SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2001
COMMISSION FILE NUMBER: 333-90273
---------------------------------
FIDELITY D & D BANCORP, INC.
STATE OF INCORPORATION: IRS EMPLOYER IDENTIFICATION NO:
- --------------------------------------------------------------------------------
PENNSYLVANIA 23-3017653
PRINCIPAL OFFICE:
BLAKELY & DRINKER ST.
DUNMORE, PENNSYLVANIA 18512
TELEPHONE:
- --------------------------------------------------------------------------------
570-342-8281
The Company (1) has filed all reports required to be filed by Section 13 of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
__X__ YES ___ NO
-
The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc.
at April 30, 2001, the latest practicable date was 1,808,897.
FIDELITY D & D BANCORP, INC. and SUBSIDIARY.
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2001
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 3
Consolidated Statement of Income for the three
months ended March 31, 2001 and 2000 4
Consolidated Statement of Changes in Shareholders' Equity
for the three months ended March 31, 2001 and 2000 5
Consolidated Statement of Cash Flows for the three months
ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-16
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk,
included in Item 2 17-18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Change in Securities and Use of Proceeds 19
ITEM 3. Defaults upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holder 19
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
Signature Page 22
Exhibit Index 23
2
FIDELITY D & D BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of March 31, 2001 and December 31, 2000
March 31, 2001 December 31, 2000
(unaudited) (audited)
-------------------------------------
ASSETS
Cash and due from banks $ 2,973,621 $ 5,502,430
Interest bearing deposits with financial
institutions 10,155,535 3,277,062
------------- -------------
Total cash and cash equivalents 13,129,156 8,779,492
Federal funds sold 1,400,000 --
Held to maturity securities 7,550,619 7,879,433
Available for sale securities 109,234,141 111,876,958
Loans net of unearned income 340,309,259 336,865,255
Allowance for loan losses
3,400,226 3,264,280
------------- -------------
Net loans 336,909,034 333,600,975
Loans available-for-sale 11,144,890 10,318,792
Bank premises and equipment 11,248,696 11,390,479
Accrued interest receivable 4,267,633 3,885,291
Foreclosed assets held for sale 216,561 353,253
Other assets 3,331,941 3,659,198
------------- -------------
Total assets $ 498,432,672 $ 491,743,871
============= =============
LIABILITIES
Deposits
Noninterest-bearing $ 44,613,559 $ 47,500,335
Cert. of deposit $100,000 or more 117,037,609 94,717,931
Other interest-bearing deposits 191,557,927 197,406,799
------------- -------------
Total deposits 353,209,095 339,625,066
Accrued expenses and other liabilities 3,998,402 3,574,672
Short-term borrowings 38,798,413 48,024,721
Long-term debt 63,000,000 63,000,000
------------- -------------
Total liabilities 459,005,910 454,224,459
------------- -------------
Shareholders' Equity:
Preferred Stock -- --
Common stock, 10,000,000 shares
authorized without par value 8,978,783 8,881,713
Accumulated other comprehensive income (254,694) (1,325,435)
Retained Earnings 30,702,672 29,963,134
------------- -------------
Total shareholders' equity 39,426,762 37,519,412
------------- -------------
Total liabilities and shareholders' equity $ 498,432,672 $ 491,743,871
============= =============
See notes to consolidated financial statements
3
FIDELITY D & D BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
Three Month Period Ended March 31, 2001 and 2000
(unaudited)
March 31, 2001 March 31, 2000
-------------- --------------
Interest Income
Interest and fees on loans:
Taxable $ 6,857,188 $ 5,894,181
Nontaxable 188,142 147,581
Interest and fees on leases 188,539 125,400
Interest-bearing deposits with
financial institutions 8,447 10,542
Investment securities:
US Government Agencies 1,618,908 1,524,827
States & Political Subdivisions (nontaxable) 214,045 285,317
Other Securities 98,415 90,919
Federal funds sold 961 --
----------- -----------
Total interest income 9,174,644 8,078,767
----------- -----------
Interest expense
Certificates of deposit of $100,000 or more 1,599,446 1,127,425
Other Deposits 2,266,794 2,083,414
Securities sold under repurchase agreements 487,286 440,662
Other short-term borrowings and long-term debt 1,035,671 1,007,767
Other 8,500 7,322
----------- -----------
Total interest expense 5,397,696 4,666,591
----------- -----------
Net interest income 3,776,948 3,412,176
Provision for loan losses 328,000 106,500
----------- -----------
Net interest income, after provision
for loan losses 3,448,948 3,305,676
----------- -----------
Other income:
Service charge on deposit accounts 258,264 254,642
Gain on sale of securities 114,375 11,100
Gain on sale of loans and leases 79,878 48,362
Gain on loans available-for-sale -- 25,373
Gain on sale of foreclosed assets held for sale 25,801 --
Fees and other service charges 364,374 299,070
Other income 21,918 15,037
----------- -----------
Total other income 864,610 653,584
----------- -----------
Other operating expenses:
Salaries and employee benefits 1,379,823 1,368,612
Premises and equipment 639,184 512,943
Advertising 90,040 117,217
Other expenses 821,730 907,491
----------- -----------
Total operating expenses 2,930,777 2,906,263
----------- -----------
Income before income taxes 1,382,780 1,052,997
Provision for income taxes 304,564 186,800
----------- -----------
Net Income $ 1,078,216 $ 866,197
=========== ===========
Basic earnings per share $0.60 $0.48
Diluted earnings per share $0.60 $0.48
Dividends per share $0.1875 $0.1875
See notes to consolidated financial statements
4
FIDELITY D & D BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2001 and 2000
(unaudited)
Accumulated
Capital Stock Retained Other Comprehensive
Shares Amount Earnings Income/(Loss) Total
----------------------------------------------------------------------------
Balance, Dec. 31, 1999 1,800,784 $8,673,031 $28,126,918 $(4,673,713) $32,126,236
-----------
Net Income -- -- 866,197 866,197
Change in Net Unrealized
Available-for sale Security Gains/(losses) (54,738) (54,738)
-----------
Comprehensive Income -- -- -- 811,459
-----------
Cash Dividends (337,704) (337,704)
Issuance of stock 250 15,500 15,500
Dividends Reinvested 1,556 109,728 109,728
---------------------------------------------------------------------------
Balance, March 31, 2000 1,802,590 $8,798,259 $28,655,411 $(4,728,451) $32,725,219
===========================================================================
Balance, December 31, 2000 1,806,274 $8,881,713 $29,963,134 $(1,325,435) $37,519,412
-----------
Net Income -- 1,078,216 1,078,216
Change in Net Unrealized -- -- --
Available-for sale Securities Gains/(losses) 1,070,742 1,070,742
-----------
Comprehensive Income 2,148,957
----------
Cash Dividends (338,678) (338,678)
Dividends Reinvested 2,623 97,070 -- -- 97,070
----------------------------------------------------------------------------
Balance March 31, 2001 1,808,897 $8,978,783 $30,702,672 $(254,693) $39,426,761
============================================================================
See notes to consolidated financial statements.
5
FIDELITY D & D BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001 and 2000
(unaudited)
2001 2000
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income......................................... $ 1,078,216 $ 866,197
Adjustments to reconcile net income to net
cash provided by (used by) operating activities:
Depreciation..................................... 298,200 213,900
Amortization of securities (net of accretion).... (12,216) (17,332)
Provision for loan loss and recoveries........... 328,000 106,500
Deferred Income Tax.............................. (12,019) 75,816
Amortization of mortgage servicing rights........ 9,672 4,019
(Gain)/Loss Sale of Investment Securities........ (114,375) (11,100)
(Gain)/Loss on Sale of Loans..................... (79,878) (48,362)
(Gain)/Loss on Sale of foreclosed assets held for
sale........................................... (25,801) (351)
(Appreciation)/Depreciation available-for-sale
loans.......................................... -- (25,373)
(Increase)/decrease in Interest Receivable....... (382,342) (660,525)
Increase/(decrease) in accrued expenses.......... 423,730 (20,427)
Increase)/decrease in other assets............... (221,992) (534,499)
----------- ------------
Net cash provided by (used by) operating activities $ 1,289,195 $ (51,537)
----------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity, call and paydown
of held-to-maturity securities.................. $ 328,814 $ --
Proceeds from the sale of available-for-sale securities 4,114,375 992,188
Proceeds from maturity, call and paydown
of available-for-sale securities................. 7,277,368 386,274
Purchase of available-for-sale securities.......... (7,000,000) (2,000,000)
(Increase)/decrease in Federal Funds Sold.......... (1,400,000) --
Proceeds from sale of loans........................ 4,870,060 682,509
(Increase)/decrease Loans & Leases................. (9,250,797) (13,751,236)
Purchase of Bank Premises and Equipment............ (156,417) (1,411,124)
Improvements to foreclosed assets held for sale.... (7,645) (463)
Proceeds from sale of foreclosed assets
held for sale..................................... 168,596 12,423
----------- ------------
Net cash used in investing activities............. $(1,055,645) $(15,089,429)
----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase(decrease) in non-interest bearing deposits $(2,886,777) $ 1,198,436
Net increase(decrease) in interest bearing deposits (5,848,873) (3,910,477)
Net increase(decrease) in CD's $100,000 or more 22,319,678 16,958,091
Increase(decrease) in short term borrowings........ (9,226,308) (5,174,951)
Dividends paid..................................... (338,678) (337,704)
Proceeds from issuance of common stock............. -- 15,500
Proceeds from dividend reinvestment................ 97,070 109,728
----------- ------------
Net cash provided by financing activities........ $ 4,116,113 $ 8,858,623
----------- ------------
Net increase(decrease) in cash and cash equivalents.. $ 4,349,663 $ (6,282,343)
Cash and cash equivalents, beginning................. 8,779,492 17,957,379
----------- ------------
Cash and cash equivalents, end....................... $13,129,155 $ 11,675,036
=========== ============
See notes to consolidated financial statements.
6
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 & 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,
reference is made to the bank's Annual Report on Form 10-K for the year ended
December 31, 2000.
The Bank is a commercial bank chartered by the Commonwealth of
Pennsylvania. Commencing 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 in
accordance with GAAP prepared the unaudited financial statements. 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.
7
In the opinion of management, the consolidated balance sheets as of March
31, 2001 and December 31, 2000 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 month ended March
31, 2001 and 2000 present fairly the consolidated results of its operations and
its cash flows for the periods then ended. All material adjustments required for
fair presentation have been made. 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. These adjustments are of a
normal reoccurring nature.
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, 2000 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.
All per share data for the year 2000 has been restated for the June 30,
2000 stock exchange.
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period,
(1,806,945 in 2001 and 1,801,641 in 2000).
8
Diluted earnings per share is similar to the computation of basic earnings
per common share except that the denominator is increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. 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 periods
ended March 31, 2001 and 2000:
Common Earnings
Income Shares per
March 31, 2001 Numerator Denominator Share
--------- ----------- -----
Basic EPS $1,078,216 1,806,945 $0.60
=====
Dilutive effect of potential common stock
Stock options:
Exercise of outstanding options 14,400
Hypothetical share repurchase at $36.00 (13,248)
---------------------------
Diluted EPS $1,078,216 1,808,097 $0.60
============================================
March 31, 2000
Basic EPS $ 866,197 1,801,641 $0.48
=====
Stock options:
Exercise of outstanding options: 15,150
Hypothetical share repurchase at $35.25 (14,248)
---------------------------
Diluted EPS $ 866,197 1,802,543 $0.48
============================================
Earnings per share have been restated for the June 30, 2000 two-for-one
stock exchange.
The company became a bank holding company on June 30, 2000, when it
acquired all of the outstanding shares of the Bank. On that date, each then
outstanding share of common stock of the Bank came to represent two shares of
the Company's common stock, in accordance with the terms of the plan of
reorganization.
9
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2001
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 the date, hereof. The Company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date, hereof.
1. Changes in Financial Condition
Total deposits increased $13,584,000 or 4.00% from $339,625,000 at December
31, 2000 to $341,644,000 at March 31, 2001. The success at attracting new
customers and additional funds from existing depositors can be linked to the new
and renovated branches and competitive product pricing.
Non interest-bearing deposits decreased $2,887,000 or 6.08% during 2001.
The decline was centered in business demand deposit accounts, (DDA's) which
decreased $3,118,000. Many business DDA's are tied to sweep accounts that
transfer excess funds to interest-bearing repurchase agreements, (Repo's) on a
daily basis. Repo's increased $2,135,000 during the first three months of 2001.
Interest-bearing deposits increased $16,471,000 or 5.64%. Public fund
certificates of deposit, (CD's) and non-personal CD's increased $20,527,000 and
$4,096,000 respectively. Decreases in NOW accounts, money market deposit
accounts and personal CD's reduced the total increase in public fund and
non-personal CD's.
Short-term borrowings, which are comprised of Repos, treasury tax and loan
retained funds and federal funds purchased, decreased $9,226,000 or 4.79%. Of
the total decrease, federal funds purchased were reduced $10,950,000. The
reduction in federal funds purchased was due to the increase in deposits and
Repos.
The rise in Deposits less the decrease in short-term borrowings, an
increase in common stock through the Dividend Reinvestment Plan, and the
retention of earnings, caused Total Liabilities and Shareholders' Equity to
increase $6,689,000 or 1.36% since December 31, 2000.
10
During 2001, net loans, including available-for-sale loans grew $3,308,000
or 0.99%. Commercial loans increased $6,649,000 or 4.54%. Residential mortgages,
SBA guaranteed loans and student loans totaling $4,790,000 were sold during 2001
to provide liquidity and improve yield. The Company has classified certain
residential mortgages, student loans and SBA guaranteed loans of $11,145,000 as
available-for-sale at March 31, 2001.
The following table reflects the composition of the loan portfolio:
March 31, 2001 December 31, 2000
------------- -----------------
Real estate $107,528,730 $109,942,570
Consumer 66,148,448 66,441,389
Commercial 153,259,899 146,610,685
Direct financing leases 12,361,336 12,733,075
Real estate construction 2,857,871 2,971,504
- ------------------------------------------------------------------------------
Gross Loans 342,156,284 338,699,223
Less:
Unearned discount 1,847,024 1,833,968
Allowance for loan loss 3,400,226 3,264,280
- ------------------------------------------------------------------------------
Net Loans $336,909,034 $333,600,975
==============================================================================
Paydowns and early calls of US Agency and Municipal bonds totaled
$7,277,000. US Agency bonds of $4,000,000, classified as available-for-sale,
were sold to provide liquidity and to improve the yield on earning assets. US
Government Agency bonds of $7,000,000 were purchased during 2001. These
activities plus a $1,071,000 improvement in the market value of
available-for-sale securities were the major changes in the investment
portfolio.
Fluctuations in capital markets cause frequent changes in the market value
of investments. This particular decline does not indicate a material weakness in
the Company. Market conditions are monitored daily and the Company is prepared
to take remedial actions if deemed appropriate.
11
Securities held-to-maturity and available-for-sale at March 31, 2001
consist of the following:
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
Held-to-maturity
Mortgage backed securities $ 7,550,619 $ 30,420 $ 45,498 $ 7,535,540
--------------------------------------------------------------------
Total held-to-maturity $ 7,550,619 $ 30,420 $ 45,498 $ 7,535,540
====================================================================
Available-for-sale
Agencies $79,296,095 $ 84,726 $610,945 $ 78,769,876
State and municipal 17,581,581 159,957 149,441 17,592,097
Mortgage backed securities 7,171,240 35,121 52,079 7,154,282
--------------------------------------------------------------------
Sub total 104,048,915 279,804 812,464 103,516,255
Equity securities 5,571,126 217,029 70,268 5,717,887
--------------------------------------------------------------------
Total available-for-sale $109,620,041 $496,833 $882,732 $109,234,142
====================================================================
Grand total $117,170,659 $527,252 $928,230 $116,769,681
====================================================================
12
At March 31, 2001, 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.
Book Market
Held-to-maturity value value
---------------- ----- -----
Mortgage backed securities $ 7,550,619 $ 7,535,540
- ------------------------------------------------------------------------------------------------------------
Total held-to-maturity $ 7,550,619 $ 7,535,540
============================================================================================================
Available-for-sale
One year or less $ 1,695,000 $ 1,696,872
One through five years 2,029,222 2,046,547
Five through ten years 30,882,214 30,931,424
Over ten years 62,271,239 61,687,131
- ------------------------------------------------------------------------------------------------------------
Sub total 96,877,676 96,361,973
Mortgage backed securities 7,171,240 7,154,282
Equity securities 5,571,126 5,717,887
- ------------------------------------------------------------------------------------------------------------
Total available-for-sale $109,620,041 $109,234,142
============================================================================================================
Grand total $117,170,659 $116,769,681
============================================================================================================
Total assets of the Company have grown $41,496,000 or 9.08% from
$456,936,000 to $498,433,000 for the twelve months ending March 31, 2001. The
increase is a result of a $44,262,000 rise in deposits, a $10,581,000 net
increase in Repos and borrowings and a net increase in Shareholders' Equity of
$6,702,000.
The funds accumulated through the increases in liabilities were used for
net loan growth of $48,750,000.
Excluding the effect of the net change in the market value of
available-for-sale securities, Shareholders' Equity increased $837,000 for the
three months ending March 31, 2001 and by $2,228,000 for the twelve-month period
ending March 31, 2001. The increases are a result of the retention of profits
and the issuance of common stock under the Dividend Reinvestment plan.
2. Changes in Results of Operations
Net Income
Net Income for the three months ending March 31, 2001 and 2000 was
$1,078,216 and $866,197 respectively. The significant differences are as
follows:
13
2001 2000 Difference
---- ---- ----------
Net interest income 3,776,948 3,412,176 364,772 A
Provision for loan losses 328,000 106,500 (221,500) B
Deposit service charges and other income 670,357 594,122 76,235 C
Gain on sale of assets 194,253 59,462 134,791
Salaries and employee benefits 1,379,823 1,368,612 (11,211)
Premises and equipment 639,184 512,943 (126,241) D
Other expense 911,770 1,024,708 112,938 E
Provision for income tax 304,564 186,800 (117,764) F
A) The tax equivalent ("TE") yield on Average Earning Assets increased 33
basis points, from 7.64% at March 31, 2000 to 7.97% at March 31, 2001. This
action was caused by changes in the National Prime Rate, which had a direct
effect on loans subject to immediate repricing and by deliberate measures
undertaken by the Bank to improve earnings. At the same time, competition
from non-traditional sources for deposit dollars and competitive interest
rates paid for preferred accounts and accounts at the new branch locations,
caused the cost of funds to increase 28 basis points. The changes in
pricing and volume increases in loans improved the TE net yield on earning
assets by 4 basis points and that increased Net Interest Income by
$365,000.
14
B) In the internal review of loans for both delinquency and collateral
sufficiency, Management concluded that there were a number of loans that
lacked the ability to repay in accordance with contractual terms.
Accordingly Management found it necessary to increase the allowance for
loan losses. The allowance for loan losses was increased through the
provision for loan losses.
C) Fees generated from loan serving increased $12,000 due to volume increase
in sold loans serviced by the Bank. Gross fees from the sale of mutual
funds and annuities increased $13,000. ATM service charge income rose
$19,000.
D) A full three months of depreciation on the Peckville branch and fixed
assets purchased during 2000 caused an $84,300 rise in depreciation
expense.
E) Advertising costs were reduced $27,000 in 2001, due in part to the fact
that there were no new branches opened during the first quarter. Stationary
and supply expense declined $47,000 in 2001.
F) Income before provision for income taxes in 2001 increased $330,000 over
2000. Because of this increase the provision for income taxes increased
$118,000 in 2001. The increase was based on a reduction of non-taxable
income and an increase in income before the provision for taxes.
15
THE FIDELITY DEPOSIT & DISCOUNT BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of dollars)
TAX EQUIVALENT YIELD
======================================================================================================
Average Earnings Three months ended Year ended Three months ended
Assets March 31, 2001 December 31, 2000 March 31, 2000
--------------------------------------------------------------
Loans & Leases $ 349,342 $ 328,714 $ 308,494
Investments 119,452 121,796 118,569
Fed Funds 61 -- --
Interest Bearing Deposits 6,695 6,833 7,695
--------------------------------------------------------------
Total $ 475,550 $ 457,343 $ 434,758
==============================================================
Average Interest Bearing Liabilities
Other Interest-bearing Deposits $ 83,565 $ 85,927 $ 84,877
CD's 213,701 200,670 184,134
Other Borrowed Funds 73,984 74,070 70,545
Repurchase Agreements 39,977 34,149 33,155
--------------------------------------------------------------
Total $ 411,227 $ 394,816 $ 372,711
==============================================================
Interest Income
Loans & Leases $ 7,304 $ 27,461 $ 6,242
Investments 2,037 8,324 2,008
Fed Funds 1 -- --
Interest Bearing Deposits 8 45 11
--------------------------------------------------------------
Total $ 9,350 $ 35,830 $ 8,261
==============================================================
Interest Expense
Other Interest-bearing Deposits $ 597 $ 3,036 $ 637
CD's 3,269 12,074 2,574
Other Borrowed Funds 1,045 4,441 1,015
Repurchase Agreements 487 1,917 441
--------------------------------------------------------------
Total $ 5,398 $ 21,468 $ 4,667
==============================================================
Net Interest Income $ 3,952 $ 14,362 $ 3,594
==============================================================
Yield on Average Earning Assets 7.97% 7.83% 7.64%
Cost of Avg Int Bearing Liabilities 5.32% 5.44% 5.04%
--------------------------------------------------------------
Interest Rate Spread 2.65% 2.39% 2.60%
==============================================================
Net Yield on Average Earning Assets 3.37% 3.14% 3.33%
==============================================================
16
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Loan Losses
March 31, 2001 Dec. 31, 2000 March 31, 2000
Net Loans $336,909,034 $333,600,975 $299,303,874
Allowance for loan losses 3,400,226 3,264,280 3,145,994
Percentage to net loans 1.01% 0.98% 1.05%
Provision for loan losses
Year ended 1,158,260
Three months ended 328,000 106,500
(Charge offs)/recoveries, net
Year ended (1,066,355)
Three months ended (192,054) (132,881)
In addition to the allowance for loan losses, there are other reserves not
recorded on the Company's records that are available to mitigate potential loan
loss. The guaranteed portion of SBA and Student Loans that are either 90 days or
more delinquent or classified as non-accrual was $538,000 at March 31, 2001. The
reserve set aside by the Commonwealth of Pennsylvania for loans registered in
the PENNCAP program was $337,000 at March 31, 2001.
Loans secured by deposits were $12,901,000 at March 31, 2001.
The allowance for loan loses is established through a provision for loan
losses. The allowance represents an amount, which, in management's judgement
will be adequate to absorb possible losses on existing loans and leases.
Management's judgement in determining the adequacy of the allowance is based on
evaluations of the collectibility of the loans. These evaluations take into
consideration such factors as:
o Changes in the nature and volume of the loan portfolio;
o Current economic conditions that may effect the borrowers ability to
repay;
o Overall portfolio quality; and
o Review of specific impaired loans.
17
Loans considered uncollectible are charged to the allowance. Recoveries on
charged-off loans are added to the allowance.
A loan is considered impaired when, based on current information, it is
probable that the Company will be unable to collect the scheduled payments.
Factors considered in determining impairment include payment status and
collateral value. The significance of payment shortfalls is determined on a case
by case basis. Such factors include the length of the delinquency, the
underlying reasons and the borrowers prior payment record. Impairment is
measured on a case by case basis. The Company does not group homogeneous loans
collectively for the purpose of determining impairment.
The Company carefully monitors potential problem loans. Potential problem
loans are those where there is known information that leads the company to
believe repayment is in jeopardy. The loans are either non-accrual or past due
90 days or more. Non-accrual loans and loans that were past due 90 days or more
at March 31, 2001 were $2,180,000 and $3,426,000 respectively. At March 31, 2001
the allowance for loan loss represents 155.95% of non-accrual loans and 99.25%
of loans 90 days or more past due.
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, 2001 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 were within the Company's established
policy limits for changes in net interest income.
Liquidity for a bank is the ability to fund customers' needs for borrowings
and withdrawals. Sources of liquidity are:
o Asset maturities, paydowns and sales
o Growth of core deposits
o Growth of Repurchase Agreements
o Increase of other borrowed funds
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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.
Liquidity (in thousands of dollars)
March 31, 2001 Dec 31, 2000 March 31, 2000
Assets due within one year $136,533 $106,310 $122,485
Liabilities due within one year $228,447 $233,931 $230,141
Percent of assets due within one year
to liabilities due within one year 59.77% 45.45% 53.22%
Management believes that the present level of liquidity is adequate for
current operations. Investments were scheduled by maturity 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.
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, 2001 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) $43,081,681 13.60% $25,342,714 8.00% $31,678,392 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $39,681,455 12.53% $12,671,357 4.00% $19,007,035 6.00%
Tier 1 Capital
(to Average Assets) $39,681,455 8.01% $19,827,447 4.00% $24,784,309 5.00%
The ratios for the Company are not materially different from those of the
Bank.
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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, there are no 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.
On March 31, 2001, the Company sent its shareholders proxy solicitation
materials relating to the following matters to be submitted to a vote by
Security Holders at the annual meeting held on May 1, 2001:
A) Proposal to elect four Class A directors for a two year term, as
follows:
Paul A. Barrett John T. Cognetti
John F. Glinsky, Jr. Michael J. McDonald
B) Proposal to elect three Class B directors for a one year term, as
follows:
Samuel C. Cali Mary E. McDonald
David L. Tressler, Sr.
C) Proposal to elect three Class C directors for a three year term, as
follows:
Brian J. Cali Patrick J. Dempsey
Michael F. Marranca
D) Proposal to approve and adopt the Fidelity D&D Bancorp, Inc. 2000
Independent Directors Stock Option Plan
E) Proposal to approve and adopt the Fidelity D&D Bancorp, Inc. 2000 Stock
Incentive Plan
F) Proposal to ratify the selection of Parente Randolph, P.C. Certified
Public Accountants, as the independent auditors for the year ending
December 31, 2001
Management recommended an affirmative vote for all matters submitted.
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ITEM 5. Other Information.
On January 30, 2001, Board of Director member Patrick A. Calvey, Jr.
retired from the Board.. On February 20, 2001, the remaining members of the
Board of Directors appointed Brian J. Cali, Esq. to fill the vacancy. Brian J.
Cali, Esq. is the son of the Board of Director Chairman Samuel C. Cali.
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 1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN OF THE FIDELITY
DEPOSIT AND DISCOUNT BANK, as assumed by Registrant. Incorporated by
reference to Exhibit 10.1 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.
10.2 1998 STOCK INCENTIVE PLAN OF THE FIDELITY DEPOSIT AND DISCOUNT
BANK, AS ASSUMED BY REGISTRANT. Incorporated by reference to Exhibit
10.2 of Registrant's Registration Statement No. 333-90273 on Form S-4,
filed with the SEC on Nov. 3, 1999 and as amended on April 6, 2000.
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 and as amended on October 11, 2000.
10.4 REGISTRANT'S 2000 DIVIDEND REINVESTMENT PLAN. Incorporated by
reference to Exhibit 4 to Registrant's Registration Statement No.
333-45668 on Form S-1, filed with the SEC on September 12, 2000 and as
amended on October 11, 2000.
21
10.5 REGISTRANT'S 2000 INDEPENDENT DIRECTORS STOCK OPTION PLAN.
Incorporated by reference to Appendix A of Registrant's Proxy
Statement for the 2001 Annual Meeting of Shareholders.
10.6 REGISTRANT'S 2000 STOCK INCENTIVE PLAN. Incorporated by reference
to Appendix B of Registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders.
11 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE. Included
herein on page 9.
b) No Current Report on Form 8-K was filed by the Company during the
quarter ended March 31, 2001.
22
FIDELITY D&D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2001
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 14, 2001 /s/ MICHAEL F. MARRANCA
------------- -------------------------------
MICHAEL F. MARRANCA, PRESIDENT
DATE: May 14, 2001 /s/ ROBERT P. FARRELL
------------ -------------------------------
ROBERT P. FARRELL, TREASURER
23
FIDELITY D&D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2001
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 1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN OF THE FIDELITY DEPOSIT
AND DISCOUNT BANK, AS ASSUMED BY REGISTRANT. Incorporated by reference to
Exhibit 10.1 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.
10.2 1998 STOCK INCENTIVE PLAN OF THE FIDELITY DEPOSIT AND DISCOUNT BANK,
AS ASSUMED BY REGISTRANT. Incorporated by reference to Exhibit 10.2 of
Registrant's Registration Statement No. 333-90273 on Form S-4, filed with
the SEC on Nov. 3, 1999 and as amended on April 6, 2000.
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 and as amended on October 11, 2000.
10.4 REGISTRANT'S 2000 DIVIDEND REINVESTMENT PLAN. Incorporated by
reference to Exhibit 4 to Registrant's Registration Statement No. 333-45668
on Form S-1, filed with the SEC on September 12, 2000 and as amended on
October 11, 2000.
10.5 REGISTRANT'S 2000 INDEPENDENT DIRECTORS STOCK OPTION PLAN.
Incorporated by reference to Appendix A of Registrant's Proxy Statement for
the 2001 Annual Meeting of Shareholders.
10.6 REGISTRANT'S 2000 STOCK INCENTIVE PLAN. Incorporated by reference to
Appendix B of Registrant's Proxy Statement for the 2001 Annual Meeting of
Shareholders.
11 COMPUTATION OF EARNINGS PER SHARE. Included herein on page 9.
24