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 March 31, 2005
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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
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(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
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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
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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: 2,657,268 shares, par value
---------------------------
$0.01, at April 30, 2005
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FIDELITY BANCORP, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of 1
March 31, 2005 and September 30, 2004
Consolidated Statements of Income for the Three and 2
Six Months Ended March 31, 2005 and 2004
Consolidated Statements of Cash Flows for the Six Months 3-4
Ended March 31, 2005 and 2004
Consolidated Statements of Changes in Stockholders' 5
Equity for the Six Months Ended March 31, 2005 and 2004
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
Item 4. Controls and Procedures 22
Part II - Other Information
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Item l. Legal Proceedings 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22-23
Item 5. Other Information 23
Item 6. Exhibits 23-24
Signatures 25
Item 1. Financial Statements
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition (Unaudited)
----------------------------------------------------------
(in thousands except share data)
March 31, September 30,
Assets 2005 2004
------ ---- ----
Cash and due from banks $ 7,935 $ 8,212
Interest-bearing demand deposits with other institutions 1,125 619
--------- ---------
Cash and Cash Equivalents 9,060 8,831
Securities available-for-sale 186,843 186,112
(book value of $187,626 and $184,301)
Securities held-to-maturity 114,230 109,334
(fair value of $113,618 and $110,413)
Loans held for sale 607 116
Loans receivable, net of allowance of $2,443 and $2,609 299,908 290,548
Foreclosed real estate, net 1,197 1,517
Restricted investments in bank stock, at cost 11,488 11,156
Office premises and equipment, net 5,150 5,210
Accrued interest receivable 3,256 3,081
Other assets 12,906 11,981
--------- ---------
Total Assets $ 644,645 $ 627,886
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 29,047 $ 30,237
Interest bearing 333,019 329,694
--------- ---------
Total Deposits 362,066 359,931
Short-term borrowings 72,230 64,106
Subordinated Debt 10,310 10,310
Securities sold under agreement to repurchase 6,665 5,118
Advance payments by borrowers for taxes and insurance 2,112 1,129
Other liabilities 3,159 2,908
Long-term debt 147,102 142,307
--------- ---------
Total Liabilities 603,644 585,809
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value per share,
10,000,000 shares authorized; 3,191,673
and 3,153,617 shares issued, respectively 32 32
Paid-in capital 36,369 35,798
Retained earnings 14,925 13,595
Accumulated other comprehensive income (loss) (517) 1,195
Treasury stock, at cost- 534,505 and 480,295
shares (9,808) (8,543)
--------- ---------
Total Stockholders' Equity 41,001 42,077
--------- ---------
Total Liabilities and Stockholders' Equity $ 644,645 $ 627,886
========= =========
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 Six Months Ended
March 31, March 31,
2005 2004 2005 2004
-------- -------- -------- --------
Interest income:
Loans $ 4,508 $ 4,340 $ 8,950 $ 8,671
Mortgage-backed securities 1,387 1,172 2,738 2,098
Investment securities - taxable 1,382 1,368 2,723 2,677
Investment securities - tax-exempt 474 578 947 1,192
Other 2 -- 3 1
-------- -------- -------- --------
Total interest income 7,753 7,458 15,361 14,639
-------- -------- -------- --------
Interest expense:
Deposits 1,850 1,910 3,694 3,951
Short-term borrowings 543 187 962 345
Long-term debt 1,705 1,756 3,449 3,576
Subordinated debt 157 122 302 244
-------- -------- -------- --------
Total interest expense 4,255 3,975 8,407 8,116
-------- -------- -------- --------
Net interest income 3,498 3,483 6,954 6,523
Provision for loan losses 25 75 200 125
-------- -------- -------- --------
Net interest income after provision for loan losses 3,473 3,408 6,754 6,398
-------- -------- -------- --------
Other income:
Loan service charges and fees 69 73 166 170
Realized gain on sales of securities, net 348 419 430 508
Writedown of securities (43) -- (43) --
Gain on sales of loans 10 11 15 28
Deposit service charges and fees 310 316 666 671
Other 377 347 678 658
-------- -------- -------- --------
Total other income 1,071 1,166 1,912 2,035
-------- -------- -------- --------
Operating expenses:
Compensation and benefits 1,816 1,757 3,639 3,522
Office occupancy and equipment expense 278 275 535 508
Depreciation and amortization 184 190 370 387
Net loss on foreclosed real estate 63 111 82 113
Amortization of intangible assets 11 13 24 27
Loss on customer fraud 430 -- 430 --
Other 584 650 1,162 1,226
-------- -------- -------- --------
Total operating expenses 3,366 2,996 6,242 5,783
-------- -------- -------- --------
Income before income tax provision 1,178 1,578 2,424 2,650
Income tax provision 214 264 455 484
-------- -------- -------- --------
Net income $ 964 $ 1,314 $ 1,969 $ 2,166
======== ======== ======== ========
Basic earnings per common share $ .36 $ .49 $ .74 $ .81
======== ======== ======== ========
Diluted earnings per common share $ .35 $ .46 $ .71 $ .77
======== ======== ======== ========
Dividends per common share $ .12 $ .109 $ .24 $ .218
======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements
-2-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
-------------------------------------------------
(in thousands)
Six Months Ended March 31,
2005 2004
-------- --------
Operating Activities:
- ---------------------
Net income $ 1,969 $ 2,166
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 200 125
Loss on foreclosed real estate 82 113
Provision for depreciation and amortization 370 387
Deferred loan fee amortization (115) (110)
Amortization of investment and mortgage-backed securities
discounts/premiums, net 367 787
Amortization of intangibles 24 27
Loss on customer fraud 430 --
Net gain on sale of securities (430) (508)
Writedown of securities 43 --
Net gain on sale of loans (15) (28)
Origination of loans held-for-sale (1,379) (1,167)
Proceeds from sale of loans held-for-sale 902 1,240
(Increase)/Decrease in interest receivable (175) 63
Decrease in prepaid income taxes 44 24
Decrease in interest payable (35) (192)
Increase in cash surrender value of life insurance policies (99) (105)
Contribution to ESOP (235) (103)
Other changes, net (42) 1,472
-------- --------
Net cash provided by operating activities 1,906 4,191
-------- --------
Investing Activities:
- ---------------------
Proceeds from sales of securities available-for-sale 4,978 11,099
Proceeds from maturities and principal repayments of
securities available-for-sale 21,583 22,543
Purchases of securities available-for-sale (29,667) (30,564)
Purchases of securities held-to-maturity (13,042) (27,655)
Proceeds from maturities and principal repayments of
securities held-to-maturity 8,115 24,774
Net increase in loans (9,445) (11,420)
Proceeds from sale of foreclosed real estate 310 39
Net purchases of FHLB stock (332) (380)
Proceeds from sale of office premises and equipment -- 30
Additions to office premises and equipment (310) (54)
-------- --------
Net cash used in investing activities (17,810) (11,588)
-------- --------
Continued on page 4.
-3-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) (Cont'd.)
-----------------------------------------------------------
(in thousands)
Six Months Ended March 31,
2005 2004
-------- --------
Financing Activities:
- --------------------
Net increase/(decrease) in deposits 2,135 (2,503)
Increase/(decrease) in repurchase agreements 1,547 (641)
Net increase in short-term borrowings 8,124 21,929
Proceeds from long-term borrowings 20,000 --
Repayments of long-term borrowings (15,205) (10,200)
Increase in advance payments by borrowers for taxes and insurance 983 1,037
Cash dividends paid (639) (585)
Stock options exercised 379 353
Proceeds from sale of stock through Dividend Reinvestment Plan 74 71
Purchase of treasury stock (1,265) (877)
-------- --------
Net cash provided by financing activities 16,133 8,584
-------- --------
Increase in cash and cash equivalents 229 1,187
Cash and cash equivalents at beginning of period 8,831 7,992
-------- --------
Cash and cash equivalents at end of period $ 9,060 $ 9,179
======== ========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest on deposits and other borrowings $ 8,442 $ 8,308
Income taxes $ 350 $ 340
-------- --------
Supplemental Schedule of Noncash Investing and Financing Activities
- -------------------------------------------------------------------
Transfer of loans to foreclosed real estate $ -- $ 542
-------- --------
See accompanying notes to unaudited consolidated financial statements.
-4-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(in thousands, except share data)
Accumulated
Other
Common Paid-in Treasury Retained Comprehensive
Stock Capital Stock Earnings Income (Loss) Total
====================================================================================================================================
Balance at September 30, 2003 $ 28 $ 28,960 $(7,192) $ 16,388 $ 2,011 $ 40,195
Comprehensive income:
Net income 2,166 2,166
Other comprehensive income,
net of tax of $479 929 929
Reclassification adjustment,
net of tax of ($173) (335) (335)
------- -------- ------- --------- ---------- --------
Total comprehensive income -- -- -- 2,166 594 2,760
Cash dividends declared (585) (585)
Treasury stock purchased - 35,000 shares (877) (877)
Contribution of stock to ESOP (5,000 shares) (6) 123 117
Sale of stock through Dividend
Reinvestment Plan 71 71
Stock options exercised 353 353
------- -------- ------- --------- ---------- --------
Balance at March 31, 2004 $ 28 $ 29,378 $(7,946) $ 17,969 $ 2,605 $ 42,034
======= ======== ======= ========= ========== ========
Balance at September 30, 2004 $ 32 $ 35,798 $(8,543) $ 13,595 $ 1,195 $ 42,077
Comprehensive income:
Net income 1,969 1,969
Other comprehensive income,
net of tax of ($750) (1,456) (1,456)
Reclassification adjustment,
net of tax of ($131) (256) (256)
------- -------- ------- --------- ---------- --------
Total comprehensive income -- -- -- 1,969 (1,712) 257
Cash dividends declared (639) (639)
Treasury stock purchased -
54,210 shares (1,265) (1,265)
Sale of stock through Dividend
Reinvestment Plan 74 74
Stock options exercised, including tax
benefit of $118 497 497
------- -------- ------- --------- ---------- --------
Balance at March 31, 2005 $ 32 $ 36,369 $(9,808) $ 14,925 $ (517) $ 41,001
======= ======== ======= ========= ========== ========
See accompanying notes to unaudited consolidated financial statements.
-5-
FIDELITY BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Unaudited)
March 31, 2005
(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 subsidiary, Fidelity Bank, PaSB (the "Bank"). 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 in the United States. 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, 2004. The results for the three and six month
periods ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the fiscal year ending September 30, 2005 or any future
interim period.
(3) New Accounting Standards
------------------------
In December 2004, the FASB issued Statement No. 123R, "Share-Based Payment."
Statement No. 123R revised Statement No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and its related implementation guidance. Statement No. 123R will
require compensation costs related to share-based payment transactions to be
recognized in the financial statement (with limited exceptions). The amount of
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a new
rule that amends the compliance dates for Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"). Under the new rule, the Company is required to adopt
SFAS No. 123R in the first annual period beginning after June 15, 2005. The
Company has not yet determined the method of adoption or the effect of adopting
SFAS No. 123R, and it has not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS No.
123.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No. 107"),
"Share-Based Payment", providing guidance on option valuation methods, the
accounting for income tax effects of share-based payment arrangements upon
adoption of SFAS No. 123(R), and the disclosures in MD&A subsequent to the
adoption. The Company will provide SAB No. 107 required disclosures upon
adoption of SFAS No. 123(R) on October 1, 2005.
-6-
(4) Stock Based Compensation
------------------------
At March 31, 2005, the Company had several stock-based employee and director
compensation plans, which are described in Note 13 in the Company's 2004 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 net income
and earnings per share if the fair value based method had been applied to the
Company's stock option plans (amounts in thousands, except per share data).
For the three months For the six months
ended March 31, ended March 31,
--------------------- ----------------------
2005 2004 2005 2004
------- --------- --------- ---------
Net income, as reported $ 964 $ 1,314 $ 1,969 $ 2,166
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 (91) (136) (104) (144)
------- --------- --------- ---------
Pro forma net income $ 873 $ 1,178 $ 1,865 $ 2,022
======= ========= ========= =========
Earnings per share:
Basic - as reported $ .36 $ .49 $ .74 $ .81
Basic - pro forma $ .33 $ .43 $ .70 $ .75
Diluted - as reported $ .35 $ .46 $ .71 $ .77
Diluted - pro forma $ .32 $ .41 $ .67 $ .71
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.
-7-
(5) 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 dividend distributed on May
26, 2004. The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands, except per share data):
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
------------------ ------------------
Numerator:
Net Income $ 964 $1,314 $1,969 $2,166
------ ------ ------ ------
Denominator:
Denominator for basic earnings per
share - weighted average shares 2,651 2,685 2,661 2,677
Effect of dilutive securities:
Employee stock options 129 160 125 157
------ ------ ------ ------
Denominator for diluted earnings per share
- - weighted average shares and assumed conversions 2,780 2,845 2,786 2,834
------ ------ ------ ------
Basic earnings per share $ .36 $ .49 $ .74 $ .81
------ ------ ------ ------
Diluted earnings per share $ .35 $ .46 $ .71 $ .77
------ ------ ------ ------
(6) 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 losses of $517,000, net of tax, on investments classified as
available-for-sale are recorded at March 31, 2005. The Company had no securities
classified as trading as of March 31, 2005 and September 30, 2004.
-8-
(7) Loans Receivable
----------------
Loans receivable are comprised of the following (dollar amounts in
thousands):
March 31, September 30,
2005 2004
--------- ------------
First mortgage loans:
Conventional:
1-4 family dwellings $ 126,296 $ 109,991
Multi-family dwellings 10,927 12,191
Commercial 52,522 50,334
Construction:
Residential 19,971 29,220
Commercial 9,341 7,211
--------- ---------
219,057 208,947
--------- ---------
Less:
Loans in process (20,962) (23,409)
Unearned discounts and fees (644) (612)
--------- ---------
197,451 184,926
--------- ---------
Installment loans:
Home equity 69,756 71,547
Consumer loans 1,022 1,749
Other 2,677 2,853
--------- ---------
73,455 76,149
--------- ---------
Commercial business loans and leases:
Commercial business loans 30,709 30,872
Commercial leases 736 1,210
--------- ---------
31,445 32,082
--------- ---------
Less: Allowance for loan losses (2,443) (2,609)
--------- ---------
Loans receivable, net $ 299,908 $ 290,548
--------- ---------
-9-
(8) Allowance for Loan Losses
-------------------------
Changes in the allowance for loan losses for the six months ended March 31, 2005
and the fiscal year ended September 30, 2004 are as follows (dollar amounts in
thousands):
March 31, September 30,
2005 2004
-------- ---------
Balance at beginning of period $ 2,609 $ 3,091
Provision for loan losses 200 275
Charge-offs (387) (819)
Recoveries 21 62
------- -------
Balance at end of period $ 2,443 $ 2,609
------- -------
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 March 31, 2005, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $2.5 million compared to $2.4 million at March
31, 2004. Included in the current amount is $372,000 of impaired loans for which
the related allowance for loan losses is $21,000, and $2.1 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 six months ended March 31, 2005 was $2.4 million
compared to $2.3 million for the same period in the prior year. For the six
months ended March 31, 2005, the Company recognized $25,000 of interest income
on impaired loans using the cash basis of income recognition. The Company
recognized $36,000 of income on impaired loans during the six month period ended
March 31, 2004.
(9) Comprehensive Income
--------------------
Total comprehensive income amounted to the following for the three and six month
periods ended March 31 (dollar amounts in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
2005 2004 2005 2004
------------------ -------------------
Net Income $ 964 $ 1,314 $ 1,969 $ 2,166
Unrealized holding gains (losses) on investment
securities and mortgage-backed securities available for
sale, net of taxes (1,223) 964 (1,456) 929
Reclassification adjustment for (gains) losses
included in net income (202) (276) (256) (335)
------- ------- ------- -------
Comprehensive income/(loss) $ (461) $ 2,002 $ 257 $ 2,760
======= ======= ======= =======
-10-
(10) Goodwill and Other Intangible Assets
------------------------------------
The Company performed its annual goodwill impairment test during the quarter
ended March 31, 2005 and it was determined that no adjustments were required.
(11) Guarantees
----------
The Company does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of credit. Standby
letters of credit written are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Generally, all letters
of credit, when issued have expiration dates within one year. 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 March 31, 2005
and 2004 for guarantees under standby letters of credit issued is not material.
-11-
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.
Critical Accounting Policies
- ----------------------------
Note 1 on pages 10 through 17 of the Company's 2004 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
8 "Allowance for Loan Losses" on page 10 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 pages 17 and 18 herein and
page 49 of the Company's 2004 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 2004 Annual Report to
Shareholders and Note 3 "New Accounting Standards" on page 6 above.
Comparison of Financial Condition
- ---------------------------------
Total assets of the Company increased $16.8 million, or 2.7%, to $644.6 million
at March 31, 2005 from $627.9 million at September 30, 2004. Significant changes
in individual categories include an increase in securities held-to-maturity of
$4.9 million and an increase in net loans of $9.4 million. The increase was
driven by a $16.3 million increase in conventional one-to-four family mortgages,
which offset a $9.2 million decline in residential construction loans.
Total liabilities of the Company increased $17.8 million, or 3.0%, to $603.6
million at March 31, 2005 from $585.8 million at September 30, 2004. Significant
changes include an increase in short-term borrowings of $8.1 million, an
increase in long-term debt of $4.8 million, an increase in deposits of $2.1
million, an increase in repurchase agreements of $1.5 million, and an increase
in advance payments by borrowers for taxes and insurance of $1.0 million.
-12-
Stockholders' equity decreased $1.1 million, or 2.6% to $41.0 million at March
31, 2005, compared to $42.1 million at September 30, 2004. This result reflects
net income for the six-month period ended March 31, 2005 of $1.97 million, stock
options exercised of $379,000, and stock issued under the Dividend Reinvestment
Plan of $74,000. Offsetting these increases were common stock cash dividends
paid of $639,000, treasury stock purchased of $1.26 million, and a decrease of
accumulated other comprehensive income of $1.7 million. Accumulated other
comprehensive income decreased from September 30, 2004 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. Management does not
consider the unrealized losses at March 31, 2005, to be other than temporary.
An impairment writedown of $43,000 was charged to expense during the current
fiscal period based on management's determination that the impairment on a
government agency equity security was considered other than temporary based on
the regulatory sanctions imposed on the agency. Because of interest rate
volatility, the Company's accumulated other comprehensive income could
materially fluctuate for each interim and year-end period. Approximately $3.4
million of the balances in retained earnings as of March 31, 2005 and September
30, 2004 represent base year bad debt deductions for tax purposes only, as they
are considered restricted accumulated earnings.
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).
March 31, September 30,
2005 2004
---- ----
Non-accrual residential real estate loans
(one-to-four family) $ 401 $ 777
Non-accrual construction, multi family
residential and commercial real estate loans 342 269
Non-accrual installment loans 447 530
Non-accrual commercial business loans 2,200 2,071
------ ------
Total non-performing loans $3,390 $3,647
====== ======
Total non-performing loans as a percent of
net loans receivable 1.13% 1.26%
====== ======
Total foreclosed real estate $1,197 $1,517
====== ======
Total non-performing loans and foreclosed real
estate as apercent of total assets .71% .82%
====== ======
Included in non-performing loans at March 31, 2005 are 7 single-family
residential real estate loans totaling $401,000, four commercial real estate
loans totaling $342,000, 22 home equity and installment loans totaling $447,000,
and 13 commercial business loans totaling $2.2 million.
-13-
At March 31, 2005, the Company had an allowance for loan losses of $2.4 million
or .81% of net loans receivable, as compared to an allowance of $2.6 million or
..90% of net loans receivable at September 30, 2004. The allowance for loan
losses equals 72.1% of non-performing loans at March 31, 2005 compared to 71.5%
at September 30, 2004. While the allowance for loan losses has decreased,
management believes the balance is adequate based on its analysis of
quantitative and qualitative factors as of March 31, 2005. 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 March 31, 2005 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.
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.
-14-
Comparison of Results of Operations
-----------------------------------
for the Three and Six Months Ended March 31, 2005 and 2004
----------------------------------------------------------
Net Income
- ----------
Net income for the three months ended March 31, 2005 was $964,000 ($.35 per
diluted share) compared to $1.3 million ($.46 per diluted share) for the same
period in 2004, a decrease of $350,000 or 26.6 %. The decrease reflects an
increase in other operating expenses of $370,000, or 12.4%, and a decrease in
other income of $95,000, or 8.2%. Partially offsetting these factors was an
increase in net interest income of $15,000 or .4%, a decrease in the provision
for loan losses of $50,000, or 66.7%, and a decrease in the provision for income
taxes of $50,000, or 18.9%.
Net income for the six months ended March 31, 2005 was $1.97 million ($.71 per
diluted share) compared to $2.17 million ($.77 per diluted share) for the same
period in 2004, a decrease of $197,000 or 9.1%. The decrease reflects an
increase in other operating expenses of $459,000, or 7.9%, a decrease in other
income of $123,000, or 6.0%, and an increase in the provision for loan losses of
$75,000 or 60.0%. Partially offsetting these factors was an increase in net
interest income of $431,000 or 6.6% and a decrease in the provision for income
taxes of $29,000 or 6.0%
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,
decreased to 2.30% in the three months ended March 31, 2005 from 2.40% in the
same period in 2004 as a result of the average yield on total interest earning
assets decreasing 1 basis point while the average rate paid on interest-bearing
liabilities increased 9 basis points. 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
March 31,
2005 2004
---- ----
Average yield on:
Mortgage loans 6.05% 6.47%
Mortgage-backed securities 3.97 3.82
Installment loans 5.83 6.00
Commercial business loans and leases 5.73 5.83
Interest -earning deposits with other institutions,
investment securities, and FHLB stock (1) 4.62 4.39
---- ----
Total interest-earning assets 5.13 5.14
---- ----
Average rates paid on:
Savings deposits 2.08 2.11
Borrowed funds 3.88 3.80
---- ----
Total interest-bearing liabilities 2.83 2.74
---- ----
Average interest rate spread 2.30% 2.40%
==== ====
Net yield on interest-earning assets 2.39% 2.49%
==== ====
(1) Interest income on tax-exempt investments has been adjusted for federal
income tax purposes using a rate of 34%.
-15-
The Bank's tax-equivalent interest rate spread increased to 2.31% in the six
months ended March 31, 2005 from 2.29% in the same period in fiscal 2004 as a
result of the average yield on total interest earning assets increasing more
than the average rate paid on interest-bearing liabilities. 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.
Six Months Ended
March 31,
2005 2004
---- ----
Average yield on:
Mortgage loans 6.04% 6.50%
Mortgage-backed securities 3.93 3.39
Installment loans 5.83 6.09
Commercial business loans and leases 6.01 5.99
Interest -earning deposits with other institutions,
investment securities, and FHLB stock (1) 4.59 4.43
---- ----
Total interest-earning assets 5.11 5.09
---- ----
Average rates paid on:
Savings deposits 2.06 2.16
Borrowed funds 3.82 3.87
---- ----
Total interest-bearing liabilities 2.80 2.80
---- ----
Average interest rate spread 2.31% 2.29%
==== ====
Net yield on interest-earning assets 2.39% 2.37%
==== ====
(1) Interest income on tax-exempt investments has been adjusted for federal
income tax purposes using a rate of 34%.
Interest Income
- ---------------
Interest on loans increased $168,000 or 3.9% to $4.5 million for the three
months ended March 31, 2005, compared to the same period in 2004. Interest on
loans increased $279,000 or 3.2% to $9.0 million for the six months ended March
31, 2005. The increase for both periods reflects an increase in the average loan
balance outstanding during 2005 partially offset by a decrease in the average
yield earned on the loan portfolio.
Interest on mortgage-backed securities increased $215,000 or 18.3% to $1.4
million for the three months ended March 31, 2005, compared to the same period
in 2004. Interest on mortgage-backed securities increased $640,000 or 30.5% to
$2.7 million for the six months ended March 31, 2005. The increase for both
periods reflects an increase in the average balance of mortgage-backed
securities owned in the period as well as an increase in the average yield
earned on the portfolio.
Interest on interest-bearing demand deposits with other institutions and
investment securities decreased $88,000 or 4.5% to $1.9 million for the three
months ended March 31, 2005, as compared to the same period in 2004. Interest on
interest-bearing demand deposits with other institutions and investment
securities decreased $197,000 or 5.1% to $3.7 million for the six months ended
March 31, 2005, as compared to the same period in 2004. The decrease for both
periods reflects a decrease in the average balance in the portfolio partially
offset by an increase in the yield earned on these investments.
-16-
Interest Expense
- ----------------
Interest on deposits decreased $60,000 or 3.1% to $1.9 million for the
three-month period ended March 31, 2005, as compared to the same period in 2004.
The decrease reflects a decrease in the average balance of deposits and a slight
decrease in the cost of these deposits. Interest on deposits decreased $257,000
or 6.5% to $3.7 million for the six-month period ended March 31, 2005, as
compared to the same period in 2004. The decrease reflects a decrease in the
average balance of deposits as well as a decrease in the average cost of the
deposits.
Interest on subordinated debt increased $35,000 for the three months ended March
31, 2005, as compared to the same period in 2004. Interest on subordinated debt
increased $58,000 for the six months ended March 31, 2005. The increase for both
periods reflects an increase in the cost of these debentures while the average
balance remained unchanged.
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 $356,000 to $543,000 for the three-month
period ended March 31, 2005, as compared to the same period in fiscal 2004. The
increase reflects an increase in the average balance of these borrowings as well
as an increase in the average cost of these borrowings. Interest on short-term
borrowings increased $617,000 to $962,000 for the six month period ended March
31, 2005. The increase for both periods reflects an increase in the average
balance of these borrowings, while the average cost of these borrowings
decreased slightly.
Interest on long-term debt, including FHLB fixed rate advances and "Convertible
Select" advances, decreased $51,000, or 2.9%, to $1.7 million for the three
months ended March 31, 2005 as compared to the same period in fiscal 2004.
Interest on long-term debt decreased $127,000, or 3.6%, to $3.4 million for the
six months ended March 31, 2005 as compared to the same period in fiscal 2004.
The decrease for both periods reflects a decrease in the average balance of the
debt, as well as a decrease in the average cost of the debt.
The Company continues to rely on FHLB advances as cost effective wholesale
funding sources.
Net Interest Income
- -------------------
The Company's net interest income increased $15,000 or .43% to $3.5 million, for
the three month period ended March 31, 2005, as compared to the same period in
2004. The Company's net interest income increased $431,000 or 6.6% to $7.0
million, for the six months ended March 31, 2005, as compared to the same period
in 2004. The increase 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 $25,000 for the three-month period
ended March 31, 2005, as compared to $75,000 for the same period in 2004. At
March 31, 2005, the allowance for loan losses decreased $166,000 to $2.44
million from $2.61 million at September 30, 2004. Net loan charge-offs were
$129,000 and $222,000 for the three months ended March 31, 2005 and 2004,
respectively. Net loan charge-offs were $365,000 and $249,000 for the six months
ended March 31, 2005 and 2004, respectively.
-17-
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 loan 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 $95,000 or 8.2% to $1.1 million,
and decreased $123,000 or 6.0% for the three and six month periods ended March
31, 2005, respectively, as compared to the same periods in 2004. Decreases in
other income primarily relate to decreased gains on the sales of securities,
partially offset by an increase in other income, including ATM fees and fees on
retail investment sales.
Loan service charges and fees, which includes late charges on loans and other
miscellaneous loan fees, decreased $4,000 or 5.5% to $69,000, and decreased
$4,000 or 2.4% to $166,000 for the three and six month periods ended March 31,
2005, as compared to the same periods in 2004.
Net gains on the sales of securities were $348,000 and $430,000 for the three
and six month periods ended March 31, 2005, as compared to gains of $419,000 and
$508,000 in the same periods in fiscal 2004. Such sales were made from the
available-for-sale portfolio as part of management's asset/liability management
strategies.
Writedowns of securities were $43,000 for the three and six month periods ended
March 31, 2005. An impairment writedown was charged to expense during the
current fiscal period based on management's determination that the impairment on
its holding of a government agency equity security was considered other than
temporary based on the regulatory sanctions imposed on the agency. There were no
such writedowns during the prior fiscal periods.
Gain on the sale of loans was $10,000 and $15,000 for the three and six month
periods ended March 31, 2005, as compared to gains of $11,000 and $28,000 for
the same periods in fiscal 2004. The six-month period ended March 31, 2005
results include the sale of approximately $887,000 of fixed rate, single-family
mortgage loans, compared to $1.2 million of similar loan sales during the prior
fiscal period.
Deposit service charges and fees decreased $6,000 or 1.9% and $5,000 or .75% for
the three and six month periods ended March 31, 2005, respectively, as compared
to the same periods in fiscal 2004. The decrease in both periods is primarily
attributed to a decrease in the volume of fees collected for returned checks on
deposit accounts and miscellaneous fees collected on checking accounts,
partially offset by an increase in the service charges assessed on checking
accounts.
Operating Expenses
- ------------------
Total operating expenses for the three-month period ended March 31, 2005 totaled
$3.4 million compared to $3.0 million for the same period in 2004. Total
operating expenses for the six month period ended March 31, 2005 totaled $6.2
million compared to $5.8 million for the same period in fiscal 2004. The
increase for both periods is due primarily to a loss recognized on a customer
fraud and an increase in compensation and benefits expense, partially offset by
a decrease in the net loss on foreclosed real estate and a decrease in other
operating expenses.
-18-
Included in other operating expenses for the quarter ended March 31, 2005, was a
pre-tax charge of $430,000 related to a check kiting fraud discovered in March
attributable to one business customer. While a portion or all of the loss may
ultimately be recovered, the customer was unable to provide restitution or
adequate collateral at this time and the timing and amount of any recovery is
therefore uncertain.
Compensation and benefits expense was $1.82 million for the three month period
ended March 31, 2005 compared to $1.76 million for the same period in 2004.
Compensation and benefits expense was $3.64 million for the six month period
ended March 31, 2005 compared to $3.52 million for the same period in 2004. The
increase in both periods is due primarily to normal salary increases for
employees and increases in the cost of health insurance.
Net loss on foreclosed real estate was $63,000 and $111,000 for the three month
periods ended March 31, 2005 and 2004, respectively. Net loss on foreclosed real
estate was $82,000 and $113,000 for the six month periods ended March 31, 2005
and 2004, respectively. The results reflect the costs associated with the
holding and disposition of properties during the periods. At March 31, 2005, the
Bank had 17 single-family residential properties, all of which were owned by the
same borrower as investment properties, and two commercial real estate
properties classified as foreclosed real estate.
Other operating expenses were $584,000 for the three month period ended March
31, 2005 compared to $650,000 for the same period in 2004. Other operating
expenses was $1.16 million for the six month period ended March 31, 2005
compared to $1.2 million for the six month period ended March 31, 2004. The
decrease in both periods is attributed to a decrease in the service charges on
the Company's bank accounts, a decrease in the balances of NOW accounts charged
off, and a decrease in legal expense, partially offset by an increase in
consulting fees and an increase in the ATM over and short expenses.
Income Taxes
- ------------
Total income tax expense for the three-month period ended March 31, 2005 was
$214,000 compared to $264,000 for the same 2004 period. The effective tax rates
for the three-month periods ended March 31, 2005 and 2004 were approximately
18.2% and 16.7%, respectively. Total income tax expense for the six-month period
ended March 31, 2005 was $455,000 compared to $484,000 for the same fiscal 2004
period. The effective tax rates for the six-month periods ended March 31, 2005
and 2004 were approximately 18.8% and 18.3%, respectively. 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 March 31, 2005 was
$2.1 million and $427,000, respectively, compared to $2.4 million and $519,000,
respectively, for the three-month period ended March 31, 2004. State and federal
tax-exempt income for the six-month period ended March 31, 2005 was $4.0 million
and $856,000, respectively, compared to $4.3 million and $1.1 million,
respectively, for the six-month period ended March 31, 2004.
-19-
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
2003. 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 March 31, 2005, the
Company had Tier 1 capital as a percentage of risk-weighted assets of 13.20% and
total risk-based capital as a percentage of risk-weighted assets of 13.90%.
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 March 31, 2005,
the Company had a Leverage Ratio of 7.57%.
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 March 31, 2005, the Bank complied with the minimum
leverage ratio having Tier 1 capital of 7.64% 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 March
31, 2005, the Bank's total capital to risk-weighted assets ratio calculated
under the FDIC capital requirement was 12.79%.
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 March 31, 2005, the total of approved loan commitments
amounted to $3.2 million. In addition, the Company had $21.0 million of
undisbursed loan funds at that date. The amount of savings certificates which
mature during the next twelve months totals approximately $79.2 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.
-20-
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:
March 31, September 30,
2005 2004
---- ----
(in thousands)
Commitments to grant loans $ 3,226 $13,133
Unfunded commitments under lines of credit 40,363 36,092
Financial and performance standby letters of credit 295 175
The Company does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of credit. Standby
letters of credit written are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Generally, all letters
of credit, when issued have expiration dates within one year. 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 March 31, 2005
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 March
31, 2005 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, 2004.
-21-
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. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On February 8, 2005, the Company held its annual meeting of
stockholders and the following items were presented:
Election of Director J. Robert Gales, Director Charles E. Nettrour,
and Director William L. Windisch for a term of 3 years to expire in
2008. Director Gales received 2,305,212 votes in favor and 275,489
votes withheld; Director Nettrour received 2,305,095 votes in favor
and 275,606 votes withheld; and Director Windisch received 2,303,266
votes in favor and 277,435 votes withheld. There were no abstentions
or broker non-votes. The terms of the office continued after the
meeting: Robert F. Kastelic, Oliver D. Keefer, Richard G. Spencer, and
Joanne Ross Wilder.
-22-
The Company's stockholders also approved the 2005 Stock-Based
Incentive Plan (1,647,126 votes for, 527,094 votes against and 37,847
abstentions). There were no broker non-votes on the proposal.
Item 5. Other Information
(a) Not applicable.
(b) Not applicable.
Item 6. 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 June 30, 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)
10.15 2005 Stock-Based Incentive Plan (11)
20.1 Dividend Reinvestment Plan (12)
-23-
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
* 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 June 30, 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 from an exhibit in Form S-8 filed with the SEC on
March 7, 2005.
(12) 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: May 16, 2005 By: /s/ Richard G. Spencer
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Richard G. Spencer
President and Chief Executive Officer
Date: May 16, 2005 By: /s/ Lisa L. Griffith
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Lisa L. Griffith
Sr. Vice President and Chief Financial Officer
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