to four-single family, residential real estate mortgages......... $1,002,573 $1,087,955
Commercial and multi-family real estate mortgages.................... 753,890 914,106
Real estate construction-primarily residential....................... 470,016 593,679
Land loans-primarily residential..................................... 36,660 52,624
---------- ----------
Total first mortgage loans........................................... 2,263,139 2,648,364
Consumer loans....................................................... 185,450 215,633
Commercial business loans............................................ 131,292 133,764
---------- ----------
Total gross loans.................................................... 2,579,881 2,997,761
Add/(deduct):
Undisbursed portion of loans in process......................... (374,974) (426,928)
Unearned discounts, premiums and deferred loan fees (costs), net (2,092) (2,591)
Allowance for loan losses....................................... (11,119) (13,069)
----------- -----------
Loans receivable-net................................................. $2,191,696 $2,555,173
========== ==========
During the quarter ended September 30, 2004, the Company sold $9.0 million in
loans, which resulted in net gains of approximately $134,000. At September 30,
2004, the Company held $966,000 in loans available for sale.
4. ALLOWANCE FOR LOAN LOSSES
An analysis of the changes in the allowance for loan losses for the year ended
December 31, 2003 and the three and nine month periods ended September 30, 2003
and 2004, is as follows:
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
2003 2004 2003 2004
======================== =========================
(In Thousands) (In Thousands)
Balance at beginning of period...... $ 9,730 $ 12,436 $ 8,318 $ 11,119
Current provision................... 558 783 2,041 2,174
Charge-offs......................... (246) (150) (317) (249)
Recoveries.......................... - - - 25
--------- --------- --------- ---------
Ending balance...................... $ 10,042 $ 13,069 $10,042 $ 13,069
========= ========= ========= =========
An analysis of the recorded investment in impaired loans owned by the Company at
the end of each period and the related specific valuation allowance for those
loans is as follows:
December 31, 2003 September 30, 2004
====================================================
Loan Related Loan Related
Balance Allowance Balance Allowance
----------------------------------------------------
(In Thousands)
Impaired loan balances and related allowances:
Loans with related allowance for loan losses................ $ 3,508 $ 598 $ 3,201 $ 564
Loans without related allowance for loan losses............. 9,162 - 5,543 -
-------- -------- -------- --------
Total.............................................. $ 12,670 $ 598 $ 8,744 $ 564
======== ======== ======== ========
The Bank's policy for interest income on impaired loans is to reverse all
accrued interest against interest income if a loan becomes more than 90 days
delinquent and cease accruing interest thereafter. Such interest ultimately
collected is credited to income in the period of recovery.
5. DEPOSITS
The weighted-average interest rates on deposits at December 31, 2003 and
September 30, 2004 were 1.51% and 1.50%, respectively. Deposit accounts, by type
at December 31, 2003 and September 30, 2004 consist of the following:
December 31, September 30,
Account Type and Rate 2003 2004
========= ==============
(In Thousands)
Non-interest-bearing checking accounts..................... $ 294,358 $ 324,080
Interest-bearing checking and funds transfer accounts...... 566,028 650,826
Passbook and statement accounts............................ 615,972 745,253
Variable-rate money market accounts........................ 297,864 334,729
Certificates of deposit.................................... 685,879 638,638
---------- ----------
Total...................................................... $2,460,101 $2,693,526
========== ==========
6. REGULATORY CAPITAL
The Company's subsidiary, Fidelity Federal Bank & Trust, is a regulated
financial institution. Its regulatory capital amounts and ratios are presented
in the following table:
To be Considered
Minimum for Well Capitalized
Capital Adequacy for Prompt Corrective
Actual Purposes Action Provisions
------------------------------------------------------------------------------
Ratio Amount Ratio Amount Ratio Amount
------------------------------------------------------------------------------
(Dollars in Thousands)
As of December 31, 2003 Stockholders'
Equity and ratio to total assets 7.2% $220,528
========
Unrealized decrease in market value
of assets available for sale
(net of applicable income taxes) 1,060
Goodwill............................. (5,615)
Disallowed servicing assets.......... (124)
---------
Tangible capital and ratio to
adjusted total assets........... 7.1% $ 215,849 1.5% $ 45,630
======== ========== ====== =========
Tier I (core) capital and ratio to
adjusted total assets........... 7.1% $ 215,849 3.0% $ 91,259 5.0% $ 152,099
======== ========== ====== ========= ====== =========
Tier I (core) capital and ratio to
risk-weighted total assets...... 10.3% $ 215,849 4.0% $ 83,790 6.0% $ 125,685
======== ====== ========= ====== =========
Allowable Tier 2 capital:
General loan valuation allowances ... 10,149
----------
Total risk-based capital and ratio to
risk-weighted total assets...... 10.8% $ 225,998 8.0% $ 167,580 10.0% $ 209,475
======== ========== ====== ========= ====== =========
Total assets......................... $3,045,981
==========
Adjusted total assets................ $3,041,980
==========
Risk-weighted assets................. $2,094,753
==========
As of September 30, 2004
Stockholders' Equity and ratio 7.0% $ 242,380
=======
to total assets.................
Unrealized decrease in market value
of assets available for sale
(net of applicable income taxes) (1,250)
Goodwill............................. (2,676)
Disallowed servicing assets.......... (124)
-----------
Tangible capital and ratio to
adjusted total assets........... 6.9% $ 238,330 1.5% $ 51,552
======== ========== ====== =========
Tier I (core) capital and ratio to
adjusted total assets........... 6.9% $ 238,330 3.0% $ 103,104 5.0% $ 171,840
======== ========== ====== ========= ====== =========
Tier I (core) capital and ratio to
risk-weighted total assets...... 9.3% $ 238,330 4.0% $ 102,255 6.0% $ 153,383
======== ========== ====== ========= ====== =========
Allowable Tier 2 capital:
General loan valuation allowances ... 12,009
----------
Total risk-based capital and ratio to
risk-weighted total assets...... 9.8% $ 250,339 8.0% $ 204,510 10.0% $ 255,638
======== ========== ====== ========= ====== =========
Total assets......................... $3,441,651
==========
Adjusted total assets................ $3,436,802
==========
Risk-weighted assets................. $2,556,381
==========
7. EARNINGS PER SHARE
The weighted-average number of shares used to calculate basic and diluted
earning per share, including the adjustments for the stock options, for the
three and the nine month periods ended September 30, 2003 and 2004, are as
follows:
For the Three Months Ended For the Three Months Ended
September 30, 2004 September 30, 2003
----------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
(Dollars In Thousands, except per share data)
Net income..................... $4,385,000 $6,182,000
========== ==========
Basic EPS:
Mortgage loans.............
Income available to
common stockholders....... $4,385,000 14,554,241 $0.30 $6,182,000 14,710,810 $ 0.42
========== ======== ========== ========
Effect of diluted shares:
Common stock options and 244,060 434,203
---------- -----------
grants
Diluted EPS:
Income available to
common stockholders....... $4,385,000 14,798,301 $0.30 $6,182,000 15,145,013 $ 0.41
========== ========== ======== ========== =========== ========
For the Nine Months Ended For the Nine Months Ended
September 30, 2004 September 30, 2003
----------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
(Dollars In Thousands, except per share data)
Net income..................... $14,433,000 $ 17,557,000
=========== ===========
Basic EPS:
Mortgage loans.............
Income available to
common stockholders....... $14,433,000 14,474,561 $1.00 $ 17,557,000 14,662,944 $1.20
============ ====== =========== ======
Effect of diluted shares:
Common stock options and 117,717 427,033
----------- ----------
grants
Diluted EPS:
Income available to
common stockholders....... $14,433,000 14,592,278 $0.99 $917,557,000 15,089,977 $1.16
=========== =========== ======= ============ ========== ======
ESOP shares that have not been committed to be released are not considered to be
outstanding.
8. OTHER COMPREHENSIVE INCOME (LOSS)
An analysis of the changes in Accumulated Other Comprehensive Loss for the
periods ended September 30, 2003 and 2004, is as follows:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2003 2004 2003 2004
----------------------------- --------------------------
Unrealized Unrealized
Losses Losses
On Securities On Securities
=================================== ===== ==========================
(In Thousands)
Beginning balance............... $ (3,637) $ (8,145) $ (3,535) $ (2,717)
Current-period change........... (1,063) 7,738 (1,165) 2,310
---------- ---------- ----------- ----------
Ending balance.................. $ (4,700) $ (407) $ (4,700) $ (407)
========== ========== =========== ==========
An analysis of the related tax effects allocated to Other Comprehensive Income
(Loss) is as follows:
For the Three Months Ended For the Three Months Ended
September 30, 2003 September 30, 2004
------------------------------------ -----------------------------------
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount Benefit Amount Amount Benefit Amount
=========== ============ =========== == =========== =========== ===========
(In Thousands)
Unrealized gain (loss) on
assets available for sale:
Unrealized holding gains
(losses) arising during $(1,742) $ 679 $(1,063) $12,766 $(4,979) $ 7,787
period..............................
Reclassification adjustment
for (gains) losses
realized in net income.............. - - - (81) 32 (49)
-------- -------- -------- -------- -------- --------
Other comprehensive
income (loss)...................... $(1,742) $ 679 $(1,063) $12,685 $(4,947) $ 7,738
========= ======== ========= ======== ========= ========
For the Nine Months Ended For the Nine Months Ended
September 30, 2003 September 30, 2004
------------------------------------ -----------------------------------
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount Benefit Amount Amount Benefit Amount
=========== ============ =========== == =========== =========== ===========
(In Thousands)
Unrealized gain (loss) on
assets available for sale:
Unrealized holding gains
(losses) arising during $(1,910) $ 745 $ (1,165) $ 4,922 $ (1,920) $ 3,002
period...........................
Reclassification adjustment for
(gains) losses realized in
net income....................... - - - (1,134) 442 (692)
--------- --------- -------- --------- --------- --------
Other comprehensive
income (loss).................... $(1,910) $ 745 $ (1,165) $ 3,788 $ (1,478) $ 2,310
========= ======== ========= ======== ========= =========
9. COMMITMENTS AND CONTINGENCIES
On September 22, 2004, the Company and First Community Bancorp, Inc. ("First
Community") signed a definitive agreement in which the Company will acquire
First Community in an exchange of cash and stock. The transaction, which was
valued at $27.1 million, will result in payment by the Company of approximately
$14 million in cash and the issuance of approximately 350,000 shares of the
Company's common stock to stockholders of First Community. At September 30,
2004, First Community had total assets of $157.1 million, loans of $94.1
million, deposits of $144.8 million and equity of $11.6 million. Subject to
necessary regulatory approvals and First Community stockholder approval, the
transaction is expected to close in the first quarter of 2005.
The Company is subject to various claims, legal actions and complaints arising
in the ordinary course of business. In the Company's opinion, the disposition of
these matters will not have a material adverse effect on our consolidated
financial condition, results of operations or cash flows.
10. SUBSEQUENT EVENTS
On October 20, 2004, the Company received the net proceeds, approximately $29.9
million, from the issuance of trust preferred securities through Fidelity
Capital Trust III that will bear interest at the same rate as the three month
LIBOR plus 1.97%. These securities mature in 2034. The proceeds from this
issuance will be used to redeem the securities issued from Fidelity Capital
Trust I, due in January 2028. The redemption of securities issued under Fidelity
Capital Trust I is expected to occur on November 24, 2004. As a result of this
redemption, the Company will incur a charge against income in the fourth quarter
of 2004, resulting from the write off of $1.1 million unamortized, deferred
issuance costs, pertaining to Fidelity Capital Trust I.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General.
Fidelity Bankshares, Inc. (the "Company") is the parent company of Fidelity
Federal Bank & Trust ("Fidelity Federal" or the "Bank"). The Company conducts no
business other than holding the common stock of the Bank. Consequently, the
Company's net income is primarily derived from the Bank. The Bank's net income
is primarily dependent on its net interest income, which is the difference
between interest income earned on its investments in mortgage loans and
mortgage-backed securities, other investment securities and loans, and its cost
of funds consisting of interest paid on deposits and borrowings. The Bank's net
income also is affected by its provision for loan losses, as well as by the
amount of other income, including income from fees and service charges, net
gains and losses on sales of investments, and operating expense such as employee
compensation and benefits, deposit insurance premiums, occupancy and equipment
costs, and income taxes. Earnings of the Bank also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities, which
events are beyond the control of the Bank. In particular, the general level of
market interest rates tends to be highly cyclical.
Forward-Looking Statements.
When used in this report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the Company's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the Company's market area and competition that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
Recent Developments.
On September 22, 2004, the Company and First Community Bancorp, Inc. ("First
Community") signed a definitive agreement in which the Company will acquire
First Community in an exchange of cash and stock. The transaction, which was
valued at $27.1 million, will result in payment by the Company of approximately
$14 million in cash and the issuance of approximately 350,000 shares of the
Company's common stock to stockholders of First Community. At September 30,
2004, First Community had total assets of $157.1 million, loans of $94.1
million, deposits of $144.8 million and equity of $11.6 million. Subject to
necessary regulatory approvals and First Community stockholder approval, the
transaction is expected to close in the first quarter of 2005 and be accretive
to the Company's net income in the first year.
On October 20, 2004, the Company received the net proceeds, approximately $29.9
million, from the issuance of trust preferred securities through Fidelity
Capital Trust III that will bear interest at the same rate as the three month
LIBOR plus 1.97%. These securities mature in 2034. The proceeds from this
issuance will be used to redeem the securities issued from Fidelity Capital
Trust I, due in January 2028. The redemption of securities issued under Fidelity
Capital Trust I is expected to occur on November 24, 2004. As a result of this
redemption, the Company will incur a charge against income in the fourth quarter
of 2004, resulting from the write off of $1.1 million unamortized, deferred
issuance costs, pertaining to Fidelity Capital Trust I.
Other Comprehensive Operations.
The Company's only component of Other Comprehensive Operations for the three and
the nine months ended September 30, 2004 and 2003 is the change in the
unrealized gain or loss on assets available for sale.
Other comprehensive income for the nine months ended September 30, 2004 was $2.3
million compared to an other comprehensive loss of $1.2 million for the nine
months ended September 30, 2003. During the nine months ended September 30,
2004, due to declining market interest rates, the market value of the Company's
assets available for sale increased by $3.8 million which, net of income tax of
$1.5 million, resulted in other comprehensive income of $2.3 million. During the
nine months ended September 30, 2003, due to rising market interest rates, the
market value of the Company's assets available for sale decreased by $1.9
million, which net of income tax benefit of $745,000 resulted in other
comprehensive loss of $1.2 million.
Other comprehensive income for the quarter ended September 30, 2004 was $7.7
million compared to other comprehensive loss of $1.1 million for the quarter
ended September 30, 2003. During the quarter ended September 30, 2004, due to
declining market interest rates, the market value of the Company's assets
available for sale increased by $12.7 million which, net of income tax of $5.0
million, resulted in other comprehensive income of $7.7 million. As the result
of market increases in interest rates during the quarter ended September 30,
2003, the market value of the Company's assets available for sale decreased by
$1.7 million which, net of income tax benefit of $679,000, resulted in other
comprehensive loss of $1.1 million.
Changes in Financial Condition.
The Company's assets increased by $396.3 million from $3.0 billion at December
31, 2003 to $3.4 billion at September 30, 2004. Cash and assets available for
sale increased by $23.1 million. Net loans receivable increased by $363.4
million. All other assets increased by $9.8 million. Funds were provided for
these increases in assets by an increase in deposits of $233.4 million, an
increase in advances from the FHLB of $120.7 million, an increase in all other
liabilities of $24.5 million and an increase in stockholders' equity of $17.7
million. The increase in stockholders'equity is primarily due to net income of
$17.6 million, net of dividends declared, and a decrease in accumulated other
loss, which resulted from an increase in the market value of assets available
for sale.
Results of Operations.
Net income for the nine months ended September 30, 2004 was $17.6 million, a
$3.2 million increase compared to $14.4 million for the same 2003 period. This
increase was attributable to an increase in net interest income of $12.7 million
along with an increase in other income of $965,000. The increase in net interest
income consisted of an increase in interest income of $13.5 million offset by an
increase in interest expense of $834,000. The increase in other income included
a gain on the sale of securities of $1.1 million for the nine months ended
September 30, 2004. Partially offsetting these increases were increases in
operating expenses of $8.4 million and increases in the provision for income
taxes of $2.0 million for the nine months ended September 30, 2004 compared to
the nine months ended September 30, 2003.
Net income for the quarter ended September 30, 2004 was $6.2 million, a $1.8
million increase compared to $4.4 million for the same 2003 quarter. This
increase was attributable to an increase of $6.7 million in net interest income
along with an increase in other income of $376,000. The increase in net interest
income consisted of an increase in interest income of $7.6 million partially
offset by an increase in interest expense of $875,000. Partially offsetting
these increases were an increase in operating expenses of $3.9 million and an
increase in the provision for income taxes of $1.1 million for the quarter ended
September 30, 2004 compared to the quarter ended September 30, 2003.
Interest Income.
Interest income for the nine months ended September 30, 2004, totaled $120.1
million, representing an increase of $13.5 million or 12.7% compared to the same
period in 2003. Interest income from loans increased by $7.4 million, primarily
as a result of a 17.9% increase in the average balance of loans to $2.4 billion
from $2.0 billion for the nine months ended September 30, 2004 and 2003,
respectively. The increase in the average balance of loans was offset by a
decrease in the average yield on loans to 5.83% for the nine months ended
September 30, 2004 from 6.38% for the same period in 2003. Interest income from
mortgage-backed securities increased to $13.3 million for the nine months ended
September 30, 2004 from $8.4 million for the 2003 period. This increase was due
to an increase in the average balance of these securities of $96.2 million. The
average yield on mortgage-backed securities for the nine months ended September
30, 2004 increased to 3.78% from 3.00%. There was an increase in interest income
from investment securities of $1.8 million principally resulting from an
increase in the average balance of such securities to $153.1 million for the
nine months ended September 30, 2004 from $44.6 million for the nine months
ended September 30, 2003. The increase in the average balance of investment
securities was slightly offset by a decrease in the average yield on these
securities to 2.19% for the nine months ended September 30, 2004 from 2.24% for
the same period in 2003. Interest income on other investments decreased by
$534,000 due mainly to a decrease in the average balance on these investments to
$75.8 million from $130.9 million slightly offset by an increase in the average
yield to 1.54% from 1.44% for the periods ended September 30, 2004 and 2003,
respectively.
Interest income for the quarter ended September 30, 2004, totaled $43.0 million,
representing an increase of $7.6 million or 21.3% compared to the same quarter
in 2003. Interest income from loans increased by $4.5 million, primarily as a
result of a 20.9% increase in the average balance of loans to $2.5 billion from
$2.0 billion for the quarters ended September 30, 2004 and 2003, respectively.
This increase in average balance of loans was offset by a decrease in the
average yield on loans to 5.88% for the quarter ended September 30, 2004 from
6.25% for the same period ended September 30, 2003. Interest income from
mortgage-backed securities increased to $5.0 million for the quarter ended
September 30, 2004 from $2.6 million for the 2003 quarter. The average balance
of these securities increased to $498.8 million from $482.7 million and the
average yield increased to 3.97% from 2.12% There was an increase in interest
income from investment securities of $893,000 resulting from an increase in the
average balance of these securities to $173.5 million from $20.9 million,
slightly offset by a decrease in the average yield of these securities to 2.36%
for the quarter ended September 30, 2004 from 2.45% for the quarter ended
September 30, 2003. Interest income on other investments decreased by $185,000
due mainly to a decrease in the average balance on these investments to $36.5
million from $142.2 million for the quarters ended September 30, 2004 and 2003,
respectively.
Interest Expense.
Interest expense for the nine months ended September 30, 2004, totaled $43.9
million, an increase of $834,000 from the same period in 2003. The reason for
this increase was a decrease in interest expense on deposits of $244,000, offset
by an increase in interest expense of $1.1 million from the Company's
borrowings. While the average balance of deposits increased to $2.6 billion for
the nine months ended September 30, 2004 compared to $2.2 billion for the nine
months ended September 30, 2003, the cost of those deposits declined to 1.47%
compared to 1.79% for the comparative period. The decline in the cost of
deposits had two principal causes: (a) the Bank's core deposits, which consist
of interest-bearing and non interest-bearing transaction accounts, money market
accounts and passbook accounts increased as a percentage of total deposits to
76.3% at September 30, 2004 from 69.9% at September 30, 2003, and (b) the
majority of the Bank's maturing certificates of deposit repriced in a lower rate
environment. The decrease in interest expense on deposits is offset by a $1.1
million increase in interest expense on advances from the Federal Home Loan Bank
and other borrowings. This increase is caused primarily by an increase in the
average balance of borrowings to $404.4 million from $335.6 million partially
offset by a decrease in the average cost of borrowed funds to 4.94% for the nine
months ended September 30, 2004 from 5.53% for the comparable 2003 period.
Interest expense for the quarter ended September 30, 2004, totaled $15.2
million, an increase of $875,000 from the same quarter in 2003. The reason for
this increase was an increase in interest expense on deposits of $217,000 and an
increase in interest expense from borrowings of $658,000. While the average
balance of deposits increased to $2.7 billion for the quarter ended September
30, 2004 compared to $2.3 billion for the quarter ended September 30, 2003, the
cost of those deposits declined to 1.48% compared to 1.67% for the comparative
quarter. The decline in the cost of deposits had two principal causes: (a) the
Bank's core deposits, which consist of interest-bearing and non interest-bearing
transaction accounts, money market accounts and passbook accounts increased as a
percentage of total deposits from 69.9% at September 30, 2003 to 76.3% at
September 30, 2004, and (b) the majority of the Bank's maturing certificates of
deposit repriced in a lower rate environment. The increase on borrowings expense
is caused primarily by an increase in the average balance of borrowings to
$460.1 million from $332.2 million, offset by a decrease in the average cost of
borrowed funds to 4.61% for the quarter ended September 30, 2004 from 5.59% for
the comparable 2003 quarter.
Net Interest Income.
During the nine months ended September 30, 2004, the Company's interest income
increased by $13.5 million compared to the same period in 2003, while interest
expense increased by $834,000, resulting in net interest income of $76.2 million
for the nine months ended September 30, 2004, a $12.7 million or 20.0% increase
from the nine months ended September 30, 2003.
During the quarter ended September 30, 2004, the Company's interest income
increased by $7.6 million compared to the same quarter in 2003, while interest
expense increased by $875,000, resulting in net interest income of $27.7 million
for the quarter ended September 30, 2004, a $6.7 million or, 31.7% increase from
the quarter ended September 30, 2003.
Provision for Loan Losses.
The provision for loan losses was $2.2 million for the nine months ended
September 30, 2004, compared to $2.0 million for the nine months ended September
30, 2003. Loan charge-offs, net of recoveries were $224,000 for the nine months
ended September 30, 2004, compared to $317,000 for the same period in 2003. The
growth in the allowance is due to growth in the Company's loan portfolio. The
provision for the nine months ended September 30, 2004 is deemed adequate by
management, considering the risks known and inherent in the Bank's loan
portfolio.
The provision for loan losses was $783,000 for the quarter ended September 30,
2004, compared to $558,000 for the quarter ended September 30, 2003. During the
quarter ended September 30, 2004, loan charge-offs, net of recoveries totaled
$150,000 compared to $246,000 for the quarter ended September 30, 2003. The
provision for the quarter ended September 30, 2004 is deemed adequate by
management, reflecting the risks inherent in the Bank's loan portfolio.
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America and, accordingly, allowances
for loan losses are based on management's estimate of the losses inherent in the
loan portfolio. We provide both general valuation allowances (for unspecified,
probable losses) and specific valuation allowances (for known losses) in our
loan portfolio. General valuation allowances are added to the Bank's capital for
purposes of computing the Bank's regulatory risk-based capital. We regularly
review our loan portfolio, including impaired loans, to determine whether any
loans require classification or the establishment of appropriate valuation
allowances. Since we are increasing our origination of commercial business loans
and commercial real estate mortgages and since such loans are deemed to have
more credit risk than residential mortgage loans, our provision for loan losses
is likely to increase in future periods.
Other Income.
Other income for the nine months ended September 30, 2004 was $19.9 million,
representing an increase of $965,000 compared to the same period in 2003. This
increase is due to an increase in fees for other banking services of $1.1
million to $8.5 million from $7.4 million and an increase in service charges on
deposit accounts of $1.3 million to $8.4 million from $7.1 million for the nine
months ended September 30, 2004 and 2003, respectively. The increase in service
charges on deposit accounts was caused primarily by the increase in the number
of core deposit accounts at September 30, 2004 from September 30, 2003.
Offsetting this increase is a decrease in net gain on sale of loans of $3.3
million. The 2003 sales included a gain of $1.5 million on the sale of
approximately $50.0 million of loans from the existing portfolio, which occurred
during the first quarter of 2003. The balance of loan sales in 2003 of $122.0
million generated $2.2 million in net gain, representing the Company's
commencement of loan sales into the secondary markets. The Company initiated the
loan sales program to provide additional non interest income, reduce interest
rate risk and as a capital management tool during 2003. The Company has
principally sold certain of its 30 year, fixed rate, residential mortgage
production. During 2004, our customers have opted to finance principally with 3
to 7 year adjustable rate loans. As a result, the Company has had fewer loans
available for sale in 2004, as compared to 2003. Also contributing to the
increase in other income was a gain on sale of investments of $1.1 million for
the nine months ended September 30, 2004. There were no sales of investment in
the nine months ended September 30, 2003. Miscellaneous other income, which has
increased by $771,000 for the nine months ended September 30, 2004 compared to
the same period in 2003, includes a gain of approximately $400,000 on the sale
of surplus property adjacent to one of the Bank's branches.
Other income for the quarter ended September 30, 2004 was $6.2 million,
representing an increase of $376,000 compared to the same quarter in 2003. The
increase is principally attributable to an increase in fees for other banking
services. Fees for other banking services, which include insurance sales,
increased by $275,000 to $2.8 million from $2.6 million and service charges on
deposit accounts decreased by $217,000 to $2.7 million from $3.0 million for the
quarters ended September 30, 2004 and 2003, respectively. During the quarter
ended September 30, 2004, the Bank's service area experienced two hurricanes.
Management waived many deposit related fees during this period, but has not
identified the specific amount. Other increases include a $81,000 gain on the
sale of securities.
Operating Expense.
Operating expense increased by $8.4 million to $65.1 million for the nine months
ended September 30, 2004 when compared to the same nine month period in 2003. Of
this increase, $3.9 million is attributable to employee compensation and
benefits expense. The increase in compensation costs are principally due to
additional personnel to staff new offices, compensation for expansion of the
company's lending and other income production activities, increased incentive
compensation due to increased profitability, increased commissions on insurance
sales, together with normal salary increases. At September 30, 2004, the Company
employed 760 full time equivalent employees, compared to 724 at September 30,
2003. The increase of $1.8 million in occupancy and equipment costs reflects the
Company's continued expansion of offices and investment in technology to better
serve our customers and includes approximately $250,000 in estimated damages
from hurricanes in the quarter ended September 30, 2004. Miscellaneous operating
costs increased by $2.5 million due mainly to operating the new customer service
facilities, although $1.3 million of the costs are attributable to increased
costs from customer check fraud. Of this amount, $498,000 related to an item
processing conversion, during which amounts were misapplied to customers
accounts. All items were resolved or written off during the quarter ending
September 30, 2004.
Compared to the quarter ending September 30, 2003, operating expense for the
quarter ending September 30, 2004 increased by $3.9 million to $23.1 million. Of
this increase, $1.9 million is attributable to employee compensation and
benefits. Increases in employee compensation and benefits expense were primarily
attributable to an increase in incentive compensation as a result of increased
profitability, additional personnel to serve deposit and loan customers, as well
as production of increased fee based income, together with normal salary
increases. Occupancy and equipment costs and miscellaneous operating costs
increased by $700,000, which mainly reflects the operation of new customer
service facilities but also includes approximately $250,000 in estimated damages
from hurricanes during the quarter. Of the $1.3 million increase in
miscellaneous operating costs, $727,000 is attributable to increased costs from
customer check fraud, including the write off of amounts relating to the item
processing conversion, while approximately $200,000 reflects consultant costs
incurred to enhance other income opportunities and compliance with
Sarbanes-Oxley.
Income Taxes.
The income tax provision was $11.3 million for the nine months ended September
30, 2004 compared to $9.3 million for the nine months ended September 30, 2003.
The provision reflects the current rates paid for Federal and State income taxes
applied to the Company's pre-tax income.
The income tax provision was $3.9 million for the quarter ended September 30,
2004 compared to $2.8 million for the quarter ended September 30, 2003. The
provision reflects the current rates paid for Federal and State income taxes
applied to the Company's pre-tax income.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Market Risk Analysis.
As a holding company for a financial institution, the Company's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense recorded on a
large portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets and interest-bearing liabilities, other than those which
possess a short term to maturity. Since the majority of the Company's
interest-bearing liabilities and nearly all of the Company's interest-earning
assets are held by the Bank, virtually all of the Company's interest rate risk
exposure lies at the Bank level. As a result, all significant interest rate risk
management procedures are performed by management of the Bank. Based upon the
nature of the Bank's operations, the Bank is not subject to foreign currency
exchange or commodity price risk. The Bank's loan portfolio is concentrated
primarily in Palm Beach, Martin and Broward Counties in Florida and is therefore
subject to risks associated with the local economy. As of September 30, 2004,
the Company does not own any trading assets other than $1.2 million of assets
held in trust by the Senior Management Performance Incentive Award Program, a
deferred compensation plan, which can be actively traded by and are held for the
benefit of senior management. Income in these accounts accrues to and losses are
solely absorbed by senior management. At September 30, 2004, the Company does
not have any hedging transactions in place such as interest rate swaps and caps.
Asset and Liability Management-Interest Rate Sensitivity Analysis.
The majority of our assets and liabilities are monetary in nature, which
subjects us to significant interest rate risk. As stated above, the majority of
our interest-bearing liabilities and nearly all of our interest-earning assets
are held by Fidelity Federal Bank & Trust and, therefore, nearly all of our
interest rate risk is at the Fidelity Federal Bank & Trust level.
We monitor interest rate risk by various methods, including "gap" analysis. Gap
analysis attempts to measure the difference between the amount of interest
earning assets expected to mature or reprice within a specific period of time
compared to the amount of interest-bearing liabilities maturing or repricing
within a specified period of time. An interest rate sensitive gap is considered
positive when the amount of interest-earning assets exceeds the amount of
interest-bearing liabilities maturing or repricing within a specified period of
time. An interest rate sensitive gap is considered negative when the amount of
interest-bearing liabilities exceeds the amount of interest-earning assets
maturing or repricing within a specified period of time. Companies with a
positive gap can expect net interest income to increase during periods of rising
interest rates and decline in periods of falling interest rates.
In preparing the gap analysis table below, the Company makes various assumptions
including loan prepayment rates and deposit decay rates. While management
believes these assumptions to be reasonable there can be no assurance that our
assets and liabilities would be impacted as indicated in the table. Certain
shortcomings are inherent in any methodology used in interest rate risk
measurements. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Therefore, in the event of a change in
interest rates, prepayment and early withdrawal levels may possibly deviate
significantly from those assumed in calculating the above table.
Accordingly, while the table provides an estimate of the Bank's interest rate
risk exposure at a particular point in time, it is not intended to provide a
precise forecast of the effect of market changes on the Bank's net interest
income, as actual results may vary.
The Bank's policy in recent years has been to reduce its exposure to interest
rate risk generally by better matching the maturities of its interest rate
sensitive assets and liabilities and by originating ARM loans and other
adjustable rate or short-term loans, as well as by purchasing short-term
investments. However, particularly in a low interest rate environment, borrowers
typically prefer fixed rate loans to ARM loans. The Bank does not solicit
high-rate jumbo certificates or brokered funds.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. As shown in the following
table, the Company's cumulative one-year interest rate sensitivity gap at
September 30, 2004 was a positive 20.76%.
Time to Maturity
----------------------------------------------------------------------------
More Than More Than
One Year Three Years
Within Three Four to Twelve to Three to Five Over Five
Months Months Years Years Years
--------------- ---------------- ------------ ------------- ----------------
(Dollars in Thousands)
Interest-earning assets (1):
Residential mortgage loans: (2)
Fixed rate........................ $ 37,160 $ 101,794 $211,447 $ 144,388 $ 266,467
Adjustable rate................... 116,907 194,214 138,969 218,889 --
Commercial mortgage loans: (2)
Fixed rate........................ 6,086 14,900 29,028 18,677 29,823
Adjustable rate................... 238,443 450,004 4,037 5,565 --
Other loans (2)
Fixed rate 16,768 23,735 28,674 11,626 3,350
Adjustable rate................... 245,059 14,600 -- -- --
Mortgage-backed securities
Fixed rate........................ 17,937 48,804 99,472 66,058 95,267
Adjustable rate................... 6,438 56,421 24,726 33,980 21,650
Municipal bonds and government and
agency securities - fixed rate...... 145 65,616 55,916 54,978 --
Other interest earning assets - adjustable 30,589 -- -- -- --
---------- ---------- -------- --------- ---------
Total $ 715,532 $ 970,088 $592,269 $554,161 $ 416,557
========== ========= ======== ========= =========
Interest-bearing liabilities
Deposits: (3)
Checking and funds transfer accounts $ 20,221 $ 60,664 $ 79,596 $ 59,670 $ 743,432
Passbook accounts................. 21,314 63,942 127,773 90,279 441,940
Money market accounts............. 13,135 39,405 55,553 34,948 208,630
Certificate accounts (4).......... 135,213 283,094 190,615 29,715 --
Borrowings: (4)..................... 198,820 134,635 52,123 64,208 29,773
---------- --------- --------- -------- ----------
Total $ 388,703 $ 581,740 $ 505,660 $ 278,820 $1,423,775
========== ========= ========= ========= ==========
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities........................... $ 326,829 $ 388,348 $ 86,609 $ 275,341 $(1,007,218)
========== ========= ========= ========== ===========
Cumulative excess of interest-earning
assets over interest-bearing
liabilities........................... $ 326,829 $ 715,177 $801,786 $1,077,127 $ 69,909
========== ========= ======== ========== ==========
Cumulative excess of interest-earning
assets over interest-bearing liabilities
as a percent of total assets 9.49% 20.76% 23.28% 31.27% 2.03%
=========== ========== ========= =========== ==========
(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due. Fixed rate assets are included in the periods in which
they are scheduled to be repaid based on scheduled amortization. In both
cases, amounts are adjusted to reflect estimated prepayments. For this
table, all loans and mortgage-backed securities were assigned a 15%
prepayment rate.
(2) Balances are shown net of loans in process and are not adjusted for
premiums, discounts, reserves and unearned fees.
(3) All of the Company's non-certificate deposits are generally subject to
immediate withdrawal. However, in preparation of thistable the Company has
used national decay rates calculated by a leading Bank consulting firm.
These national decay rates consider a significant portion of these accounts
to be core deposits having longer effective maturities based on the firm's
calculations of national average deposit runoff. These decay rates may be
different than the actual decay rates experienced by the Company.
4) Certificate accounts and Borrowings are assumed to have no prepayments and
are shown in the period in which they contractually mature.
Liquidity and Capital Resources.
The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The Bank's liquidity ratio averaged 7.40% during the
month of September 30, 2004. Liquidity ratios averaged 8.91% for the quarter
ended September 30, 2004. The Bank adjusts its liquidity levels in order to meet
funding needs of loan originations, deposit outflows, payment of real estate
taxes on mortgage loans, and repayment of borrowings and loan commitments. The
Bank also adjusts liquidity as appropriate to meet its asset and liability
management objectives.
The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed securities and other short-term investments, as well
as earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions and competition. The Bank manages
the pricing of its deposits to maintain a desired deposit balance. In addition,
the Bank invests excess funds in short-term interest-earning and other assets,
which provide liquidity to meet lending requirements. Short-term
interest-bearing deposits with the FHLB of Atlanta amounted to $11.3 million at
September 30, 2004. Other assets qualifying for liquidity at September 30, 2004,
including unpledged mortgage-backed securities guaranteed by Fannie Mae and
Freddie Mac, were $193.9 million. For additional information about cash flows
from the Company's operating, financing and investing activities, see the
Unaudited Consolidated Statements of Cash Flows included in the Unaudited
Consolidated Financial Statements. The primary sources of cash are net income,
principal repayments on loans and mortgage-backed securities, increases in
deposit accounts and advances from the FHLB.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, borrowing agreements exist with the FHLB which provide an additional
source of funds. At September 30, 2004, the Bank had $385.3 million in advances
from the FHLB. At September 30, 2004, the Bank had commitments outstanding to
originate or purchase loans of $315.3 million. This amount does not include the
unfunded portion of loans in process. Certificates of deposit scheduled to
mature in less than one year at September 30, 2004 totaled $418.0 million. Based
on prior experience, management believes that a significant portion of such
deposits will remain with the Bank.
Contractual Obligations and Commercial Commitments
Our long-term debt, which in the aggregate totals $437.6 million, consists of
obligations to the FHLB totaling $385.3 million and $52.3 million in obligations
resulting from the issuance of trust preferred securities from Fidelity Capital
Trust I in January 1998 as well as Fidelity Capital Trust II in December 2003.
The obligations arising from the issuance of trust preferred securities,
presented as Guaranteed Preferred Beneficial Interests in Company Debentures in
our balance sheet at September 30, 2004 are due in the amount of $29.6 million
in January, 2028 and $22.7 million in January 2034. In addition, we have
leasehold obligations for the next 49 years totaling $25.1 million.
On October 20, 2004, the Company received the net proceeds, approximately $29.9
million, from the issuance of trust preferred securities through Fidelity
Capital Trust III that will bear interest at the same rate as the three month
LIBOR plus 1.97%. These securities mature in 2034. The proceeds from this
issuance will be used to redeem the securities issued from Fidelity Capital
Trust I, due in January 2028. The redemption of securities issued under Fidelity
Capital Trust I is expected to occur on November 24, 2004. As a result of this
redemption, the Company will incur a charge against income in the fourth quarter
of 2004, resulting from the write off of $1.1 million unamortized, deferred
issuance costs, pertaining to Fidelity Capital Trust I.
The tables below summarize the Company's contractual obligations, commercial and
other commitments at September 30, 2004.
Payments Due by Period
----------------------------------------------------------------------------
Less Than After 5
Total 1 year 1-3 Years 3-5 Years Years
------------ ----------- ------------- ----------- ----------
(In Thousands)
Long-term Debt(1)................ $437,570 $269,715 $ 52,430 $ 62,911 $ 52,514
Operating Lease Obligations...... 25,138 1,899 3,994 3,708 15,537
---------- ---------- ---------- --------- --------
Total Contractual Cash Obligations $ 462,708 $ 271,614 $ 56,424 $ 66,619 $ 68,051
========== ========== ========== ========= ========
(1) Includes advances from the Federal Home Loan Bank and Guaranteed Preferred
Beneficial Interests in Debentures.
Commercial and Other Commitments
Amount of Commitment Expirations per Period
-----------------------------------------------------------------------------
Less Than After 5
Total 1 year 1-3 Years 3-5 Years Years
------------ ----------- ------------- ----------- ----------
(In Thousands)
Lines of Credit(1)............... $219,671 $ 5,845 $ 8,975 $ 33,374 $171,477
Standby Letters of Credit........ 9,413 8,846 562 -- 5
Other Commercial Commitments..... 177,205 177,205 -- -- --
Other Commitments................ 115,769 115,769 -- -- --
---------- ---------- ---------- ---------- ----------
Total Contractual Cash Obligations $ 522,058 $ 307,665 $ 9,537 $ 33,374 $171,482
========== ========== ========= ========== ==========
(1) Includes $203.0 million in undisbursed lines of credit.
New Accounting Pronouncements
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities" which addresses consolidation of variable interest entities ("VIEs")
certain of which are also referred to as special purpose entities ("SPEs"). The
FASB revised FIN 46 in December 2003. VIEs are entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. Under the
provisions of FIN 46, a company is to consolidate a VIE if the company has a
variable interest (or combination of variable interests) that will absorb a
majority of the VIE's expected losses if they occur, receive a majority of the
VIE's expected returns if they occur, or both. The implementation of FIN 46 is
required for public entities at the end of the first interim period ending after
March 15, 2004 if the VIE was created before February 1, 2003, with early
adoption allowed, and immediately for entities created after February 1, 2003.
The Company early adopted FIN 46 and has deconsolidated the Fidelity Capital
Trust I at December 31, 2003. The deconsolidation of Fidelity Capital Trust I
did not have a material impact on the Company's consolidated financial position
or results of operations.
In November 2003, the EITF reached a consensus on the disclosure provisions of
EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments." EITF No. 03-1 requires that certain
quantitative and qualitative disclosures be made for certain debt securities
classified as available-for-sale under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," that are impaired at the balance
sheet date but for which an other-than-temporary impairment has not been
recognized. Debt securities within the scope of EITF Issue No. 99-20, are not
subject to these disclosure provisions. The disclosures are required for fiscal
years ending after December 15, 2003, and accordingly the Company has adopted
the disclosure provisions of EITF No. 03-1 for the year ended December 31, 2003.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the fiscal year (the "Evaluation Date"). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, except as set forth below as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic SEC filings.
Based upon an evaluation of the Bank's check imaging project which was
implemented in November 2003, the Chief Financial Officer has concluded that the
procedures for the reconciliation and resolution of out of balance conditions is
inadequate. The Bank is currently in the process of improving its procedures in
this area. The deficiency in procedures did not have a material effect on the
Bank's financial condition and all costs associated with the deficiency have
been reflected in the Bank's results of operation.
(b) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
FIDELITY BANKSHARES, INC.
AND SUBSIDIARY
Part II - Other Information
Item 1 Legal Proceedings
There are various claims and lawsuits in which Fidelity Federal Bank &
Trust is periodically involved incident to our business. Other than as set
forth below, we believe these legal proceedings, in the aggregate, are not
material to our financial condition or results of operations.
On July 1, 2003, Fidelity Federal Bank & Trust was named as defendant in
the lawsuit, James Kehoe v. Fidelity Federal Bank & Trust, filed in the
United States District Court for the Southern District of Florida. In this
action, James Kehoe ("Kehoe"), on behalf of himself and other similarly
situated persons, has alleged that Fidelity Federal violated the Driver
Privacy Protection Act by obtaining driver registration information from
the State of Florida for use in its marketing efforts. Kehoe sought as
damages a statutory minimum of $2,500.00 per violation on behalf of the
class of plaintiffs. On June 14, 2004, the Court granted Fidelity Federal's
Motion for Summary Judgment and entered a Final Judgment in favor of the
bank against Mr. Kehoe. A Notice of Appeal was filed by Mr. Kehoe's lawyers
on June 28, 2004. Fidelity Federal, in consultation with counsel, has
concluded that the lawsuit is without merit and intends to defend against
the Plaintiff's Appeal of the Court's Final Judgment in the bank's favor.
On December 31, 2003, Fidelity Federal Bank & Trust was named as defendant
in two lawsuits, Kenneth A. Welt, as Chapter 7 Trustee vs. Fidelity Federal
Bank & Trust. The two lawsuits have been brought by the same plaintiff in
the Circuit Court in the Fifteenth Judicial Circuit in and for Palm Beach
County and also in the United States Bankruptcy Court Southern District of
Florida, West Palm Beach Division. The plaintiff has alleged that the Bank
knew or should have known that the bankrupt Thomas Abrams through various
corporate plaintiff's, including The Phoenix Financial Group, Phoenix
Administrative Services, Inc., and Swiss Capital Management Ltd., was
operating a "Ponzi Scheme".. These suits were settled on October 14, 2004
by the parties, subject to approval by the Bankruptcy Court which should
occur in November or December of 2004. The settlement amounts will have no
material effect on Fidelity earnings.
On February 18, 2004, Fidelity Federal Bank & Trust was named as defendant
in a lawsuit William Adams et al., vs. Thomson Financial, Inc., Fidelity
Federal Bank & Trust, N.A., Fidelity Investments Services, L.L.C., d/b/a
Fidelity Investments, National Financial Services, L.L.C., f/k/a National
Financial Services Corporation, Zoe Marrero, filed in the Fifteenth
Judicial Circuit in and for Palm Beach County, Florida. The plaintiffs in
this case have alleged various causes of action against numerous defendants
which arise from plaintiff's investments in various Abrams entities. The
factual allegations are almost identical to those set forth in Kenneth A.
Welt as Chapter 7 Trustee vs. Fidelity Federal Bank & Trust. Fidelity
Federal Bank & Trust is a named defendant in one count of the complaint
alleging aiding and abetting breaches of fiduciary duty. The allegations
are based upon Fidelity Federal Bank & Trust allowing Abrams to set up
accounts with the Bank, deposit monies in them, issue bank checks based
upon the deposits and generally offering banking services to the Abrams
entities. Additionally, there are allegations that the Bank solicited
clients for the Abrams entities and pressured clients to place deposits
with the Abrams entities and the Bank. There is no specific request for
damages, other than the jurisdictional amount of in excess of $15,000.00.
The losses incurred by the plaintiff are as of yet undetermined. The Bank
has moved to dismiss the complaint and in consultation with counsel, has
concluded that the claims made by the plaintiffs on behalf of the
bankruptcy corporation are without merit and the Bank intends to vigorously
defend itself in the suit.
Item 2 Changes in Securities and Stock Repurchases
None.
Item 3 Default Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6 Exhibits and Reports on Form 8-K
31.1 302 Certification
31.2 302 Certification
32.1 906 Certification
On October 19, 2004 the Company filed a Form 8-K to report its September
30, 2004 quarterly earnings. Item 6 Exhibits 31.1, 31.2 and 32.1
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Vince A. Elhilow, President and Chief Executive Officer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Fidelity Bankshares,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting;
November 8 , 2004 /s/ Vince A. Elhilow
- --------------------- ------------------------------------------
Date Vince A. Elhilow
President and Chief Executive Officer
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Richard D. Aldred, Executive Vice President, Chief Financial Officer and
Treasurer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Fidelity Bankshares,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting;
November 8 , 2004 /s/ Richard D. Aldred
- --------------------- ----------------------------------
Date Richard D. Aldred
Executive Vice President,
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Vince A. Elhilow, President and Chief Executive Officer and Richard D. Aldred,
Executive Vice President, Chief Financial Officer and Treasurer of Fidelity
Bankshares, Inc. (the "Company") each certify in his capacity as an officer of
the Company that he has reviewed the annual report of the Company on Form 10-Q
for the fiscal period ended September 30, 2004 and that to the best of his
knowledge:
(1) the report fully complies with the requirements of Sections 13(a) of the
Securities Exchange Act of 1934; and
(2) the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the United States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
November 8, 2004 /s/ Vince A. Elhilow
- -------------------- ------------------------------------------
Date President and Chief Executive Officer
November 8, 2004 /s/ Richard D. Aldred
- -------------------- ------------------------------------------
Date Executive Vice President, Chief Financial
Officer and Treasurer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
FIDELITY BANKSHARES, INC.
Date: November 8, 2004 By: /s/ Vince A. Elhilow
-------------------------------------
Vince A. Elhilow
President and Chief Executive Officer
Date: November 8, 2004 /s/ Richard D. Aldred
-------------------------------------
Richard D. Aldred
Executive Vice President
Chief Financial Officer