FORM 10-Q
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<TABLE>
<CAPTION>
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000.
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
<S> <C>
For the transition period from to Commission File Number: to be assigned
-------- -------- --------------
</TABLE>
FIDELITY D & D BANCORP, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-3017653
------------ -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
---------------------------
(Address of principal executive offices)(Zip Code)
(570) 342-8281
--------------
(Registrant's telephone number, including area code)
N/A
--------------
(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 No X
-------- --------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
-------- --------
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:
Common Stock, without par value 5
- ------------------------------- ----------------------------------
Class Outstanding Shares at May 10, 2000
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Balance Sheet as of March 31, 2000 3
Statement of Operations and Deficit for the
Three Month Period Ended March 31, 2000 4
Statement of Cash Flows for the
Three Month Period Ended March 31, 2000 4
Note to Financial Statements 5
Fidelity D & D Bancorp, Inc. ("Registrant") has also attached as
Exhibit 99 the Quarterly Report on Form 10-Q for the period ended March
31, 2000, of The Fidelity Deposit and Discount Bank ("Bank"), which
Registrant proposes to acquire, containing financial statements for the
Bank for the period ended March 31, 2000 (Item 1).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
See the Bank's Quarterly Report on Form 10-Q, Item 2, attached as
Exhibit 99.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
See the Bank's Quarterly Report on Form 10-Q, Item 3, attached as
Exhibit 99.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 5
Item 2. Changes in Securities and Use of Proceeds 5
Item 3. Defaults Upon Senior Securities 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 5. Other information 5
2
<PAGE>
Page
Item 6. Exhibits and Reports on Form 8-K. 5
Signature Page 7
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIDELITY D&D BANCORP, INC.
BALANCE SHEET
As of March 31, 2000
(unaudited)
<S> <C>
ASSETS
Cash $5
Deferred income tax 29,633
----------
Total assets $ 29,638
==========
LIABILITIES
Due to affiliate $ 87,157
----------
Shareholders' Deficit
Common stock (10,000,000 shares authorized,
5 shares issued and outstanding, without par value) 5
Preferred stock (5,000,000 shares authorized,
without par value, no shares issued and outstanding) 0
----------
Deficit (57,523)
----------
Total shareholders' deficit (57,518)
----------
Total liabilities and shareholders' deficit $ 29,638
==========
</TABLE>
See Note to Financial Statements.
3
<PAGE>
FIDELITY D&D BANCORP, INC.
STATEMENT OF OPERATIONS AND DEFICIT
Three Month Period Ended March 31, 2000
(unaudited)
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Revenues $0
Organization costs 87,157
----------
Loss before income taxes (87,157)
Income tax credit 29,633
----------
Net loss (57,523)
Beginning deficit 0
----------
Ending deficit ($57,523)
==========
</TABLE>
See Note to Financial Statements.
<TABLE>
<CAPTION>
FIDELITY D&D BANCORP, INC.
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2000
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (57,523)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income tax (29,633)
Change in due to affiliate 87,157
----------
Net cash used in operating activities 0
----------
CASH FLOW FROM FINANCING ACTIVITY:
Proceeds from issuance of common stock 5
----------
Net increase in cash 5
Cash, beginning of period 0
----------
Cash, end of period $ 5
==========
</TABLE>
See Note to Financial Statements.
4
<PAGE>
NOTE TO FINANCIAL STATEMENTS
Fidelity D & D Bancorp, Inc., (the Company), was incorporated to serve
as the stock holding company for The Fidelity Deposit & Discount Bank, (the
Bank), in connection with the Bank's reorganization into a one-bank holding
company structure. As of March 31, 2000, the Bank has not completed its
reorganization. The Company has expensed costs incurred with the reorganization.
The deferred income tax asset relates to the tax treatment of the
organization costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 2.1 Plan of Reorganization, dated December 21, 1999,
by and among Registrant, The Fidelity Deposit and
Discount Bank and The Fidelity Deposit and
Discount Interim Bank, incorporated by reference
to Annex A of the Proxy Statement/Prospectus
included in Registrant's Amendment No. 4 to its
Registration Statement No. 333-90273 on Form S-4,
filed with the Commission on April 6, 2000.
Exhibit 2.2 Plan of Merger, dated December 21, 1999, between
The Fidelity Deposit and Discount Bank and The
Fidelity Deposit and Discount Interim Bank,
incorporated by reference to Annex A of the Proxy
Statement/Prospectus included in Registrant's
Amendment No. 4 to its
5
<PAGE>
Registration Statement No. 333-90273 on Form S-4,
filed with the Commission on April 6, 2000.
Exhibit 3(i) Amended and Restated Articles of Incorporation of
Registrant, incorporated by reference to Annex B
of the Proxy Statement/Prospectus included in
Registrant's Amendment No. 4 to its Registration
Statement No. 333-90273 on Form S-4, filed with
the Commission on April 6, 2000.
Exhibit 3(ii) Bylaws of Registrant, incorporated by reference
to Annex C of the Proxy Statement/ Prospectus
included in Registrant's Amendment No. 4 to its
Registration Statement No. 333-90273 on Form S-4,
filed with the Commission on April 6, 2000.
Exhibit 27 Financial Data Schedule
Exhibit 99 Quarterly Report on Form 10-Q for The Fidelity
Deposit and Discount Bank, for the quarterly
period ended March 31, 2000.
b. No reports on Form 8-K were filed for the quarter ending
March 31, 2000.
6
<PAGE>
SIGNATURES
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 D & D BANCORP, INC.
Date May 11, 2000 /s/ Michael F. Marranca
------------ -------------------------------------------
Michael F. Marranca, President
(Chief Executive Officer)
Date May 11, 2000 /s/ Robert P. Farrell
------------ -------------------------------------------
Robert P. Farrell, Treasurer
(Chief Financial and Accounting Officer)
7
<PAGE>
EXHIBIT INDEX
Exhibit Number
- --------------
Exhibit 2.1 Plan of Reorganization, dated December 21, 1999, by and among
Registrant, The Fidelity Deposit and Discount Bank and The
Fidelity Deposit and Discount Interim Bank, incorporated by
reference to Annex A of the Proxy Statement/Prospectus included
in Registrant's Amendment No. 4 to its Registration Statement No.
333-90273 on Form S-4, filed with the Commission on April 6,
2000.
Exhibit 2.2 Plan of Merger, dated December 21, 1999, between TheFidelity
Deposit and Discount Bank and The Fidelity Deposit and Discount
Interim Bank, incorporated by reference to Annex A of the Proxy
Statement/Prospectus included in Registrant's Amendment No. 4 to
its Registration Statement No. 333-90273 on Form S-4, filed with
the Commission on April 6, 2000.
Exhibit 3(i) Amended and Restated Articles of Incorporation of Registrant,
incorporated by reference to Annex B of the Proxy Statement/
Prospectus included in Registrant's Amendment No. 4 to its
Registration Statement No. 333-90273 on Form S-4, filed with the
Commission on April 6, 2000.
Exhibit 3(ii) Bylaws of Registrant, incorporated by reference to Annex C of
the Proxy Statement/Prospectus included in Registrant's
Amendment No. 4 to its Registration Statement No. 333-90273 on
Form S-4, filed with the Commission on April 6, 2000.
Exhibit 27 Financial Data Schedule
Exhibit 99 Quarterly Report on Form 10-Q for The Fidelity Deposit and
Discount Bank, for the quarterly period ended March 31, 2000.
8
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 29,638
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 87,157
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 29,638
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 87,157
<INCOME-PRETAX> (87,157)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,523)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
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, 2000
F.D.I.C. INSURANCE CERTIFICATE NUMBER: 11868
THE FIDELITY DEPOSIT & DISCOUNT BANK
STATE OF INCORPORATION: IRS EMPLOYER IDENTIFICATION NO:
PENNSYLVANIA 24-0578040
PRINCIPAL OFFICE:
BLAKELY & DRINKER ST.
DUNMORE, PENNSYLVANIA 18512
TELEPHONE:
570-342-8281
The Bank (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 Bank 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 The Fidelity Deposit &
Discount Bank as of March 31, 2000 was 902,198.
1
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2000
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 2000 and December 31, 1999
Statement of Income for the three months ended March 31, 2000 and
1999
Statement of Changes in Shareholders' Equity for the three months
ended March 31, 2000 and 1999
Statement of Cash Flows for the three months ended March 31, 2000
and 1999
Notes to Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
2
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
BALANCE SHEET
As of March 31, 2000 and December 31, 1999
(unaudited)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,791,277 $ 6,415,519
Interest-bearing deposits with financial
institutions 6,883,759 11,541,860
------------ ------------
Total cash and cash equivalents 11,675,036 17,957,379
Investment Securities:
Held to maturity
U.S. Treasuries & Agencies 4,567,448 0
Available for sale
U.S. Treasuries & Agencies 82,731,703 81,035,599
State & Municipal 21,555,045 22,556,775
Other securities 5,563,725 5,669,848
------------ ------------
Total investment securities 114,417,921 109,262,221
Loans net of unearned income 302,449,868 299,365,893
Allowance for loan losses 3,145,994 3,172,375
------------ ------------
Net loans 299,303,874 296,193,518
Loans available-for-sale 10,526,189 5,254,316
Bank premises and equipment, net 10,703,532 9,506,308
Accrued interest receivable 3,922,887 3,262,362
Foreclosed assets held for sale 483,711 412,922
Other assets 5,903,338 5,361,991
------------ ------------
Total assets $456,936,488 $447,211,017
============ ============
LIABILITIES
Deposits
Noninterest-bearing $38,773,619 $37,575,183
Cert. of deposit $100,000 or more 83,600,747 66,642,656
Other interest-bearing deposits 186,572,649 190,483,126
------------ ------------
Total deposits 308,947,015 294,700,965
Accrued expenses and other liabilities 2,885,159 2,829,770
Short-term borrowings 55,074,095 60,249,046
Long-term debt 57,305,000 57,305,000
------------ ------------
Total liabilities 424,211,269 415,084,781
------------ ------------
Shareholders' Equity
Common stock, 5,000,000 shares authorized
with $1.5625 par value 1,409,685 1,406,863
Surplus 7,388,574 7,266,168
Undivided profits 28,655,411 28,126,918
Accumulated other comprehensive income
(loss) (4,728,451) (4,673,713)
------------ ------------
Total shareholders' equity 32,725,219 32,126,236
------------ ------------
Total liabilities and shareholders'
equity $456,936,488 $447,211,017
============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
STATEMENT OF INCOME
Three Month Period Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Interest Income
Interest and fees on loans:
Taxable $6,011,863 $4,915,711
Nontaxable 147,581 130,764
Interest and fees on leases 125,400 38,576
Interest-bearing deposits with financial
institutions 10,542 32,845
Investment securities:
US Treasury 0 119,601
US Government Agencies 1,524,827 702,033
States & Political Subdivisions
(nontaxable) 285,317 299,839
Other securities 90,919 33,479
Income federal funds sold 0 71,996
---------- ----------
Total interest income 8,196,449 6,344,844
---------- ----------
Interest expense
Certificates of deposit of $100,000 or more 1,127,425 642,643
Other deposits 2,083,414 1,671,495
Securities sold under repurchase agreements 440,662 376,295
Other borrowings 1,015,090 544,997
---------- ----------
Total interest expense 4,666,591 3,235,430
---------- ----------
Net interest income 3,529,858 3,109,414
Provision for loan losses 106,500 180,000
---------- ----------
Net interest income, after
provision for loan losses 3,423,358 2,929,414
---------- ----------
Other income:
Service charge on deposit accounts 254,642 198,930
Gain on sale of securities 11,100 0
Gain on sale of loans and leases 48,362 20,177
Gain on loans available-for-sale 25,373 0
Other income 181,387 132,401
---------- ----------
Total operating income 520,865 351,509
---------- ----------
Other expenses
Salaries and employee benefits 1,368,612 1,175,477
Occupancy and equipment 497,906 304,433
Shares tax expense 68,907 49,652
Federal Deposit Insurance Corporation assessment 15,410 7,182
Advertising 117,217 96,266
Loss on sale of foreclosed assets held for
sale 0 29,128
Other expenses 823,173 595,185
---------- ----------
Total other expenses 2,891,226 2,257,323
---------- ----------
Income before income taxes 1,052,997 1,023,600
Provision for income taxes 186,800 220,300
---------- ----------
Net income $ 866,197 $ 803,300
========== ==========
Basic earnings per share $0.96 $0.90
Diluted earnings per share $0.96 $0.90
Dividends per share $0.375 $0.30
</TABLE>
See Notes to Financial Statements
4
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Capital Stock Other
Undivided Comprehensive
Shares Amount Surplus Profits Income(Loss) Total
------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1998 893,647 $1,396,324 $6,826,669 $25,656,844 $ 133,868 $34,013,705
-----------
Comprehensive income:
Net income 803,300 803,300
Change in net unrealized holding
gains/(losses) on available-for-sale
securities, net of reclassification
adjustment and tax effects
(475,167) (475,167)
-----------
Comprehensive income
328,133
-----------
Cash dividends (268,095) (268,095)
Dividend reinvestment 1,415 2,212 87,697 89,909
------- ---------- ---------- ----------- ----------- -----------
Balance, March 31, 1999 895,062 $1,398,536 $6,914,366 $26,192,049 ($341,299) $34,163,652
======= ========== ========== =========== =========== ===========
Balance, Dec. 31, 1999 900,392 $1,406,863 $7,266,168 $28,126,918 ($4,673,713) $32,126,236
-----------
Comprehensive income:
Net income 866,197 866,197
Change in net unrealized
holding gains/(losses) on
available-for-sale
securities,
net of reclassification
adjustment and tax effects (54,738) (54,738)
Comprehensive income
-----------
811,459
-----------
Cash dividends (337,704)
(337,704)
Stock options exercised 250 391 15,109 15,500
Dividend reinvestment 1,556 2,432 107,296 109,728
------- ---------- ---------- ----------- ----------- -----------
Balance March 31, 2000 902,198 $1,409,685 $7,388,574 $28,655,411 ($4,728,451) $32,725,219
======= ========== ========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 866,197 $ 803,300
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 213,900 143,433
Amortization of securities
(net of accretion) (17,332) (21,041)
Provision for loan losses 106,500 180,000
Deferred income tax 75,816 (11,500)
Amortization of mortgage servicing rights 4,019 0
(Gain)/loss sale of investment securities (11,100) 0
(Gain)/loss on sale of loans (48,362) (20,177)
(Gain)/loss on sale of foreclosed assets held for sale (351) 27,865
(Appreciation)/depreciation available-for-sale loans (25,373) 0
(Increase)/decrease in interest receivable (660,525) (346,500)
Increase/(decrease) in accrued expenses (20,427) 87,680
(Increase)/decrease in other assets (534,499) (1,097,583)
------------ ------------
Net cash used in operating activities (51,537) (254,523)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale
of available-for-sale securities 992,188 0
Proceeds from maturity, call and paydown
of available-for-sale securities 386,274 3,617,422
Purchase of available-for-sale securities (2,000,000) (208,719)
(Increase)/decrease in federal funds sold 0 2,450,000
Proceeds from sale of loans 682,509 3,431,934
(Increase)/decrease in loans and leases (13,751,236) (18,422,065)
Purchase of bank premises and equipment (1,411,124) (1,021,794)
Capital expenditures on foreclosed assets held for sale (463) 0
Proceeds from sale of foreclosed assets held for sale 12,423 173,394
------------ ------------
Net cash used in investing activities (15,089,429) (9,979,828)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase(decrease) in non interest-bearing deposits 1,198,436 (1,558,667)
Net increase(decrease) in interest-bearing deposits (3,910,477) 3,900,998
Net increase(decrease) in CD's $100,000 or more 16,958,091 7,075,306
Increase(decrease) in short term borrowings (5,174,951) 1,253,020
Dividends paid (337,704) (268,095)
Proceeds from issuance of common stock 15,500 0
Proceeds from dividend reinvestment 109,728 89,909
------------ ------------
Net cash provided by financing activities 8,858,623 10,492,471
------------ ------------
Net increase(decrease) in cash and cash equivalents (6,282,343) 258,120
Cash and cash equivalents at beginning of period 17,957,379 8,719,744
------------ ------------
Cash and cash equivalents at end of period $ 11,675,036 $ 8,977,864
============ ============
</TABLE>
6
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2000
NOTES TO FINANCIAL STATEMENTS
The Fidelity Deposit & Discount Bank, (the Bank), is a commercial bank
chartered by the Commonwealth of Pa. 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. The unaudited
financial statements were prepared by management in accordance with generally
accepted accounting principles. In meeting its responsibility for the financial
statements, management depends on the Bank'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 Bank, that Bank assets are safeguarded and that
financial statements present fairly the financial position and results of
operations of the Bank.
In the opinion of Bank management, the balance sheets as of March 31, 2000
and December 31, 1999 present fairly the financial position of the Bank as of
those dates and the related statements of income, changes in shareholders'
equity and cash flows for the three month periods ended March 31, 2000 and 1999
present fairly the results of its operations and its cash flows for the periods
then ended. All material adjustments required for fair presentation have been
made, and 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 report on Form 10-Q should be read in conjunction with the Bank's
audited financial statements for the year ended December 31, 1999 and the notes
included therein, in the Bank's Form 10-K, filed with the FDIC on March 31,
2000. The results of operations for interim periods are not necessarily
indicative of the results of operations to be expected for the entire year.
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 Bank undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date, hereof.
7
<PAGE>
Basic earnings per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period, (900,820
in 2000 and 893,994 in 1999).
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, 2000 and 1999:
<TABLE>
<CAPTION>
Common Earnings
Income Shares per
March 31, 2000 Numerator Denominator Share
--------- ----------- --------
<S> <C> <C> <C>
Basic EPS $866,197 900,820 $0.96
=====
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 7,450
Hypothetical share repurchase at $70.50 (7,014)
----------------------------
Diluted EPS $866,197 901,256 $0.96
============================ =====
March 31, 1999
Basic EPS $803,300 893,994 $0.90
=====
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 3,750
Hypothetical share repurchase at $63.50 (3,661)
----------------------------
Diluted EPS $803,300 894,083 $0.90
============================ =====
</TABLE>
In Bank management's opinion, there are no proceedings pending to which the
Bank is a party or to which its property is subject, which, if decided against
the Bank, would be of material consequence to the Bank's financial condition.
There are no material proceedings pending or contemplated against the Bank by
government authorities.
8
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2000
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Changes in Financial Condition
Total deposits increased $14,246,000 or 4.83% from $294,701,000 at December
31, 1999 to $308,947,000 at March 31, 2000. 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 rose $1,198,000 or 3.19% during 2000.
Interest-bearing deposits increased $13,048,000 or 5.07%. The introduction
of the tiered balance Super NOW accounts helped to generate a $3,143,000
increase in this product line. Savings accounts and clubs increased $1,070,000.
Withdrawals from public fund money market accounts, (MMDA's), were the major
factor in a $7,199,000 decline in MMDA's.
An increase of $14,212,000 in public fund CD's of $100,000 or more, caused
CD's of $100,000 or more to increase $16,958,000 or 25.45% during 2000.
Short-term Borrowings, which are comprised of Repurchase Agreements
(Repos), TT&L Retained Funds and Federal Funds Purchased, decreased $5,175,000
or 8.59%. Of the total decrease, Fed Funds Purchased were reduced $9,200,000.
The reduction in Fed Funds Purchased was due in part to reductions in currency,
which had been increased for Year 2000 considerations. Repos increased
$4,563,000, due in part to real estate tax collections from local
municipalities.
The rise in Deposits less the decrease in Short-term Borrowings, an
increase in Common Stock and Surplus, through the Dividend Reinvestment Plan,
and the retention of earnings, caused Total Footings to increase $9,725,000 or
2.18% since December 31, 1999.
During 2000 net loans grew $8,382,000 or 2.78%. Commercial loans increased
$4,672,000 and consumer loans and leases rose $2,093,000. Residential mortgages
and student loans totaling $683,000 were sold during 2000 to provide liquidity
and improve yield. In addition, residential mortgages of $4,571,000 were
securitized and rebooked as investments. This activity provided the Bank with a
FNMA guarantee on the loans within the investment pools, thereby reducing the
potential for loss due to delinquency. The investment pools became an acceptable
asset to pledge as collateral for Public Fund deposits. The Bank has classified
residential mortgages, student loans and SBA guaranteed loans of $10,526,000 as
available-for-sale.
9
<PAGE>
The following table reflects the composition of the loan portfolio:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Real estate $109,252,020 $111,242,490
Consumer 65,222,109 64,998,362
Commercial 117,732,890 113,061,093
Direct financing leases 7,579,375 5,710,579
Real estate construction 3,936,989 5,335,753
- ------------------------------------------------------------------------------------------------
Gross Loans 303,723,383 300,348,277
Less:
Unearned discount 1,273,515 982,384
Allowance for loan loss 3,145,994 3,172,375
- ------------------------------------------------------------------------------------------------
Net Loans $299,303,875 $296,193,518
================================================================================================
</TABLE>
Paydowns and early calls of US Agency and Municipal bonds totaled $386,000.
Municipal bonds of $981,000, classified as available-for-sale, were sold prior
to being called. A $2,000,000 US Government Agency was purchased during the
quarter. These activities combined with the addition of the $4,571,000
securitized loans less an $83,000 decline 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 Bank. Market conditions are monitored daily and the Bank is prepared to take
remedial actions if deemed appropriate.
Securities held-to-maturity and available-for-sale at March 31, 2000
consist of the following:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
cost gains Losses value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Held-to-maturity
Mortgage backed securities $4,567,448 $0 ($315,221) $4,252,227
----------------------------------------------------------------------
Total held-to-maturity $4,567,448 $0 ($315,221) $4,252,227
======================================================================
Available-for-sale
Agencies $81,294,076 $0 ($6,003,394) $75,290,682
State and municipal 22,331,108 60,315 (836,378) 21,555,045
Mortgage backed securities 7,855,982 2,327 (417,288) 7,441,021
----------------------------------------------------------------------
Sub total 111,481,166 62,642 (7,257,060) 104,286,748
Stock 5,533,626 107,353 (77,253) 5,563,725
----------------------------------------------------------------------
Total available-for-sale $117,014,792 $169,995 ($7,334,313) $109,850,473
======================================================================
Grand total $121,582,240 $169,995 $7,649,534 $114,102,701
======================================================================
</TABLE>
10
<PAGE>
At March 31, 2000 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.
<TABLE>
<CAPTION>
Book Market
Held-to-maturity Value value
---------------- ----- -----
<S> <C> <C>
Mortgage backed securities $4,567,448 $4,252,227
- -----------------------------------------------------------------------------------------
Total held-to maturity $4,567,448 $4,252,227
=========================================================================================
Available-for-sale
One year or less $640,139 $642,554
One through five years 1,594,872 1,590,669
Five through ten years 32,985,383 31,166,808
Over ten years 68,404,790 63,445,696
- -----------------------------------------------------------------------------------------
sub total 103,625,184 96,845,727
Mortgage backed securities 7,855,982 7,441,021
Equity securities 5,533,626 5,563,725
=========================================================================================
Total available-for-sale $117,014,792 $109,850,474
=========================================================================================
Grand total $121,582,240 $114,102,701
=========================================================================================
</TABLE>
Continued branching and improvements to both plant and equipment caused
bank premises and equipment to increase $2,233,000, net of depreciation, in
2000. During the first quarter of 2000 the Bank opened a new branch at 1598 Main
Street Peckville, Pa. The property is leased from a non-related entity.
The Bank purchased a commercial property at 116-118 N. Blakely Street
Dunmore, Pa. The building is currently occupied by the United States Postal
Service and will continue to be under a ten year lease. The property was
acquired for future expansion.
Total assets of the Bank have grown $97,435,000 or 27.10% from $359,501,000
to $456,936,000 for the twelve months ending March 31, 2000. The increase is a
result of a $59,529,000 rise in deposits, a $39,469,000 net increase in
borrowings and a net increase in Capital of $1,471,000.
The funds accumulated through the increases in liabilities and a $4,050,000
decrease in Federal funds Sold were used for loan growth of $50,712,000, an
increase in investments of $39,918,000 and fixed asset expansion of $3,376,000.
Excluding the effect of the net change in the market value of
available-for-sale securities, Shareholders' Equity increased $654,000 for the
three months ending March 31, 2000 and by $2,949,000 for the twelve-month period
ending March 31, 2000. The increases are a result of the retention of profits
and the issuance of Common Stock under the Dividend Reinvestment plan.
11
<PAGE>
2. Changes in Results of Operations
Net Income
Net Income for the three months ending March 31, 2000 and 1999 was $866,197
and $803,300 respectively. The significant differences are as follows:
<TABLE>
<CAPTION>
2000 1999 Difference
---- ---- ----------
<S> <C> <C> <C>
Net interest income $3,529,858 $3,109,414 $420,444 A
Provision for loan losses 106,500 180,000 73,500
Deposit service charges and other income 436,029 331,332 104,697
Gain on sale of assets 59,461 20,177 39,284
AFS loan appreciation 25,373 0 25,373
Salaries and employee benefits 1,368,612 1,175,477 (193,135) B
Occupancy and equipment 497,906 304,433 (193,474) C
Other expense 1,024,708 777,414 (247,294) D
Provision for income tax 186,800 220,300 33,500 E
</TABLE>
A) The tax equivalent yield on Average Earning Assets increased 14 basis
points, from 7.50% at March 31, 1999 to 7.64% at March 31, 2000. This
action was caused by changes in National Prime, which had a direct effect
on loans subject to immediate repricing. Approximately 17% of the loan
portfolio is subject to immediate repricing. At the same time competition
from non-traditional sources for deposit dollars and competitive interest
rates paid for preferred accounts and at the new branch locations, caused
the cost funds to increase 46 basis points. The decline in TE net yield was
offset by a rise in loan and investment volume, and that enabled the Bank
to increase Net Interest Income by $420,444.
B) Merit pay increases and additions to staff caused Personnel expense to
increase 16.43%. At March 31, 2000 the Bank employed 168 full time
equivalent employees, a 15.86% increase over March 31, 1999. The March 31,
1999 number of full time equivalent employees was 145.
C) Occupancy and equipment expense increased due to the opening of the new
branches. Included in the increase is a $70,000 increase in depreciation
expense.
D) A rise in merchant credit card volume caused related expenses to increase
$27,000. Advertising, postage, courier expense, supplies, ATM expenses,
communications and equipment purchases, all impacted by the new locations,
increased $98,000. Correspondent Bank expense rose $5,000, Capital shares
expense increased $19,000 and state Banking charges and the FDIC assessment
increased $11,000.
E) Available tax credits for March 31, 2000 resulted in a reduction of the
federal income tax provision.
12
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TAX EQUIVALENT YIELD
Average Earnings March 31, 2000 December 31, 1999 March 31, 1999
Assets
Loans & Leases $308,494 $281,347 $255,940
Investments 118,569 100,882 76,484
Fed Funds 0 2,682 5,985
Interest Bearing
Deposits 7,695 6,629 6,568
-------- -------- --------
Total $434,758 $391,540 $344,977
======== ======== ========
Average Interest
Bearing Liabilities
Other Interest-bearing Deposits $ 84,877 $ 69,131 $ 65,322
CD's 184,134 173,626 146,604
Other Borrowed Funds 70,545 56,943 43,064
Repurchase Agreements 33,155 31,639 31,651
-------- -------- --------
Total $372,711 $331,339 $286,641
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Year ended Three months ended
March 31, 2000 December 31, 1999 March 31, 1999
------------------ ----------------- -------------------
<S> <C> <C> <C>
Interest Income
Loans & Leases $ 6,242 $ 22,294 $ 4,999
Investments 2,008 6,774 1,272
Fed Funds 0 128 72
Interest Bearing
Deposits 11 89 33
-------- -------- ---------
Total $ 8,261 $ 29,285 $ 6,376
======== ======== =========
Interest Expense
Other Interest-bearing Deposits $ 637 $ 1,589 $ 354
CD's 2,574 9,269 1,960
Other Borrowed Funds 1,015 2,999 545
Repurchase Agreements 441 1,519 376
-------- -------- ---------
Total $ 4,667 $ 15,376 $ 3,235
======== ======== =========
Net Interest Income $ 3,594 $ 13,909 $ 3,141
======== ======== =========
Yield on Average
Earning Assets 7.64% 7.48% 7.50%
Cost of Average Interest-bearing Liabilities 5.04% 7.48% 4.58%
-------- -------- ---------
Interest Rate Spread 2.61% 2.84% 2.92%
======== ======== =========
Net Yield on Average Earning Assets 3.33% 3.55% 3.69%
</TABLE>
13
<PAGE>
THE FIDELITY DEPOSIT & DISCOUNT BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Loan Losses
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999 March 31, 1999
-------------- ----------------- --------------
<S> <C> <C> <C>
Net Loans 309,830,063 301,447,834 259,118,544
Allowance for loan losses 3,145,994 3,172,375 3,141,094
Percentage to net loans 1.02% 1.05% 1.21%
Provision for loan losses
Year ended 530,000
Period ended 106,500 180,000
(Charge offs)/recoveries, net
Year ended (365,338)
Period ended (132,881) (46,619)
</TABLE>
In addition to the Allowance for Loan Loss, there are other reserves not
recorded on the Bank'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 $404,000 at March 31, 2000. The
reserve set aside by the Commonwealth of Pennsylvania for loans registered in
the PENNCAP program was $129,000 at March 31, 2000.
The allowance for loan loss is established through a provision for loan
losses. The allowance represents an amount which, in management's judgement will
be adequate to absorb probable losses on existing loans and leases that may
become uncollectible. 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 changes in the nature and
volume of the loan portfolio, current economic conditions that may effect the
borrowers ability to repay, overall portfolio quality and review of specific
impaired loans. 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 Bank 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 Bank does not group homogeneous loans collectively for the
purpose of determining impairment.
14
<PAGE>
The Bank carefully monitors potential problem loans. Potential problem
loans are those where there is known information that leads the Bank 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, 2000 were $1,367,000 and $2,684,000 respectively. At March 31, 2000 the
allowance for loan loss represents 230.14% of non-accrual loans and 117.21% 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 Bank uses a simulation model to better understand the risks to the Bank
that may be brought about by changes in market interest rates. At March 31, 2000
the Bank 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 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:
Asset maturities, paydowns and sales
Growth of core deposits
Growth of Repurchase Agreements
Increase of other borrowed funds
Bank 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 Bank has instituted certain
procedures and policy guidelines to manage the rate sensitive position. Those
internal rules enable the Bank to react to changes in market rates and protect
net interest income from significant fluctuations.
15
<PAGE>
Liquidity (in thousands of dollars)
<TABLE>
<CAPTION>
March 31, 1999 Dec 31, 1999 March 31, 1999
-------------- ------------ --------------
<S> <C> <C> <C>
Assets due within one year $122,485 $117,952 $111,463
Liabilities due within one year $230,141 $210,598 $155,531
Percent of assets due within one year
to liabilities due within one year 53.22% 56.01% 71.67%
</TABLE>
Management believes that the present level of liquidity is adequate for
current operations. Investments were scheduled by maturity dates.
Liabilities included 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 Bank, or assets available-for-sale, both of which could be
utilized to meet liquidity needs.
The Bank's capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
To be Well Capitalized Under
For Capital Adequacy Prompt Corrective Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000
Total Capital
(to Risk Weighted Assets) $40,623,464 13.56% $23,961,367 8.00% $29,951,708 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $37,477,471 12.51% $11,980,683 4.00% 417,971,025 6.00%
Tier 1 Capital
(to Average Assets) $37,477,471 8.40% 417,846,134 4.00% $22,307,667 5.00%
</TABLE>
16
<PAGE>
Year 2000:
The final concern involving year 2000 was February 29, 2000, the leap year
date. All operations of the Bank, including dealings with vendors, were
successfully completed on that date.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings: In the opinion of Bank Management, there are no
proceedings pending to which the Bank is a party or to which its property is
subject, which if determined adversely to the Bank, would be material in
relation to the Bank's undivided profits or financial condition. In addition,
there are no material proceedings pending, threatened or contemplated against
the Bank by government authorities.
ITEM 2. Changes in Securities: None
ITEM 3. Default Upon Senior Securities: None
ITEM 4. Submission of matters to a vote by Security Holders: None
ITEM 5. Other Information: Not applicable.
ITEM 6. 3(i) Bank's Articles of Incorporation. (Incorporated by reference to
3(i) of the Bank's current report on Form 8-K filed with the FDIC on
March 23, 1998.)
3(ii) Bank's By-laws. (Incorporated by reference to 3(ii) of the Bank's
current report on Form 8-K filed with the FDIC on March 23, 1998.)
10(i)401K Plan (Incorporated by reference to 10(i) of the Bank's
current report on Form 8-K filed with the FDIC on March 23, 1998.)
10(ii)Deferred Compensation Plan (Incorporated by reference to
10(ii) of the Bank's current report on Form 8-K filed with the
FDIC on March 23, 1998.)
17
<PAGE>
Financial data schedule:
Period type 3 Months
Fiscal year end December 31, 2000
Period end March 31, 2000
Cash and due from banks $4,791,277
Interest-bearing deposits 6,883,759
Federal funds sold 0
Investments held-for-sale 4,567,448
Investments carrying 114,417,921
Investments market 114,102,701
Loans 312,976,057
Allowance for loan loss 3,145,994
Total assets 456,936,488
Deposits 308,947,015
Short-term borrowings 55,074,095
Other liabilities 2,885,159
Long-term debt 57,305,000
Preferred stock mandatory redemption 0
Preferred stock no mandatory redemption 0
Common stock 1,409,685
Other shareholders equity 31,315,534
Total liabilities and shareholder equity 456,936,488
Interest and fees on loans 6,284,844
Interest and dividends on investments 1,901,063
Other interest income 10,542
Total interest income 8,196,449
Interest on deposits 3,210,839
Total interest expense 4,666,591
Net interest income 3,529,858
Provision for loan loss 106,500
Investment security gains 11,100
Other expenses 2,891,226
Income pre-tax 1,052,997
Income pre-extraordinary items 0
Extraordinary items less tax 0
Changes in accounting principals 0
Net income 866,197
Earnings per share - Basic $0.96
Earnings per share - Diluted $0.96
Net yield actual 3.16%
Loans on non-accrual 1,367,086
Loans past due 2,683,635
Troubled debt restructuring 0
Potential problem loans 0
Allowance for loan loss - beginning of period 3,172,375
Total charge offs 158,092
Total recoveries 25,211
Allowance for loan loss - end of period 3,145,994
Loan loss allowance - domestic 3,145,994
Loan loss allowance - foreign 0
Loan loss allowance - unallocated 6,532
18
<PAGE>
THE FIDELITY DEPOSIT and DISCOUNT BANK
DUNMORE, PA 18512
FORM 10-Q MARCH 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
DATE: May 9, 2000 /s/ Michael F. Marranca
----------------------------------- ---------------------------------
MICHAEL F. MARRANCA, PRESIDENT
AND CEO
DATE: May 9, 2000 /s/ Robert P. Farrell
----------------------------------- ---------------------------------
ROBERT P. FARRELL, CASHIER AND
COMPTROLLER
19
