FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Fidelity D & D Bancorp, Inc., and subsidiary, The Fidelity Deposit and Discount Bank, (Bank), (collectively the "Company") have been prepared in accordance with accounting principles, generally accepted in the United States of America (GAAP), for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods have been included. All significant inter-company balances and transactions have been eliminated in the consolidation. Prior period amounts are reclassified when necessary to conform with the current year's presentation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, please refer to the Bank's Annual Report on Form 10-K for the year ended December 31, 2001.
The Bank is a commercial bank chartered by the Commonwealth of Pennsylvania. Having commenced operations in 1903, the Bank provides a full range of traditional banking services and alternative financial products from its main office located in Dunmore and other branches throughout Lackawanna and Luzerne counties.
Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report. Management prepared the unaudited financial statements in accordance with GAAP. In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls. These systems and controls are designed to provide reasonable, but not absolute, assurance that the financial records accurately reflect the transactions of the Company, that Company assets are safeguarded and that financial statements present fairly the financial position and results of operations of the Company.
In the opinion of management, the consolidated balance sheets as of March 31, 2002 and December 31, 2001 present fairly the consolidated financial position of the Company as of those dates and the related statements of income, changes in shareholders' equity and cash flows for the three months ended March 31, 2002 and 2001 present fairly the consolidated results of its operations and its cash flows for the
7
periods then ended. All material adjustments required for fair presentation have been made. These adjustments are of a normal reoccurring nature. There have been no material changes in accounting principles, practices or in the method of application and there have been no retroactive adjustments during this period.
This Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2001 and the notes included therein, in the Company's Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for the entire year.
Critical Accounting Policies
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect many of the reported amounts and disclosures. Actual results could differ from these estimates.
A material estimate that is particularly susceptible to significant change is the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate and reasonable. The Company's methodology for determining the allowance for loan losses is described in a separate section later in Management's Discussion and Analysis. Given the very subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination. Further, a task force of the American Institute of Certified Public Accountants is working on detailed implementation guidance for calculating the allowance for loan losses. Implementation of that detailed implementation guidance, which may be issued in 2002, could result in an adjustment to the allowance.
Another material estimate is the calculation of fair values of the Company's investment securities. The Company receives estimated fair values of investment securities from an independent valuation service through a broker. In developing these fair values, the valuation service uses estimates of cash flows based on historical performance of similar instruments in similar interest rate environments. Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services. Accordingly, when selling investment securities, management typically obtains price quotes from more than one source. The majority of the Company's investment securities are classified as available-for-sale. Accordingly, these securities are carried at fair value on the consolidated balance sheet, with unrealized gains and losses, net of income tax, excluded from earnings and reported separately through accumulated other comprehensive income (included in shareholders' equity).
8
The fair value of residential mortgage loans classified as available-for-sale is obtained from the Federal National Mortgage Association (Fannie Mae). The fair value of SBA loans classified as available-for-sale is obtained from an outside pricing source. The market to which the Bank sells mortgage and other loans is restricted and price quotes from other sources are not typically obtained.
The following data shows the amounts used in computing earnings per share and the effects on income and the weighted average number of shares of dilutive potential common stock for the three months ended March 31, 2002 and 2001
Weighted
Average
Common Earnings
Income Shares per
March 31, 2002 Numerator Denominator Share
--------- ----------- -----
Basic EPS $1,078,129 1,819,895 $0.59
-------
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 17,800
Hypothetical share repurchase at $37.50 (16,302)
-----------------------------------
Diluted EPS $1,078,129 1,821,393 $0.59
=================================================
March 31, 2001
Basic EPS $1,083,441 1,806,945 $0.60
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 14,400
Hypothetical share repurchase at $37.75 (13,248)
-----------------------------------
Diluted EPS $1,083,441 1,808,097 $0.60
=================================================
9
The accompanying financial statements for 2001 have been restated to correct an error in accounting for student loans and related interest income from 1992 through March 31, 2001. The effect of the restatement was as follows:
March 31,2001
AS
PREVIOUSLY AS
REPORTED RESTATED
-------- --------
BALANCE SHEET:
Retained earnings $30,702,672 $30,403,548
STATEMENT OF INCOME:
Interest income 9,174,644 9,168,640
Income before provision for income
taxes 1,382,780 1,376,776
Provision for income taxes 304,564 293,335
Net income 1,078,216 1,083,441
Per share data:
Net income - basic $0.60 $0.60
Net income - diluted $0.60 $0.60
Retained earnings at January 1, 2001 has been reduced by $304,349 to correct the effect of the misstatement through December 31, 2000.
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FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2002
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, this Form 10-Q may contain forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors that might cause such a difference include, but are not limited to, those discussed in the section entitled, "Management's Discussion and Analysis of Financial Condition and Results of Operations". Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of this date. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise in the future.
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1. Changes in Financial Condition
Dollar Percent
March 31, 2002 December 31, 2001 change change
-------------- ----------------- ------ ------
Noninterest-bearing deposits
Personal $22,430,002 $22,333,970 $96,032 0.43%
Non-personal 22,248,610 23,622,034 (1,373,424) -5.81%
Public fund 2,031,055 2,872,126 (841,072) -29.28%
Bank checks 2,357,363 4,473,474 (2,116,111) -47.30%
- ---------------------------------------------------------------------------------------------------------------------------------
Total $49,067,029 $53,301,605 $(4,234,576) -7.94%
=================================================================================================================================
Certificates of deposit of $100,000 or more
Personal $66,263,078 $61,521,341 $4,741,737 7.71%
Non-personal 23,799,425 23,391,143 408,282 1.75%
Public fund 40,663,997 42,578,923 (1,914,926) -4.50%
IRA's 5,358,556 5,188,588 169,968 3.28%
- ---------------------------------------------------------------------------------------------------------------------------------
Total $136,085,056 $132,679,995 $3,405,061 2.57%
=================================================================================================================================
Other interest-bearing deposits
CD's less than $100,000:
Personal $96,996,300 $98,038,828 $(1,042,528) -1.06%
Non-personal 24,582,331 25,035,720 (453,389) -1.81%
Public fund 936,259 833,561 102,698 12.32%
IRA's 20,499,629 20,535,149 (35,519) -0.17%
- ---------------------------------------------------------------------------------------------------------------------------------
sub total 143,014,519 144,443,257 (1,428,738) -0.99%
NOW acounts 36,378,876 36,012,247 366,629 1.02%
Money market deposits 7,950,470 7,411,972 538,498 7.27%
Savings and clubs 37,074,386 33,929,652 3,144,734 9.27%
- ---------------------------------------------------------------------------------------------------------------------------------
Total $224,418,250 $221,797,128 $2,621,123 1.18%
=================================================================================================================================
Total deposits
Noninterest-bearing deposits $49,067,029 $53,301,605 $(4,234,576) -7.94%
Interest-bearing deposits 360,503,307 354,477,123 6,026,184 1.70%
- ---------------------------------------------------------------------------------------------------------------------------------
Total $409,570,336 $407,778,728 $1,791,608 0.44%
=================================================================================================================================
As indicated in the table above, deposit growth was relatively flat in the first three months of 2002. Historically, growth has been modest during the first quarter. Excess public fund and non-personal deposits at December 31, 2001 were withdrawn by the depositors to meet their first quarter operating needs. The decline in outstanding Bank checks had a material effect on growth.
Bank checks are used to pay operating expenses of the Bank, deposit paydowns and loan disbursements. While Bank checks are included in deposits, they are not deposits from customers. Discounting the effect of Bank checks, total deposits would have increased $3,908,000 or 0.97%. during 2002.
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Short-term borrowings, which are comprised of repurchase agreements (Repos), treasury tax and loan retained funds and federal funds purchased, decreased $7,044,000 or 12.93%. Two public fund Repos and one non-personal Repo withdrew $9,823,000 to meet operating expenses or to reinvest outside of the Bank. At March 31, 2002 there were 180 Repos, approximating the number at December 31, 2001.
Total cash and cash equivalents decreased due to liability runoff, net loan disbursements and fixed asset acquisitions. In addition the Bank sold Fed Funds at March 31, 2002. There were no sales of Fed Funds at December 31, 2001. The decrease was partially offset by a net decrease in the investment portfolio.
During 2002, net loans,including available-for-sale loans, grew $7,546,000 or 2.04%. Commercial loans increased $6,823,000 or 3.81%. Consumer loans and direct financing leases decreased due to reduced demand. The demand was affected by current economic conditions and Bank policies designed to improve the overall quality of the portfolio. Residential mortgages and student loans totaling $5,558,000 were sold during 2002 to provide liquidity and improve yield. The Company has classified certain residential mortgages, student loans and SBA guaranteed loans of $25,078,000 as available-for-sale (AFS) at March 31, 2002. The fair value of AFS loans at March 31, 2002 and December 31, 2000 was $25,096,00 and $16,418,000, respectively.
The following table reflects the composition of the loan portfolio:
March 31, 2002 December 31, 2001
Real estate $93,171,180 $96,740,226
Consumer 63,717,337 67,782,196
Commercial 185,866,883 179,043,816
Direct financing leases 9,413,895 9,961,967
Real estate construction 5,359,054 5,446,870
- ------------------------------------------------------------------------------------------
Gross loans $357,528,349 $358,975,075
Less:
Unearned discount 1,089,085 1,256,818
Allowance for loan losses 3,844,643 3,741,933
- ------------------------------------------------------------------------------------------
Net Loans $352,594,620 $353,976,324
==========================================================================================
Paydowns and early calls of US agency and municipal bonds and a FHLB stock redemption totaled $12,910,000. US Government Agency bonds of $6,000,000, classified as available-for-sale, were sold to provide liquidity and to improve the yield on earning assets. US Government Agency bonds, mortgage-backed securities and municipal bonds of $14,293,000 were purchased during 2002.
These activities, plus a $980,000 decrease in the market value of available-for-sale securities, caused by changes in current market rates, were the major changes in the investment portfolio.
Fluctuations in capital markets cause frequent changes in the market value of investments. Market conditions are monitored daily and the Company is prepared to take remedial actions if deemed appropriate.
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Securities held-to-maturity and available-for-sale at March 31, 2002 consist of the following:
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------------
Held-to-maturity
Mortgage backed securities $15,271,967 $29,329 $281,839 $15,019,457
Government agencies 14,996,779 - 503,539 14,493,240
--------------------------------------------------------------------------------------
Total held-to-maturity $30,268,746 $29,329 $785,378 $29,512,697
--------------------------------------------------------------------------------------
Available-for-sale
Agencies $91,940,902 $ - $2,685,973 $89,254,929
State and municipal 10,931,156 40,779 230,838 10,741,097
Corporate bonds 2,986,704 - 44 2,986,660
Mortgage backed securities 11,737,013 57,405 85,170 11,709,248
--------------------------------------------------------------------------------------
Sub total 117,595,775 98,184 3,002,025 114,691,934
Equity securities 3,428,625 46,127 34,558 3,440,194
--------------------------------------------------------------------------------------
Total available-for-sale $121,024,400 $144,311 $3,036,583 $118,132,128
--------------------------------------------------------------------------------------
Grand total $151,293,146 $173,640 $3,821,961 $147,644,825
======================================================================================
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At March 31, 2002, the contractual maturities of securities held-to-maturity and available-for-sale are listed below. Mortgage backed securities, which are subject to monthly principal reductions, are listed in total. Equity securities have no stated maturity dates and are listed in total.
Amortized Market
Held-to-maturity cost value
----------- -----------
Over ten years $14,996,779 $14,493,240
- ------------------------------------------------------------------------------------------
sub total 14,996,779 14,493,240
Mortgage backed securities 15,271,967 15,019,457
- ------------------------------------------------------------------------------------------
Total held-to maturity $30,268,746 $29,512,697
- ------------------------------------------------------------------------------------------
Available-for-sale
One through five years 15,200,000 15,035,679
Five through ten years 54,394,061 52,797,828
Over ten years 36,264,701 35,149,178
- ------------------------------------------------------------------------------------------
sub total 105,858,762 102,982,686
Mortgage backed securities 11,737,013 11,709,248
Equity securities 3,428,625 3,440,194
- ------------------------------------------------------------------------------------------
Total available-for-sale $121,024,400 $118,132,128
- ------------------------------------------------------------------------------------------
Grand total $151,293,146 $147,644,825
The increase in bank premise and equipment was caused by leasehold improvements to the new Eynon branch and initial deposits on the new core processing system being installed in 2002.
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2. Changes in Results of Operations:Net Income for the three months ending March 31, 2002 and 2001 was $1,078,129 and $1,083,441, respectively. The significant differences are as follows:
2002 2001 Difference
Net interest income 4,082,542 3,770,943 311,599A
Provision for loan losses 460,000 328,000 (132,000)B
Deposit service charges and other income 786,152 644,556 141,596C
Gain on sale of assets 186,033 220,054 (34,021)
Salaries and employee benefits 1,591,591 1,379,823 (211,768)D
Premises and equipment 645,002 639,184 (5,818)
Other expense 907,993 911,770 3,777
Provision for income tax 372,012 293,335 (78,677)E
- The tax equivalent ("TE") yield on Average Earning Assets decreased 137 basis points (bp) from 7.97% at March 31, 2001 to 6.60% at March 31, 2002. This reduction reflects the eight reductions in the discount rate since March 31, 2001. The reductions totaled 325 bp.
The discount rate is the rate at which the Federal Reserve Bank lends overnight funds to banks. Changes in the discount rate have a direct effect on loans and investments subject to immediate repricing and call features.
The decline in market rates allowed the Bank to reduce rates paid on interest-bearing liabilities. The cost of funds decreased 136 bp from 5.32% at March 31, 2001 to 3.96% at March 31, 2002.
The provision for loan losses was increased as a result of the growth in the loan and available-for-sale loan portfolios.
Increases in trust income, annuity sales and service charges on loans produced the increase in deposit service charges and other income.
Staff increases, merit pay increases and higher benefit costs increased personnel expense $212,000. The year to date average number of employees increased from 159 at March 31, 2001 to 169 at March 31, 2002.
The effective federal income tax rate was 25.65% and 21.31% for the three months ending March 31, 2002 and March 31, 2001 respectively. Income before provision for income taxes in 2002 increased $73,000 over 2001. Non-taxable income as a percentage of net income before taxes declined from 29.21% in 2001 to 20.27% in 2002.
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THE FIDELITY DEPOSIT & DISCOUNT BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of dollars)
TAX EQUIVALENT YIELD
Three months ended Year ended Three months ended
March 31, 2002 December 31, 2001 March 31, 2001
-----------------------------------------------------------------
Average earning assets:
Loans and leases $379,265 $355,640 $349,342
Investments 151,446 121,791 119,452
Federal funds sold 11,799 20,501 61
Interest-bearing deposits 1,463 12,716 6,695
-----------------------------------------------------------------
Total $543,973 $510,648 $475,550
=================================================================
Average Interest Bearing Liabilities:
Other Interest-bearing deposits $80,101 $79,861 $83,565
Certificates of deposit 283,426 254,422 213,701
Other borrowed funds 64,115 66,674 73,984
Repurchase agreements 48,826 40,970 39,977
-----------------------------------------------------------------
Total $476,468 $441,927 $411,227
=================================================================
Interest Income
Loans and leases $6,594 $28,398 $7,298
Investments 2,204 7,894 2,037
Federal funds sold 50 544 1
Interest-bearing deposits 6 181 8
-----------------------------------------------------------------
Total $8,854 $37,017 $9,344
=================================================================
Interest Expense
Other Interest-bearing deposits $243 $1,552 $597
Certificates of deposit 3,213 14,004 3,269
Other borrowed funds 887 3,788 1,045
Repurchase agreements 305 1,510 487
-----------------------------------------------------------------
Total $4,648 $20,854 $5,398
=================================================================
Net Interest Income $4,206 $16,163 $3,946
=================================================================
Yield on average earning assets 6.60% 7.25% 7.97%
Cost of average interest-bearing liabilities 3.96% 4.72% 5.32%
=================================================================
Interest rate spread 2.64% 2.53% 2.65%
=================================================================
Net yield on average earning assets 3.14% 3.17% 3.37%
=================================================================
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FIDELITY D & D BANCORP, INC. and SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Loan Losses
The provision is an expense charged against earnings for actual or potential losses from uncollectible loans and leases. Through the provision, the allowance for loan loss is increased. Loans determined to be uncollectible are charged-off against the allowance.
The Bank has established an Asset Quality Committee which meets monthly to review known and potential problem loans and leases. The committee is comprised of senior management, credit administration and collection personnel. The committee reports quarterly to the Credit Administration Committee of the Board of Directors.
Management continuously reviews the risks inherent in the loan and lease portfolios. Specific factors used to evaluate the adequacy of the loan loss provision during this formal process include:
- Specific loans that could have loss potential
- Levels of and trends in delinquencies and non accrual loans
- Levels of and trends in charge-offs and recoveries
- Trends in volume and terms of loans
- Changes in risk selection and underwriting standards
- Changes in lending policies, procedures and practices
- Experience, ability and depth of lending management
- National and local economic trends and conditions
- Changes in credit concentrations
For the three months ended March 31, 2002, there were no adjustments made to the historical loan loss experience, based on a review of the loan portfolio, for the factors specified above.
The Bank does not have significant concentrations of loans in specific industries or outside the Northeastern Pennsylvania geographic area. There are no individual significant nonperforming loans.
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FIDELITY D & D BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
PROVISION FOR LOAN LOSSES
March 31, 2002 December 31, 2001 March 31, 2001
Loans, net of unearned discount and fees 381,517,241 373,868,277 351,454,149
Allowance for loan losses 3,844,643 3,741,933 3,400,226
Percentage to net loans 1.01% 1.00% 0.97%
Provision for loan losses
Year ended 2,474,637
Three months ended 460,000 328,000
(Charge offs)/recoveries, net
Year ended (1,996,984)
Three months ended (357,290) (192,054)
The allowance for loan losses can generally to absorb losses throughout the loan and lease portfolios. However, in some instances an allocation is made for specific loans or groups of loans.
The slowing economy has impacted the loan portfolio. That trend is reflected in the increase in charged-off loans, especially commercial and consumer. The increase in the number of delinquencies necessitated the hiring of additional collection personnel.
Over the last five years, management has analyzed and relied on similar factors in determining the amount of loan loss provision relative to the adequacy of the allowance for loan loss. The methodology used by the bank to analyze the adequacy of the allowance for loan losses is as follows (loans and leases are collectively referred to as loans):
- Identification of specific problem loans by loan category by the credit administration
- Calculation of specific reserves required based on collateral and other persuasive evidence
- Identification of loans collateralized by cash
- Determination of remaining homogenous pools by loan category and eliminating loans collateralized by cash and loans with specific reserves
- Application of historical loss percentages (5-year average) to pools to determine the reserve allocation
Allocation of the allowance for loan losses for different categories of loans is based on the methodology used by the Bank, as explained above. The changes in the allocations from period to period are based upon reviews of the loan and lease portfolios.
In the internal review of loans for both delinquency and collateral sufficiency, management concluded that there were an above average number of loans that lacked the ability to repay in accordance with contractual terms.
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The decision to place loans on a non-accrual basis is made on an individual basis after considering factors pertaining to the loan.
In addition, it was determined there were other loans that did not have the ability to make any repayment. Accordingly, management found it necessary to charge-off these loans and to increase the allowance for loan loss for certain other loans. The charge-offs were made after collateral was repossessed, foreclosed upon or notice was forwarded to governmental guarantors. The allowance for loan loss was increased through the provision for loan loss.
The Bank is unaware of any potential problem loans that have not been reviewed and addressed. Potential problem loans are those where there is known information that leads the Bank to believe repayment of principal and/or interest is in jeopardy and the loans are neither non-accrual nor past due 90 days or more.
Based upon the thorough analysis of both the loan portfolio and the allowance for loan losses at March 31, 2002, the Bank is confident that the allowance provides adequate protection against portfolio loss. However, there could be instances of which the Bank is unaware that may require additional charge-offs and or increases to the provision.
Interest Rate Risk
Interest rate risk management is an integral part of the Asset Liability Management Process. Interest rate risk is defined as the degree to which interest rate movements may affect net interest income and the balance sheet. Fluctuations in rates can affect income through the balance of repricing assets and source funds. If more assets reprice than liabilities, the balance sheet is positively gapped. This position contributes favorably to net interest income in a rising interest rate environment. Conversely, if the balance sheet has more liabilities repricing than assets, the balance sheet is liability sensitive and negatively gapped. In a declining rate environment, net interest income would improve.
The Company uses a simulation model to better understand the risks to the Company that may be brought about by changes in market interest rates. At March 31, 2002, the Company simulated the effects on net interest income given an immediate parallel shift in the yield curve of 200 basis points in either direction. The results of the simulation did not fall with in the Company's established policy limits for changes in net interest income if rates decreased 200 basis points. Given the current market conditions it is highly unlikely that there would be an immediate 200 basisi point decline in rates. However, the Company is exploring strategies to improve this situation.
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Liquidity Management
Liquidity for a bank is the ability to fund customers’ needs for borrowings and withdrawals. Sources of liquidity are:
- Cash and cash equivalents
- Asset maturities, paydowns and sales
- Growth of core deposits
- Growth of repurchase agreements
- Increase of other borrowed funds
- Issuance of capital stock
Management monitors asset and liability maturities to match anticipated cash flow requirements. These cash flow requirements are reviewed with the use of internally generated reports. The Company has instituted certain procedures and policy guidelines to manage the rate sensitive position. Those internal rules enable the Company to react to changes in market rates and protect net interest income from significant fluctuations.
Cumulative liquidity (in thousands of dollars):
Mar 31, 2002 Dec 31, 2001 Mar 30, 2001
Assets due within one year $175,364 $169,775 $136,533
Liabilities due within one year $270,992 $272,214 $228,447
Percent of assets due within one year
to liabilities due within one year 64.71% 62.37% 59.77%
Investments included with assets due within one year were scheduled by maturity dates and not by call dates.
Liabilities include deposits not having stated maturity dates (DDA's, NOWs, Savings & MMDA's) in the amounts reported. In addition, sweep accounts were classified as having immediate maturity dates.
The improvement in liquidity was caused by the reduction in market rates. As market rates began to decrease, investment securities, subject to call dates, were in fact called. Other investments and loans began to prepay. This provided the Bank with a significant source of funds to meet liquidity demands.
Management believes that the present level of liquidity is adequate for current operations.
21
This presentation does not take into consideration lines of credit that are available to the Company, or assets available-for-sale, both of which could be used to meet liquidity needs. The Company’s capital amounts and ratios at March 31, 2002 are as follows:
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total Capital
(to Risk Weighted Assets) $46,074,152 12.43% $29,652,595 8.00% $37,065,744 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $42,224,303 11.39% $14,826,298 4.00% $22,239,447 6.00%
Tier 1 Capital
(to Average Assets) $42,224,303 7.35% $22,990,690 4.00% $28,738,362 5.00%
The ratios for the Bank are not materially different from those of the Company.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.In the opinion of Management, there are no proceedings pending to which the Company is a party or to which its property is subject, which if determined adversely to the Company, would be material in relation to the Company's undivided profits or financial condition. In addition, Management does not know of any material proceedings pending, threatened or contemplated against the Company by government authorities.
ITEM 2. Changes in Securities and Use of Proceeds.
None.
ITEM 3. Default Upon Senior Securities.
None.
ITEM 4. Submission of matters to a Vote by Security Holders.
None.
ITEM 5. Other Information.
None.
22
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits
3(i)Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Exhibit 3(i) to Registrant's Registration Statement No. 333-90273 on Form S-4, filed with the SEC on November 3, 1999 and as amended on April 6, 2000.
3(ii)Bylaws of Registrant. Incorporated by reference to Exhibit 3 (ii) to Registrant's Registration Statement No. 333-90273 on Form S-4, filed with the SEC on November 3, 1999 and as amended on April 6, 2000.
10.1 Registrant's 2000 Independent Directors Stock Option Plan. Incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement No. 333-64356 on Form S-8, filed with the SEC on July 2, 2001.
10.2 Registrant's 2000 Stock Incentive Plan. Incorporated by reference to Exhibit 4.4 to Registrant's Registration Statement No. 333-64356 on Form S-8, filed with the SEC on July 2, 2001.
10.3 Form of Deferred Compensation Plan of the Fidelity Deposit and Discount Bank. Incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement No. 333-45668 on Form S-1, filed with the SEC on September 12, 2000, as amended by Pre-effective Amendment No. 1 on October 11, 2000 and by Post-effective Amendment No. 1 on Form S-3 on May 30, 2001
10.4 Registrant's 2000 Dividend Reinvestment Plan. Incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement No. 333-45668 on Form S-1, filed with the SEC on September 12, 2000, as amended by Pre-effective Amendment No. 1 on October 11, 2000 and by Post-effective Amendment No. 1 on Form S-3 on May 30, 2001.
10.5 Form of Employment Agreement with Joseph J. Earyes. Incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed with the SEC on March 25, 2002.
11 Statement regarding computation of earnings per share. Included herein on page 9.
- The Company filed a current report on Form 8-K with the Securities and Exchange Commission on March 25, 2002 (Disclosing the Form of Employment Agreement with Joseph J. Earyes made as of January 15, 2002)
23
FIDELITY D &D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: May 10, 2002 ___________________________________
Michael F. Marranca, Chairman of the Board and President
DATE: May 10, 2002 ___________________________________
Robert P. Farrell, Treasurer
24
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2002
Exhibit Index
3(i)Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Exhibit 3(i) to Registrant's Registration Statement No. 333-90273 on Form S-4, filed with the SEC on November 3, 1999 and as amended on April 6, 2000.
3(ii)Bylaws of Registrant. Incorporated by reference to Exhibit 3 (ii) to Registrant's Registration Statement No. 333-90273 on Form S-4, filed with the SEC on November 3, 1999 and as amended on April 6, 2000.
10.1 Registrant's 2000 Independent Directors Stock Option Plan. Incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement No. 333-64356 on Form S-8, filed with the SEC on July 2, 2001.
10.2 Registrant's 2000 Stock Incentive Plan. Incorporated by reference to Exhibit 4.4 to Registrant's Registration Statement No. 333-64356 on Form S-8, filed with the SEC on July 2, 2001.
10.3 Form of Deferred Compensation Plan of the Fidelity Deposit and Discount Bank. Incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement No. 333-45668 on Form S-1, filed with the SEC on September 12, 2000, as amended by Pre-effective Amendment No. 1 on October 11, 2000 and by Post-effective Amendment No. 1 on Form S-3 on May 30, 2001
10.4 Registrant's 2000 Dividend Reinvestment Plan. Incorporated by reference to Exhibit 4.3 to Registrant's Registration Statement No. 333-45668 on Form S-1, filed with the SEC on September 12, 2000, as amended by Pre-effective Amendment No. 1 on October 11, 2000 and by Post-effective Amendment No. 1 on Form S-3 on May 30, 2001.
10.5 Form of Employment Agreement with Joseph J. Earyes. Incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed with the SEC on March 25, 2002.
11 Statement regarding computation of earnings per share. Included herein on page 9.
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