UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PUSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2003
-----------------
[ ] 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 0-22288
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Fidelity Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1705405
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1009 Perry Highway, Pittsburgh, Pennsylvania, 15237
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(Address of principal executive offices)
412-367-3300
-----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 No X
--- ---
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: 2,441,308 shares, par value
---------------------------
$0.01, at January 31, 2004
- --------------------------
FIDELITY BANCORP, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as 1
of December 31, 2003 and September 30, 2003
Consolidated Statements of Income for the Three Months Ended 2
December 31, 2003 and 2002
Consolidated Statements of Cash Flows for the Three 3-4
Months Ended December 31, 2003 and 2002
Consolidated Statements of Changes in Stockholders' 5
Equity for the Three Months Ended December 31,
2003 and 2002
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 23
Part II - Other Information
Item l. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24-25
Signatures 26
Part I - Financial Information
Item 1. Financial Statements
FIDELITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(in thousands except share data)
December 31, September 30,
Assets 2003 2003
------ ---- ----
Cash and due from banks $ 8,927 $ 7,662
Interest-bearing demand deposits with other institutions 2,442 330
--------- ---------
Cash and Cash Equivalents 11,369 7,992
Securities available-for-sale 191,500 192,429
(book value of $188,595 and $189,382)
Securities held-to-maturity 121,961 119,962
(fair value of $123,159 and $121,652)
Loans held for sale 70 286
Loans receivable, net of allowance $3,114 and $3,091 270,678 264,412
Foreclosed real estate, net 672 675
Restricted investments in bank stock, at cost 10,569 10,447
Office premises and equipment, net 5,654 5,834
Accrued interest receivable 3,395 3,408
Other assets 11,425 12,023
--------- ---------
Total Assets $ 627,293 $ 617,468
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 28,083 $ 27,406
Interest bearing 339,055 338,720
--------- ---------
Total Deposits 367,138 366,126
Short-term borrowings 56,383 38,101
Guaranteed preferred beneficial interest in
Company's debentures 10,000 10,000
Securities sold under agreement to repurchase 5,035 5,943
Advance payments by borrowers for taxes and insurance 2,382 1,179
Other liabilities 3,042 3,216
Long-term debt 142,608 152,708
--------- ---------
Total Liabilities 586,588 577,273
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share,
10,000,000 shares authorized; 2,821,600
and 2,805,291 shares issued, respectively 28 28
Paid-in capital 29,126 28,960
Retained earnings 16,949 16,388
Accumulated other comprehensive income, net of tax 1,917 2,011
Treasury stock, at cost - 386,492 and 381,492
shares (7,315) (7,192)
--------- ---------
Total Stockholders' Equity 40,705 40,195
--------- ---------
Total Liabilities and Stockholders' Equity $ 627,293 $ 617,468
========= =========
See accompanying notes to unaudited consolidated financial statements.
-1-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
---------------------------------------------
(in thousands, except per share data)
Three Months Ended
December 31,
------------
2003 2002
---- ----
Interest income:
Loans $4,331 $5,755
Mortgage-backed securities 926 1,373
Investment securities - taxable
1,320 1,042
Investment securities - tax-exempt 603 632
Other 1 49
------ ------
Total interest income 7,181 8,851
------ ------
Interest expense:
Deposits 2,041 2,428
Short-term borrowings 158 27
Long-term debt 1,820 2,682
Guaranteed preferred beneficial interest in
Company's debentures 119 830
------ ------
Total interest expense 4,138 5,967
------ ------
Net interest income before provision for loan losses 3,043 2,884
Provision for loan losses 50 330
------ ------
Net interest income after provision for loan losses 2,993 2,554
------ ------
Other income:
Loan service charges and fees
97 132
Realized gain on sales of investment securities, net 89 227
Writedown of securities -- --
Gain on sales of loans
17 107
Deposit service charges and fees 355 322
Other 308 263
------ ------
Total other income 866 1,051
------ ------
Operating expenses:
Compensation and benefits 1,765 1,662
Office occupancy and equipment expense 233 191
Depreciation and amortization 197 169
Net loss on foreclosed real estate 2 8
Amortization of intangible assets 14 8
Other 576 574
------ ------
Total operating expenses 2,787 2,612
------ ------
Income before income tax provision 1,072 993
Income tax provision 220 218
------ ------
Net income $ 852 $ 775
====== ======
Basic earnings per common share $ .35 $ .30
====== ======
Diluted earnings per common share $ .33 $ .29
====== ======
Dividends per common share $ .12 $ .109
====== ======
See accompanying notes to unaudited consolidated financial statements
-2-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
(in thousands)
Three Ended December 31,
2003 2002
---- ----
Operating Activities:
- --------------------
Net income $ 852 $ 775
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 50 330
Loss on foreclosed real estate 2 8
Depreciation of premises and equipment 197 169
Deferred loan fee amortization (55) (198)
Amortization of investment and mortgage-backed securities
discounts/premiums, net 533 227
Amortization of intangibles 14 8
Net gain on sale of securities (113) (227)
Net gain on sale of loans (17) (107)
Origination of loans held-for-sale (190) (5,564)
Proceeds from sale of loans held-for-sale 423 6,383
Decrease in interest receivable 13 374
Increase in prepaid income taxes 24 409
Decrease in interest payable (226) (446)
Write-off of unamortized debt issuance costs -- 599
Writedown of investment securities 30 --
Increase in cash surrender value of life insurance policies (49) (52)
Other changes, net 709 915
-------- --------
Net cash provided by (used in) operating activities 2,197 3,603
-------- --------
Investing Activities:
- --------------------
Proceeds from sales of investment securities available-for-sale 1,455 2,731
Proceeds from maturities and principal repayments of
investment securities available-for-sale 1,005 --
Purchases of investment securities available-for-sale (6,905) (2,027)
Proceeds from sales of mortgage-backed securities available-for-sale 173 --
Proceeds from maturities and principal repayments of mortgage-
backed securities available-for-sale 12,246 18,008
Purchases of mortgage-backed securities available-for-sale (7,437) (27,302)
Purchases of investment securities held-to-maturity (7,000) (9,565)
Proceeds from maturities and principal repayments of
investment securities held-to-maturity 1,250 6,795
Purchases of mortgage-backed securities held-to-maturity (3,023) (18,357)
Recission of purchase of mortgage-backed securities held-to-maturity (Note 5) -- --
Proceeds from principal repayments of mortgage-backed
securities held-to-maturity 6,604 10,412
Net (increase) decrease in loans (6,290) 14,582
Proceeds from sale of other loans -- 51
Net purchases of FHLB stock (122) (41)
Proceeds from sale of office premises and equipment 30 --
Additions to office premises and equipment (47) (35)
Net cash received in acquisition of First Pennsylvania Savings -- 7,154
-------- --------
Net cash provided by (used in) investing activities (8,061) 2,406
-------- --------
Continued on page 4.
-3-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONT'D.)
-------------------------------------------------
(in thousands)
Three Months Ended December 31,
2003 2002
---- ----
Financing Activities:
- --------------------
Net increase (decrease) in deposits 1,012 (1,156)
Decrease in reverse repurchase agreements (908) (545)
Net increase (decrease) in short-term borrowings 18,282 10,806
Gross increase in long-term borrowings -- 52
Repayments of long-term borrowings (10,100) (15,000)
Trust preferred securities retired -- (10,250)
Proceeds from sale of stock in conjunction with the First PA merger -- 1,570
Increase in advance payments by borrowers for taxes and insurance 1,203 1,861
Cash dividends paid and cash paid in lieu of fractional shares (291) (280)
Stock options exercised 140 134
Proceeds from sale of stock through Dividend Reinvestment Plan 32 23
Contribution of stock to Employee Stock Ownership Plan 117 --
Purchase of treasury stock (246) --
-------- --------
Net cash provided by (used in) financing activities 9,241 (12,785)
-------- --------
Increase (decrease) in cash and cash equivalents 3,377 (6,776)
Cash and cash equivalents at beginning of period 7,992 23,834
-------- --------
Cash and cash equivalents at end of period $ 11,369 $ 17,058
======== ========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest on deposits and other borrowings $ 4,356 $ 6,350
Income taxes $ -- $ 4
-------- --------
Supplemental Schedule of Noncash Investing and Financing Activities
- -------------------------------------------------------------------
Transfer of loans to foreclosed real estate $ 29 $ --
-------- --------
Securities purchased, but not settled $ -- $ --
-------- --------
The Company acquired First Pennsylvania Savings Association
for $161,000. In conjunction with the acquisition,
the assets acquired and liabilities assumed as follows:
Fair value of assets acquired $ -- $ 26,767
Fair value of liabilities assumed $ -- $(26,928)
-------- --------
Liabilities assumed in excess of assets acquired $ -- $ (161)
-------- --------
See accompanying notes to unaudited consolidated financial statements.
-4-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
Accumulated
Other
Additional Comprehensive
Common Paid-in Treasury Retained Income
Stock Capital Stock Earnings Net of Tax Total
====================================================================================================================
Balance at September 30, 2002 $ 25 $ 22,564 $ (2,358) $ 19,176 $ 3,173 $ 42,580
Comprehensive income:
Net income 775 775
Other comprehensive income,
net of tax of ($166) (322) (322)
Reclassification adjustment,
net of tax of ($77) (150) (150)
----- -------- -------- -------- ------- --------
Total comprehensive income -- -- -- 775 (472) 303
Issuance of stock in connection with
acquisition of First Pennsylvania 130 1,208 1,338
Cash divdiends declared (280) (280)
Sale of stock through Dividend
Reinvestment Plan 23 23
Stock options exercised -- 134 134
----- -------- -------- -------- ------- --------
Balance at December 31, 2002 $ 25 $ 22,851 $ (1,150) $ 19,671 $ 2,701 $ 44,098
===== ======== ======== ======== ======== ========
Balance at September 30, 2003 $ 25 $ 28,960 $ (7,192) $ 16,388 $ 2,011 $ 40,195
Comprehensive income:
Net income 852 852
Other comprehensive income,
net of tax of ($18) (35) (35)
Reclassification adjustment,
net of tax of ($30) (59) (59)
----- -------- -------- -------- ------- --------
Total comprehensive income -- -- -- 852 (94) 758
Cash divdiends declared (291) (291)
Treasury stock purchased -
10,0000 shares (246) (246)
Contributions of stock to ESOP
(5,000 shares) (6) 123 117
Sale of stock through Dividend
Reinvestment Plan 32 32
Stock options exercised 140 -- 140
----- -------- -------- -------- ------- --------
Balance at December 31, 2003 $ 28 $ 29,126 $ (7,315) $ 16,949 $ 1,917 $ 40,705
===== ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
-5-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
DECEMBER 31, 2003
(1) Consolidation
-------------
The consolidated financial statements contained herein for Fidelity Bancorp,
Inc. (the "Company") include the accounts of Fidelity Bancorp, Inc. and its
wholly-owned subsidiaries, Fidelity Bank, PaSB (the "Bank"), FB Capital Trust
and FB Statutory Capital Trust II (collectively, the "Trusts"). All
inter-company balances and transactions have been eliminated.
(2) Basis of Presentation
---------------------
The accompanying consolidated financial statements were prepared in accordance
with instructions to Form 10-Q, and therefore, do not include information or
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, all normal recurring adjustments, which, in the opinion of
management, are necessary for a fair presentation of the financial statements,
have been included. These financial statements should be read in conjunction
with the audited financial statements and the accompanying notes thereto
included in the Company's Annual Report for the fiscal year ended September 30,
2003. The results for the three month period ended December 31, 2003 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2004 or any future interim period.
(3) New Accounting Standards
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". This Statement amends FASB Statement No. 123 to provide alternative
methods of transition for voluntary change to the fair value based method of
accounting for stock-based employee compensation. This Statement also amends the
disclosure requirements of Statement 123 to require prominent disclosure on both
annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The transition alternatives of SFAS 148 are available for fiscal years beginning
after December 15, 2003 and, if the fair value provisions of SFAS 123 are
adopted, the effect on the Company's financial statements is contingent on the
transition provision elected.
-6-
At December 31, 2003, the Company had several stock-based employee and director
compensation plans, which are described in Note 13 in the Company's 2003 Annual
Report. All options granted under these plans have an exercise price equal to
the market value of the underlying common stock on the date of grant. The
Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Accordingly, no compensation expense has been
recognized for its stock option plans. However, as required to be disclosed by
SFAS No. 148, the following table illustrates the pro forma effect on income and
earnings per share if the fair value based method had been applied to the
Company's stock option plans.
For the three months
ended December 31,
2003 2002
---- ----
Net income, as reported $ 852 $ 775
Add: Stock-based compensation expense included in
reported net income, net of tax -- --
Deduct: Compensation expense from stock options,
determined under fair value based method, net of tax (9) (5)
------- -------
Pro forma net income $ 843 $ 770
======= =======
Earnings per share:
Basic - as reported $ .35 $ .30
Basic - pro forma $ .35 $ .30
Diluted - as reported $ .33 $ .29
Diluted - pro forma $ .33 $ .29
The Black-Scholes option pricing model requires the use of subjective
assumptions which can materially affect fair value estimates. Therefore, this
model does not necessarily provide a reliable single measure of the fair value
of the Company's stock options.
In November 2002, the Financial Accounting Standards Board issued FASB
interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This Interpretation expands the disclosures to be made by a guarantor
in its financial statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value of an
obligation assumed under certain specified guarantees. Under FIN 45, the Company
does not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit. Adoption of FIN 45 did not
have a significant impact on the Company's financial condition or results of
operations.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". FIN 46 was revised in December 2003. This
interpretation provides new guidance for the consolidation of variable interest
entities (VIEs) and requires such entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risk among parties
involved. The interpretation also adds disclosure requirements for investors
that are involved with unconsolidated VIEs. The disclosure requirements apply to
all financial statements issued after December 31, 2003. The consolidation
requirements apply to companies that have interests in special-purpose entities
for periods ending after December 15, 2003. Consolidation of other types of VIEs
is required in financial statements for periods ending after March 15, 2004.
-7-
In its current form, FIN 46 may require Fidelity Bancorp, Inc. to deconsolidate
its investment in FB Statutory Trust II (the Trust) on the March 15, 2004,
effective date. The potential deconsolidation of subsidiary trusts of bank
holding companies formed in connection with the issuance of trust preferred
securities, like the Trust, appears to be an unintended consequence of FIN 46.
It is currently unknown if, or when, the FASB will address this issue. In July
2003, the Board of Governors of the Federal Reserve System issued a supervisory
letter instructing bank holding companies to continue to include the trust
preferred securities in their Tier 1 capital for regulatory capital purposes
until notice is given to the contrary. The Federal Reserve intends to review the
regulatory implications of any accounting treatment changes and, if necessary or
warranted, provide further appropriate guidance. If the outcome is that the
Trust is no longer included in consolidated results, the Corporation will still
meet all regulatory capital requirements.
(4) Earnings Per Share
------------------
Basic earnings per share (EPS) excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. All weighted average
share and per share amounts reflect the 10% stock dividends paid on May 28, 2002
and May 28, 2003. The following table sets forth the computation of basic and
diluted earnings per share (amounts in thousands, except per share data):
Three Months Ended
December 31,
2003 2002
------ ------
Numerator:
Net Income $ 852 $ 775
------ ------
Numerator for basic and diluted
earnings per share $ 852 $ 775
------ ------
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,428 2,588
Effect of dilutive securities:
Employee stock options 149 81
------ ------
Denominator for diluted earnings per share -
weighted average
Shares and assumed conversions 2,577 2,669
------ ------
Basic earnings per share $ .35 $ .30
------ ------
Diluted earnings per share $ .33 $ .29
------ ------
-8-
(5) Securities
----------
The Company accounts for investments in debt and equity securities in accordance
with SFAS No. 115, which requires that investments be classified as either: (1)
Securities Held-to-Maturity - reported at amortized cost, (2) Trading Securities
- - reported at fair value, or (3) Securities Available-for-Sale - reported at
fair value. Unrealized gains and losses on securities available-for-sale are
reported as accumulated other comprehensive income (loss) in stockholders'
equity. Unrealized gains of $1.9 million, net of tax, on investments classified
as available-for-sale are recorded at December 31, 2003. The Company had no
securities classified as trading as of December 31, 2003 and September 30, 2003.
(6) Loans Receivable
----------------
Loans receivable are comprised of the following (dollar amounts in
thousands):
December 31, September 30,
2003 2003
-------- --------
First mortgage loans:
Conventional:
1-4 family dwellings $107,147 $107,122
Multi-family dwellings 6,116 5,299
Commercial 51,288 46,757
Construction:
Residential 10,460 10,669
Commercial 4,831 4,539
-------- --------
179,842 174,386
-------- --------
Less:
Loans in process (10,916) (9,499)
Unearned discounts and fees (673) (691)
-------- --------
168,253 164,196
-------- --------
Installment loans:
Home equity 66,548 63,777
Consumer loans 905 980
Other 2,552 2,575
-------- --------
70,005 67,332
-------- --------
Commercial business loans and leases:
Commercial business loans 33,623 33,776
Commercial leases 1,911 2,199
-------- --------
35,534 35,975
-------- --------
Less: Allowance for loan losses (3,114) (3,091)
-------- --------
Loans receivable, net $270,678 $264,412
-------- --------
-9-
(7) Allowance for Loan Losses
-------------------------
Changes in the allowance for loan losses for the three months ended December 31,
2003 and the fiscal year ended September 30, 2003 are as follows (dollar amounts
in thousands):
December 31, September 30,
2003 2003
---- ----
Balance at beginning of period $ 3,091 $ 3,056
Allowance for loan losses of First Pennsylvania Savings -- 40
Provision for loan losses 50 555
Charge-offs (44) (624)
Recoveries 17 64
------- --------
Balance at end of period $ 3,114 $ 3,091
------- -------
The provision for loan losses charged to expense is based upon past loan loss
experience and an evaluation of probable losses in the current loan portfolio,
including the evaluation of impaired loans under SFAS Nos. 114 and 118. A loan
is considered to be impaired when, based upon current information and events, it
is probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan. An insignificant shortfall in payments does
not necessarily result in a loan being identified as impaired. For this purpose,
delays less than 90 days are considered to be insignificant.
Impairment losses are included in the provision for loan losses. SFAS Nos. 114
and 118 do not apply to large groups of smaller balance, homogeneous loans that
are collectively evaluated for impairment, except for those loans restructured
under a troubled debt restructuring. Loans collectively evaluated for impairment
include consumer loans and residential real estate loans, and are not included
in the following data.
At December 31, 2003, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $2.4 million compared to $1.3 million at
December 31, 2002. Included in the current amount is $704,000 of impaired loans
for which the related allowance for loan losses is $47,000, and $1.7 million of
impaired loans that as a result of applying impairment tests prescribed under
SFAS No. 114, do not have an allowance for loan losses. The average recorded
investment in impaired loans during the three months ended December 31, 2003 was
$2.2 million compared to $1.6 million for the same period in the prior year. For
the three months ended December 31, 2003, the Company recognized $9,500 of
interest income on impaired loans using the cash basis of income recognition.
The Company recognized no interest income on impaired loans during the three
month period ended December 31, 2002.
(8) Comprehensive Income
---------------------
Total comprehensive income amounted to the following for the three months ended
December 31 (dollar amounts in thousands):
Three Months Ended
December 31,
----------------------
2003 2002
------- ------
Net Income $ 852 $ 775
Change in unrealized gains (losses) on investment
securities and mortgage-backed securities available for
sale, net of taxes $ (94) $(472)
------- ------
Comprehensive income $ 758 $ 303
====== =====
-10-
(9) Acquisition
-----------
On July 12, 2002, the Company and First Pennsylvania Savings Association ("First
Pennsylvania) jointly announced the signing of an Agreement and Plan of Merger
Conversion, whereby it was agreed that First Pennsylvania would merge with and
into the Bank. On September 30, 2002, the agreement was amended to require an
offering of stock of the Company to certain members of First Pennsylvania.
Pursuant to the amended agreement, First Pennsylvania converted to a
Pennsylvania-chartered stock savings institution and simultaneously merged with
and into the Bank on December 31, 2002 and the Bank acquired all of the assets
and assumed all of the liabilities of First Pennsylvania for no additional
consideration. Liabilities assumed exceeded assets acquired by $161,000.
Additionally, in connection with the merger, the Company sold approximately
98,560 shares at $15.93 per share of its common stock to certain members of
First Pennsylvania and the Company's employee stock ownership plan in a
subscription offering and to the Company's stockholders and certain members of
the community in a stockholder and community offering.
The acquisition was accounted for under the purchase method of accounting and,
accordingly, the results of operations of First Pennsylvania have been included
in the Company's consolidated financial statements from December 31, 2002. The
Company acquired loans with a fair value of approximately $6.8 million,
investment and mortgage-backed securities with a fair value of $11.8 million,
deposits with a fair value of approximately $12.3 million and Federal Home Loan
Bank advances with a fair value of approximately $13.9 million in the
transaction. Goodwill and core deposit intangibles arising from the transaction
were approximately $161,000.
-11-
(10) Goodwill and Other Intangible Assets - Adoption of Statement 142
----------------------------------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations", and Statement No. 142, "Goodwill and Other Intangible
Assets". Statement No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. Statement
No. 141 also specifies certain criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill, noting that any purchase price allocable to an assembled
workforce may not be accounted for separately. Statement No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer need to be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement No. 142. Statement No. 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual value, and reviewed for
impairment in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company adopted Statement No. 142 as of
October 1, 2002 and, as a result, no longer amortizes goodwill, but will test
goodwill for impairment on an annual basis. The Company performed the initial
goodwill impairment test during the quarter ended March 31, 2003 and it was
determined that no adjustments were required. The following table sets forth net
income and earnings per share for the three-month period ended December 31, 2003
and 2002 excluding the effects of goodwill amortization.
Three months ended
December 31,
2003 2002
-----------------------
Reported net income $ 852 $ 775
Add back: Goodwill amortization -- --
------- -------
Adjusted net income $ 852 $ 775
------- -------
Basic earnings per share:
Reported net income $ .35 $ .30
Goodwill amortization -- $ --
------- -------
Adjusted net income $ .35 $ .30
------- -------
Diluted earnings per share:
Reported net income $ .33 $ .29
Goodwill amortization -- $ --
------- -------
Adjusted net income $ .33 $ .29
------- -------
(11) Stockholders' Equity
--------------------
Certain reclassifications have been made to the components of stockholders'
equity as of September 30, 2002. The reclassifications reflect the recording of
stock dividends at fair market value instead of par value as previously
recorded. The net cumulative effect of the reclassification was to increase
additional paid-in capital and to decrease retained earnings by $7.1 million at
September 30, 2002.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FIDELITY BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of integrating newly
acquired businesses, the ability to control costs and expenses, and general
economic conditions.
Fidelity Bancorp, Inc.'s ("Fidelity" or the "Company") business is conducted
principally through Fidelity Bank (the "Bank"). All references to the Company
refer collectively to the Company and the Bank, unless the context indicates
otherwise.
Overview
- --------
On December 31, 2002, the Company completed its acquisition of First
Pennsylvania Savings Association ("First Pennsylvania"). The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
results of operations of First Pennsylvania have been included in the Company's
consolidated financial statements from December 31, 2002. The Company acquired
loans with a fair value of approximately $6.8 million, investment and
mortgage-backed securities with a fair value of $11.8 million, deposits with a
fair value of approximately $12.3 million and Federal Home Loan Bank advances
with a fair value of approximately $13.9 million in the transaction. Goodwill
and other core deposit intangibles arising from the transaction were
approximately $161,000. In connection with the merger, the Company raised $1.6
million in proceeds from the issuance of stock to certain members of First
Pennsylvania and Fidelity's employee stock ownership plan in a subscription
offering and the Fidelity's stockholders and certain members of the community in
a stockholder and community offering.
Critical Accounting Policies
- ----------------------------
Note 1 on pages 10 through 18 of the Company's Annual Report to Shareholders
lists significant accounting policies used in the development and presentation
of its financial statements. This discussion and analysis, the significant
accounting policies, and other financial statement disclosures identify and
address key variables and other qualitative and quantitative factors that are
necessary for an understanding and evaluation of the Company and its results of
operations.
The most significant estimates in the preparation of the Company's financial
statements are for the allowance for loan losses and accounting for stock
options. Please refer to the discussion of the allowance for loan losses in note
7 "Allowance for Loan Losses" on page 9 above. In addition, further discussion
of the estimates used in determining the allowance for loan losses is contained
in the discussion on "Provision for Loan Losses" on page 19 herein and page 52
of the Company's 2003 Annual Report to Shareholders. The Company accounts for
its stock option plans under the recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. No stock-based employee compensation is reflected in net
income, as all options granted had an exercise price equal to the market value
of the underlying common stock on the grant date. Refer also to note 13 "Stock
Option Plans" on page 32 of the Company's 2003 Annual
-13-
Report to Shareholders. The Company currently has no intentions of adopting the
expense recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", as well as the amendments to this statement contained in SFAS
148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123."
Comparison of Financial Condition
- ---------------------------------
Total assets of the Company increased $9.8 million, or 1.6%, to $627.3 million
at December 31, 2003 from $617.5 million at September 30, 2003. Significant
changes in individual categories include an increase in cash and due from banks
of $1.3 million, an increase in interest-earning demand deposits of $2.1
million, an increase in securities held-to-maturity of $2.0 million, an increase
in net loans of $6.3 million, and a decrease in securities available-for-sale of
$929,000.
Total liabilities of the Company increased $9.3 million, or 1.6%, to $586.6
million at December 31, 2003 from $577.3 million at September 30, 2003.
Significant changes include an increase in short-term borrowings of $18.3
million, an increase in advance payments by borrowers for taxes and insurance of
$1.2 million, and a decrease in long-term debt of $10.1 million.
Stockholders' equity increased $510,000, or 1.3% to $40.7 million at December
31, 2003, compared to $40.2 million at September 30, 2003. This result reflects
net income for the three month period ended December 31, 2003 of $852,000, stock
options exercised of $141,000, stock contributed to the Company's Employee Stock
Ownership Plan of $117,000, and stock issued under the Dividend Reinvestment
Plan of $32,000. Offsetting these increases were common stock cash dividends
paid of $292,000, treasury stock purchased of $246,000, and a decrease of
accumulated other comprehensive income of $94,000. Accumulated other
comprehensive income decreased from September 30, 2003 as a result of changes in
the net unrealized gains on the available-for-sale securities due to the
fluctuations in interest rates during the current period. Because of interest
rate volatility, the Company's accumulated other comprehensive income (loss)
could materially fluctuate for each interim and year-end period. Approximately
$3.4 million of the balances in retained earnings as of December 31, 2003 and
September 30, 2003 represent base year bad debt deductions for tax purposes
only, as they are considered restricted accumulated earnings.
-14-
Non-Performing Assets
- ---------------------
The following table sets forth information regarding non-accrual loans and
foreclosed real estate by the Company at the dates indicated. The Company did
not have any loans which were classified as troubled debt restructuring at the
dates presented (dollar amounts in thousands).
December 31, September 30,
2003 2003
---- ----
Non-accrual residential real estate loans
(one-to-four family) $ 438 $ 795
Non-accrual construction, multi family
residential and commercial real estate loans 367 367
Non-accrual installment loans 561 615
Non-accrual commercial business loans 1,449 1,151
------ ------
Total non-performing loans $2,815 $2,928
====== ======
Total non-performing loans as a percent of
net loans receivable 1.04% 1.11%
===== =====
Total foreclosed real estate $672 $675
==== ====
Total non-performing loans and foreclosed real estate as a
percent of total assets .56% .58%
==== ====
Included in non-performing loans at December 31, 2003 are 15 single-family
residential real estate loans totaling $438,000, three commercial real estate
loans totaling $367,000, 27 home equity and installment loans totaling $561,000,
13 commercial business loans totaling $1.4 million, and one commercial business
lease totaling $19,000.
At December 31, 2003, the Company had an allowance for loan losses of $3.1
million or 1.15% of net loans receivable, as compared to an allowance of $3.1
million or 1.17% of net loans receivable at September 30, 2003. The allowance
for loan losses equals 110.6% of non-performing loans at December 31, 2003
compared to 105.6% at September 30, 2003.
Management has evaluated its entire loan portfolio, including these
non-performing loans, and the overall allowance for loan losses and is satisfied
that the allowance for losses on loans at December 31, 2003 is reasonable. See
also "Provision for Loan Losses." However, there can be no assurance that the
allowance for loan losses is sufficient to cover possible future loan losses.
-15-
The Company recognizes that it must maintain an Allowance for Loan and Lease
Losses ("ALLL") at a level that is adequate to absorb estimated credit losses
associated with the loan and lease portfolio. The Company's Board of Directors
has adopted an ALLL policy designed to provide management with a systematic
methodology for determining and documenting the ALLL each reporting period. This
methodology was developed to provide a consistent process and review procedure
to ensure that the ALLL is in conformity with the Company's policies and
procedures and other supervisory and regulatory guidelines.
The Company's ALLL methodology incorporates management's current judgments about
the credit quality of the loan portfolio. The following factors are considered
when analyzing the appropriateness of the allowance: historical loss experience;
volume; type of lending conducted by the Bank; industry standards; the level and
status of past due and non-performing loans; the general economic conditions in
the Bank's lending area; and other factors affecting the collectibility of the
loans in its portfolio. The primary elements of the Bank's methodology include
portfolio segmentation and impairment measurement. Management acknowledges that
this is a dynamic process and consists of factors, many of which are external
and out of management's control, that can change often, rapidly and
substantially. The adequacy of the ALLL is based upon estimates considering all
the aforementioned factors as well as current and known circumstances and
events. There is no assurance that actual portfolio losses will not be
substantially different than those that were estimated.
-16-
Comparison of Results of Operations
-----------------------------------
for the Three Months Ended December 31, 2003 and 2002
-----------------------------------------------------
Net Income
- ----------
Net income for the three months ended December 31, 2003 was $852,000 ($.33 per
diluted share) compared to $775,000 ($.29 per diluted share) for the same period
in 2002, an increase of $77,000 or 9.9 %. The increase reflects an increase in
net interest income of $159,000 or 5.5% and a decrease in the provision for loan
losses of $280,000 or 84.9%. Partially offsetting these factors was a decrease
in other income of $185,000, or 17.6%, an increase in other operating expenses
of $175,000 or 6.7%, and an increase in the provision for income taxes of $2,000
or .92%. December 31, 2002 results included, as a component of interest expense,
the write-off of $599,000 in unamortized issuance costs related to $10,250,000
of 9.75% trust preferred securities that were called by the Company on November
4, 2002. The 9.75% trust preferred securities were redeemed with the proceeds
from a September 2002 offering of $10,000,000 of floating rate trust preferred
securities that bore an initial rate of 5.22% through December 26, 2002, and
which adjust quarterly thereafter at a rate of 3-Month LIBOR plus 3.40%. The
floating rate trust preferred securities' current rate is 4.57%. The 9.75% trust
preferred securities were called by the Company and replaced by the floating
rate trust preferred securities primarily to take advantage of the current low
interest rate environment.
Interest Rate Spread
- --------------------
The Company's interest rate spread, the difference between yields calculated on
a tax-equivalent basis on interest-earning assets and the cost of funds,
increased to 2.18% in the three months ended December 31, 2003 from 1.99% in the
same period in 2002 as a result of the average yield on total interest earning
assets decreasing less than the average rate paid on interest-bearing
liabilities. Furthermore, 2002 results include, as a component of interest
expense, the write-off of $599,000 in unamortized issuance costs related to
$10.25 million of trust preferred securities that were called by the Company on
November 4, 2002 (see "Interest Expense" discussion on page 18 herein). This
write-off reduced the interest rate spread by 42 basis points from 2.41%, and
reduced the net interest margin by 41 basis points from 2.55% for the three
months ended December 31, 2002. The following table shows the average yields
earned on the Bank's interest-earning assets and the average rates paid on its
interest-bearing liabilities for the periods indicated, the resulting interest
rate spreads, and the net yields on interest-earning assets.
Three Months Ended
December 31,
2003 2002
---- ----
Average yield on:
Mortgage loans 6.54% 7.45%
Mortgage-backed securities 3.00 4.65
Installment loans 6.16 7.33
Commercial business loans and leases 6.14 6.63
Interest -earning deposits with other institutions,
investment securities, and FHLB stock (1) 4.42 5.10
---- ----
Total interest-earning assets 5.02 6.19
---- ----
Average rates paid on:
Savings deposits 2.21 2.73
Borrowed funds 3.96 6.73
---- ----
Total interest-bearing liabilities 2.84 4.20
---- ----
Average interest rate spread 2.18% 1.99%
===== =====
Net yield on interest-earning assets 2.24% 2.14%
===== =====
(1) Interest income on tax-free investments has been adjusted for federal
income tax purposes using a rate of 34%.
-17-
Interest Income
- ---------------
Interest on loans decreased $1.4 million or 24.7% to $4.3 million for the three
months ended December 31, 2003, compared to the same period in 2002. The
decrease reflects a decrease in the average loan balance outstanding during 2003
as well as a decrease in the net yield earned on the loan portfolio. Loans with
a fair value of approximately $6.8 million were assumed with the acquisition of
First Pennsylvania on December 31, 2002. Higher levels of principal repayments
have been experienced due to the lower interest rate environment thus accounting
for the decrease in the average loan balance during 2003.
Interest on mortgage-backed securities decreased $447,000 or 32.6% to $926,000
for the three-month period ended December 31, 2003, as compared to the same
period in 2002. The decrease reflects a decrease in the average yield earned on
the portfolio, partially offset by an increase in the average balance of
mortgage-backed securities owned in the period. The fair value of
mortgage-backed securities acquired from First Pennsylvania on December 31, 2002
was approximately $4.9 million.
Interest on interest-earning deposits with other institutions and investment
securities increased $201,000 or 11.7%, for the three months ended December 31,
2003, as compared to the same period in 2002. The increase reflects an increase
in the average balance in the portfolio partially offset by a decrease in the
yield earned on these investments. Interest-earning deposits of $7.1 million and
investment securities of $6.9 million were acquired with the purchase of First
Pennsylvania on December 31, 2002.
Interest Expense
- ----------------
Interest on deposits decreased $387,000 or 15.9% to $2.0 million for the
three-month period ended December 31, 2003, as compared to the same period in
2002. The decrease reflects a decrease in the average cost of the deposits,
partially offset by an increase in the average balance of deposits. Deposits of
$12.3 million were assumed with the acquisition of First Pennsylvania on
December 31, 2002.
Interest on guaranteed preferred beneficial interest in subordinated debt
decreased $711,000 for the three months ended December 31, 2003, as compared to
the same period in 2002. During the first quarter of fiscal 2003, the Company
wrote-off $599,000 in unamortized issuance costs related to $10.25 million of
9.75% trust preferred securities that were called by the Company on November 4,
2002. The write-off of these costs was reported as a component of interest
expense. The 9.75% trust preferred securities that were called were replaced in
September 2002 with $10.0 million of floating rate trust preferred securities
that bore an initial rate of 5.22% through December 26, 2002, and which adjust
quarterly thereafter at a rate of 3-month LIBOR plus 3.40%. The floating rate
trust preferred securities' current rate is 4.57%. The 9.75% trust preferred
securities were called by the Company and replaced by the floating rate trust
preferred securities primarily to take advantage of the current low interest
rate environment.
Interest on short-term borrowings, including Federal Home Loan Bank ("FHLB")
"RepoPlus" advances, securities sold under agreement to repurchase, and
treasury, tax and loan notes, increased $131,000 to $158,000 for the three-month
period ended December 31, 2003, as compared to the same period in fiscal 2003.
The increase reflects an increase in the average balance of these borrowings,
partially offset by a decrease in the average cost of these borrowings.
-18-
Interest on long-term debt, including FHLB fixed rate advances and "Convertible
Select" advances, decreased $862,000, or 32.1%, to $1.8 million for the three
months ended December 31, 2003 as compared to the same period in fiscal 2003.
The decrease reflects a decrease in the average balance of the debt, as well as
a decrease in the average cost of the debt. FHLB advances with a fair value of
approximately $13.9 million were assumed in the First Pennsylvania acquisition
on December 31, 2002.
The Company continues to rely on FHLB advances as cost effective wholesale
funding sources.
Net Interest Income Before Provision for Loan Losses
- ----------------------------------------------------
The Company's net interest income before provision for loan losses increased
$159,000 or 5.5% to $3.0 million, for the three month period ended December 31,
2003, as compared to the same period in 2002. The increase in the current fiscal
period is attributable to an increased interest rate spread, partially offset by
a decrease in net interest-earning assets.
Provision for Loan Losses
- -------------------------
The provision for loan losses decreased to $50,000, for the three-month period
ended December 31, 2003, as compared to the same period in 2002. At December 31,
2003, the allowance for loan losses decreased $23,000 to $3.11 million from
$3.09 million at September 30, 2003. Net loan charge-offs were $27,000 and
$367,000 for the three months ended December 31, 2003 and 2002, respectively. A
$300,000 commercial business loan was charged-off during the three-month period
ending December 31, 2002.
The provision for loan losses is charged to operations to bring the total
allowance for loan losses to a level that represents management's best estimates
of the losses inherent in the portfolio based on a monthly review by management
of factors such as historical experience, volume, type of lending conducted by
the Bank, industry standards, the level and status of past due and
non-performing loans, the general economic conditions in the Bank's lending
area, and other factors affecting the collectibility of the loans in its
portfolio.
The allowance for loan losses is maintained at a level that represents
management's best estimates of losses in the loan portfolio at the balance sheet
date. However, there can be no assurance that the allowance for losses will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.
Other Income
- ------------
Total non-interest or other income decreased $185,000 or 17.6% to $866,000, for
the three-month period ended December 31, 2003, as compared to the same periods
in 2002. Decreases in other income primarily relate to decreased loan service
charges and fees, decreased gains on the sale of securities, and decreased gains
on the sale of loans.
Loan service charges and fees, which includes late charges on loans and other
miscellaneous loan fees, decreased $35,000 or 26.5% to $97,000, for the three
month period ended December 31, 2003, as compared to the same periods in 2002.
The decrease is primarily attributed to a decrease in late charges on loans and
a decrease in the collection of title insurance fees on mortgages originated.
-19-
Net gains on the sales of investment and mortgage-backed securities was $89,000
for the three month period ended December 31, 2003, as compared to a gain of
$227,000 in the same period in 2002. Such sales were made from the
available-for-sale portfolio as part of management's asset/liability management
strategies.
Gain on the sale of loans was $17,000 for the three-month period ended December
31, 2003, as compared to a gain of $107,000 for the same period in 2002. The
three-month period ended December 31, 2003 results include the sale of
approximately $405,000 of fixed rate, single-family mortgage loans, compared to
$6.4 million of similar loan sales during the prior fiscal period.
Deposit service charges and fees increased $33,000 or 10.3% for the three month
period ended December 31, 2003, as compared to the same period in 2002. The
increase is primarily attributed to an increase in the volume of fees collected
for returned checks on deposit accounts, partially offset by a decrease in the
service charges assessed on savings and checking accounts.
Operating Expenses
- ------------------
Total operating expenses for the three-month period ended December 31, 2003
totaled $2.8 million compared to $2.6 million for the same period in 2002. The
increase is due primarily to an increase in compensation and benefits expense,
office occupancy and equipment, and depreciation and amortization. The overall
increase in operating expense for the current year period reflects the operation
of the Troy Hill branch, which was acquired on December 31, 2002, and the
Cranberry branch, which was opened in April 2003. These branches were not in
operation for the entire prior fiscal period.
Income Taxes
- ------------
Total income tax expense for the three-month period ended December 31, 2003 was
$220,000 compared to $218,000 for the same 2002 period. The effective tax rates
for the three-month periods ended December 31, 2003 and 2002 were approximately
20.5% and 22.0%, respectively. The decrease in the effective tax rate is
attributed to an increase in tax-exempt income from the corresponding prior year
period. Tax-exempt income includes income earned on certain municipal
investments that qualify for state and/or federal income tax exemption; income
earned by the Bank's Delaware subsidiary which is not subject to state income
tax, and earnings on Bank-owned life insurance policies which are exempt from
federal taxation. State and federal tax-exempt income for the three-month period
ended December 31, 2003 was $1.9 million and $540,000, respectively, compared to
$1.6 million and $560,000, respectively, for the three-month period ended
December 31, 2002.
-20-
Capital Requirements
- --------------------
The Federal Reserve Board measures capital adequacy for bank holding companies
on the basis of a risk-based capital framework and a leverage ratio. The
guidelines include the concept of Tier 1 capital and total capital. Tier 1
capital is essentially common equity, excluding net unrealized gain (loss) on
securities available-for-sale and goodwill, plus certain types of preferred
stock, including the Preferred Securities issued by FB Statutory Trust II in
2002. The Preferred Securities may comprise up to 25% of the Company's Tier 1
capital. Total capital includes Tier 1 capital and other forms of capital such
as the allowance for loan losses, subject to limitations, and subordinated debt.
The guidelines establish a minimum standard risk-based target ratio of 8%, of
which at least 4% must be in the form of Tier 1 capital. At December 31, 2003,
the Company had Tier 1 capital as a percentage of risk-weighted assets of 13.39%
and total risk-based capital as a percentage of risk-weighted assets of 14.36%.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines currently provide for a
minimum ratio of Tier 1 capital as a percentage of average total assets (the
"Leverage Ratio") of 3% for bank holding companies that meet certain criteria,
including that they maintain the highest regulatory rating. All other bank
holding companies are required to maintain a Leverage Ratio of at least 4% or be
subject to prompt corrective action by the Federal Reserve. At December 31,
2003, the Company had a Leverage Ratio of 7.42%.
The FDIC has issued regulations that require insured institutions, such as the
Bank, to maintain minimum levels of capital. In general, current regulations
require a leverage ratio of Tier 1 capital to average total assets of not less
than 3% for the most highly rated institutions and an additional 1% to 2% for
all other institutions. At December 31, 2003, the Bank complied with the minimum
leverage ratio having Tier 1 capital of 7.43% of average total assets, as
defined.
The Bank is also required to maintain a ratio of qualifying total capital to
risk-weighted assets and off-balance sheet items of a minimum of 8%. At December
31, 2003, the Bank's total capital to risk-weighted assets ratio calculated
under the FDIC capital requirement was 13.33%.
Liquidity
- ---------
The Company's primary sources of funds have historically consisted of deposits,
amortization and prepayments of outstanding loans, borrowings from the FHLB of
Pittsburgh and other sources, including sales of securities and, to a limited
extent, loans. At December 31, 2003, the total of approved loan commitments
amounted to $13.6 million. In addition, the Company had $10.9 million of
undisbursed loan funds at that date. The amount of savings certificates which
mature during the next twelve months totals approximately $80.7 million, a
substantial portion of which management believes, on the basis of prior
experience as well as its competitive pricing strategy, will remain in the
Company.
-21-
Off Balance Sheet Commitments
- -----------------------------
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the contractual amount of the Company's financial instrument
commitments is as follows:
December 31, September 30,
2003 2003
---- ----
(in thousands)
Commitments to grant loans $13,551 $ 5,595
Unfunded commitments under lines of credit 27,827 31,832
Financial and performance standby letters of credit 143 93
Outstanding letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The majority
of these standby letters of credit expire within the next twelve months. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending other loan commitments. The Bank requires collateral
supporting these letters of credit as deemed necessary. Management believes that
the proceeds obtained through a liquidation of such collateral would be
sufficient to cover the maximum potential amount of future payments required
under the corresponding guarantees. The current amount of liability as of
December 31, 2003 for guarantees under standby letters of credit issued is not
material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information regarding
quantitative and qualitative disclosures about market risk at December
31, 2003 from the information presented under the caption,
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset and Liability Management, filed as
Exhibit 13 to the Form 10-K for September 30, 2003.
-22-
Item 4. Controls and Procedures
The Company's management evaluated, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, the
effectiveness of the Company's disclosure controls and procedures, as
of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
non-material legal proceedings undertaken in the ordinary course of
business.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not Applicable
-23-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this Report.
3.1 Articles of Incorporation (1)
3.2 Amended Bylaws (2)
4.1 Rights Agreement dated March 31, 2003 between Fidelity Bancorp,
Inc. and Registrar and Transfer Company (3)
4.3* Indenture, dated as of September 26, 2002, between Fidelity
Bancorp, Inc. and State Street Bank and Trust Company of
Connecticut, National Association
4.4* Amended and Restated Declaration of Trust, dated as of
September 26, 2002, by and among State Street Bank and Trust
Company, National Association, as Institutional Trustee, Fidelity
Bancorp, Inc., as Sponsor and William L. Windisch, Richard G.
Spencer and Lisa L. Griffith, as Administrators.
4.5* Guarantee Agreement, as dated as of September 26, 2002, by and
between Fidelity Bancorp, Inc. and State Street Bank and Trust
Company of Connecticut, National Association.
10.1 Employee Stock Ownership Plan, as amended (1)
10.2 1988 Employee Stock Compensation Program (1)
10.3 1993 Employee Stock Compensation Program (4)
10.4 1997 Employee Stock Compensation Program (5)
10.5 1993 Directors' Stock Option Plan (4)
10.6 1998 Group Term Replacement Plan (6)
10.7 1998 Salary Continuation Plan Agreement by and between W.L.
Windisch, the Company and the Bank (6)
10.8 1998 Salary Continuation Plan Agreement by and between R.G.
Spencer, the Company and the Bank (6)
10.9 1998 Salary Continuation Plan Agreement by and between M.A.
Mooney, the Company and the Bank (6)
10.10 Salary Continuation Plan Agreement with Lisa L. Griffith
10.11 1998 Stock Compensation Plan (7)
10.12 2000 Stock Compensation Plan (8)
10.13 2001 Stock Compensation Plan (9)
10.14 2002 Stock Compensation Plan (10)
20.1 Dividend Reinvestment Plan (11)
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-24-
(b) Reports on Form 8-K
A Report on Form 8-K was filed on October 22, 2003 reporting under Item 5
the completion of the Company's stock repurchase program originally
announced on July 25, 2003, and announcing the approval of a new stock
repurchase program to repurchase up to 5% or approximately 121,000 shares.
A Report on Form 8-K was filed on November 19, 2003 reporting under Item 12
the issuance of an earnings release for the fiscal year ended September 30,
2003.
A Report on Form 8-K was filed on January 21, 2004 reporting under Item 12
the earnings release for the quarter ended December 31, 2003 and to report
a quarterly cash dividend.
No financial statements were filed with the above reports.
* Not filed in accordance with the provisions of Item 601(b)(4)(iii) of
Regulation S-K. The Company agrees to provide a copy of these documents to
the Commission upon request.
(1) Incorporated by reference from the exhibits attached to the Prospectus and
Proxy Statement of the Company included in its Registration Statement on
Form S-4 (registration No. 33-55384) filed with the SEC on December 3, 1992
(the "Registration Statement").
(2) Incorporated by reference to an identically numbered exhibit in Form 10-Q
filed with the SEC on August 14, 2002.
(3) Incorporated by reference from Form 8-A filed March 31, 2003.
(4) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
May 2, 1997.
(5) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
March 12, 1998.
(6) Incorporated by reference to an identically numbered exhibit in Form 10-K
filed with the SEC on December 29, 1998.
(7) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
January 25, 1999.
(8) Incorporated by reference to Exhibit 4.1 to the Form S-8 filed with the SEC
on January 19, 2001.
(9) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
January 29, 2002.
(10) Incorporated by reference from an exhibit in Form S-8 filed with the SEC on
February 26, 2003.
(11) Incorporated by reference to an identically numbered exhibit in Form 10-Q
filed with the SEC on February 14, 2000.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIDELITY BANCORP, INC.
Date: February 17, 2004 By: /s/ Richard G. Spencer
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Richard G. Spencer
President and Chief Executive Officer
Date: February 17, 2004 By: /s/ Lisa L. Griffith
----------------------------------------------
Lisa L. Griffith
Sr. Vice President and Chief Financial Officer
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