Fidelity Bankshares, Inc.
Fidelity Bankshares, Inc. is a Delaware corporation and the holding company parent of Fidelity Federal Bank & Trust. All references in this filing to share data (including number of shares and per-share amounts) have been restated giving retroactive recognition to the exchange rate. At December 31, 2005, the only significant asset or business activity of Fidelity Bankshares, Inc. was its ownership of all of the outstanding stock of Fidelity Federal Bank & Trust. Our corporate office is located at 205 Datura Street, West Palm Beach, Florida 33401. Our telephone number is (561) 803-9900.
On April 1, 2005 we acquired 100 percent of the outstanding common stock First Community Bancorp, Inc. (“First Community”). The aggregate purchase price was $27.9 million, consisting of $15.0 million in cash and 525,036 shares of our common stock. At closing, First Community had total assets of $155.8 million and total deposits of $137.7 million.
In December 2004, we completed the sale of 1,150,000 shares of our common stock in an underwritten public offering. Net proceeds from the sale of the common stock was $43.8 million.
In December 2003, we sold $22.7 million of cumulative trust preferred securities and issued related junior subordinated debentures. The cumulative trust preferred securities have a floating rate of 285 basis points above the three-month LIBOR rate. In October 2004, we sold $30.9 million of floating rate trust preferred securities. The floating rate trust preferred securities have a floating rate of 197 basis points over the three-month LIBOR rate. The proceeds from this trust preferred securities offering were used to fund the redemption of $29.6 million higher cost, fixed-rate trust preferred securities issued in 1998. The net proceeds raised from our 2003 and 2004 trust preferred securities offerings and our common stock offering have provided additional capital to support the growth of our business.
At December 31, 2005, we had consolidated assets and consolidated stockholders’ equity of $4.1 billion and $284.8 million, respectively. Our deposits totaled $3.5 billion at December 31, 2005.
Fidelity Federal Bank & Trust
Fidelity Federal Bank & Trust was originally chartered as a federal mutual savings and loan association in 1952. In January 1994, Fidelity Federal Bank & Trust reorganized from a mutual savings bank to the stock form of ownership as part of its mutual holding company reorganization. In July 1999, we began offering insurance and investment products through our wholly owned subsidiary – Florida Consolidated Agency, Inc. In February 2000, we began offering trust services, and at December 31, 2005, we had $107.6 million of trust assets under administration, including $84.1 million under trust management.
We are primarily engaged in the business of attracting deposits from the general public in our market area, and investing such deposits in one- to four-family residential mortgage loans, commercial real estate loans, commercial business and consumer loans. Our goal over the next several years is to continue to increase the origination of all loan types, especially commercial real estate, commercial business loans and consumer loans, consistent with our standards of safety and soundness. To a lesser extent, we also originate multi-family loans, construction loans and land loans for single-family properties, and we invest in mortgage-backed securities issued by government sponsored enterprises. In addition, we invest a portion of our assets in securities issued by the United States Government, cash and
cash equivalents, including deposits in other financial institutions, corporate securities and Federal Home Loan Bank stock. Our principal sources of funds are deposits and principal and interest payments on loans. Principal sources of income are interest received from loans and investment securities. Our principal expense is interest paid on deposits and employee compensation and benefits.
Market Area
We are headquartered in West Palm Beach, Florida, and we conduct our business primarily in Palm Beach, Martin, and St. Lucie Counties in Florida. To a lesser extent, we conduct business in Indian River and Broward Counties. At December 31, 2005, we had 48 offices in our market area, of which 43 were located in Palm Beach County, 3 were located in Martin County and 2 were located in St. Lucie County. Palm Beach, Martin and St. Lucie Counties are located in southeastern Florida, an area that has experienced considerable growth and development since the 1960s.
Our market area includes a mix of rural and urban areas. The strength of the southeast Florida economy depends significantly upon government, foreign trade, tourism, and its attraction as a retirement area. Major employers in our market area include Tenet Health Care, Florida Power and Light, BellSouth and the Palm Beach County School Board.
Competition
Our market area in southeast Florida has a large number of financial institutions. All of these financial institutions compete with us to varying degrees, and many of them are significantly larger and have greater financial resources than we have. As a result, we encounter strong competition both in attracting deposits and in originating real estate and other loans. Our most direct competition for deposits historically has come from commercial banks, securities brokerage firms, other savings associations, and credit unions and we expect continued strong competition from these financial institutions in the foreseeable future. Our market area includes branches of several commercial banks that are substantially larger than Fidelity Federal Bank & Trust in terms of state-wide deposits. We compete for deposits by offering customers a high level of personal service and expertise, and a wide range of financial services.
The competition for real estate and other loans comes principally from commercial banks, mortgage banking companies, credit unions and other savings associations. This competition for loans has increased substantially in recent years as a result of the number of institutions competing in our market area, as well as the increased efforts by commercial banks to expand mortgage loan originations.
We compete for loans primarily through the interest rates and loan fees we charge, and the efficiency and quality of services we provide to borrowers, real estate brokers, and builders. Factors that also affect competition include general and local economic conditions, current interest rate levels, and volatility of the mortgage markets.
Fidelity Bankshares, Inc. is the sixth largest financial institution holding company headquartered in Florida, and the largest headquartered in Palm Beach, Martin and St. Lucie counties based on total assets. Fidelity Federal Bank & Trust’s share of deposits in Palm Beach County increased from 3.1% in 1995 to 8.9% at June 30, 2005. Our 8.1% share of deposits in Palm Beach, Martin and St. Lucie counties ranked us third among financial institutions in the three county area at June 30, 2005, the most recent date for which market share data are available.
Lending Activities
General . Historically, our principal lending activity has been the origination of fixed rate and adjustable rate mortgage loans secured by one- to four-family residential properties located in our market area. We currently originate both fixed rate mortgage loans and adjustable rate mortgage (“ARM”) loans for retention in our loan portfolio and sale in the secondary mortgage market. The majority of our mortgage loans are eligible for sale in the secondary mortgage market. We also originate loans secured by commercial real estate and multi-family residential real estate, construction loans, commercial business loans and consumer loans. In recent years, we have increased our commercial real estate, commercial business and consumer lending.
In an effort to manage interest rate risk, we make our interest-earning assets more sensitive to changes in interest rates by originating adjustable rate mortgage loans, such as ARM loans, and short- and medium-term consumer loans, including home equity loans. We also purchase both fixed rate and adjustable rate mortgage-backed securities. At December 31, 2005, approximately $2.2 billion, or 71.4%, of our total loan portfolio, net of loans in process, and $72.5 million, or 12.0%, of the book value of our mortgage-backed securities portfolio, consisted of loans or securities with adjustable interest rates. We originate fixed rate mortgage loans generally with 15- to 30-year terms to maturity, collateralized by one- to four-family residential properties. One- to four-family fixed rate and adjustable rate residential mortgage loans generally are originated and underwritten according to standards that allow us to resell such loans in the secondary mortgage market for the purpose of managing interest rate risk and liquidity. We periodically sell without recourse to us, a portion of our residential mortgage loans which have terms to maturity of 15 years and greater, both on a servicing released and servicing retained basis. Generally, we retain in our portfolio all consumer, commercial real estate and multi-family residential real estate loans.
Composition of Loan Portfolio . Set forth below are selected data relating to the composition of our loan portfolio by type of loan as of the dates indicated. Also set forth below is the aggregate amount of our investment in mortgage-backed securities at the dates indicated.
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