<PAGE>
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 SEPTEMBER 30, 2000
F.D.I.C INSURANCE CERTIFICATE NUMBER: 11868
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 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 Fidelity D & D Bancorp, Inc.
at September 30, 2000 was 1,804,011.
<PAGE>
FIDELITY D & D BANCORP, INC and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 1
Consolidated Statement of Income for the three and nine
months ended September 30, 2000 and 1999 2
Consolidated Statement of Changes in Shareholders' Equity
for the nine months ended September 30, 2000 and 1999 3
Consolidated Statement of Cash Flows for the nine months
ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 15-16
(Included in Management's Discussion and Analysis of
Financial Condition and Results of Operation)
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Change in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holder 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 17-18
Signature Page 19
Exhibit Index 20
Exhibit 27 - Financial Data Schedule 21
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of September 30, 2000 and December 31, 1999
Sept.30,2000 December 31, 1999
(unaudited) (audited)
------------ ----------------
ASSETS
Cash and due from banks $ 4,993,906 $ 6,415,519
Interest-bearing deposits with financial
institutions 8,147,450 11,541,860
------------ ------------
Total cash and cash equivalents 13,141,356 17,957,379
Investment Securities:
Held to maturity
U.S. Treasuries & Agencies 7,675,982 0
Available for sale
U.S. Treasuries & Agencies 85,395,159 81,035,599
State & Municipal 19,939,015 22,556,775
Other securities 5,639,734 5,669,848
------------ ------------
Total investment securities 118,649,890 109,262,221
Loans net of unearned income 326,830,462 299,365,893
Allowance for loan losses 3,121,703 3,172,375
------------ ------------
Net loans 323,708,759 296,193,518
Loans available-for-sale 17,424,132 5,254,316
Bank premises and equipment, net 11,432,992 9,506,308
Accrued interest receivable 4,456,254 3,262,362
Foreclosed assets held for sale 567,491 412,922
Other assets 5,075,352 5,361,991
------------ ------------
Total assets $494,456,226 $447,211,017
============ ============
LIABILITIES
Deposits
Noninterest-bearing $40,854,288 $37,575,183
Cert. of deposit $100,000 or more 103,180,646 66,642,656
Other interest-bearing deposits 197,608,735 190,483,126
------------ ------------
Total deposits 341,643,669 294,700,965
Accrued expenses and other liabilities 3,336,102 2,829,770
Short-term borrowings 57,363,368 60,249,046
Long-term debt 57,305,000 57,305,000
------------ ------------
Total liabilities 459,648,139 415,084,781
------------ ------------
Shareholders' Equity
Common stock, 10,000,000 shares 1,409,678 1,406,863
authorized with out par value
Surplus 7,388,298 7,266,168
Undivided profits 29,755,149 28,126,918
Accumulated other comprehensive income
(loss) (3,745,038) (4,673,713)
------------ ------------
Total shareholders' equity 34,808,087 32,126,236
------------ ------------
Total liabilities and shareholders'
equity $494,456,226 $447,211,017
============ ============
See Notes to Consolidated Financial Statements
1
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
Three & Nine Month Periods Ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
09/30/00 09/30/99 09/30/00 09/30/99
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Interest Income
Loans:
Taxable $6,797,354 $5,700,111 $19,031,379 $15,385,460
Nontaxable 185,516 182,190 487,732 464,290
Leases 179,791 41,040 439,154 127,275
Interest-bearing deposits with financial 23,194 15,302 41,641 81,181
institutions
Investment securities:
US Treasury 0 0 0 204,705
US Government Agencies 1,648,118 1,413,274 4,754,789 3,237,504
States & Political Subdivisions
(nontaxable) 249,472 290,690 807,276 886,496
Other Securities 95,225 62,610 280,376 141,224
Income federal funds sold 0 0 0 128,415
---------- ---------- ----------- -----------
Total interest income 9,178,670 7,705,217 25,842,347 20,656,550
---------- ---------- ----------- -----------
Interest expense
Certificates of deposit of $100,000 or more 1,682,333 938,401 4,101,508 2,504,472
Other Deposits 2,487,329 1,959,418 6,756,096 5,383,008
Securities sold under repurchase agreements 483,600 382,618 1,387,369 1,125,470
Other Borrowings 1,143,712 791,119 3,361,066 1,964,327
Total interest expense 5,796,974 4,071,556 15,606,039 10,977,277
---------- ---------- ----------- -----------
Net interest income 3,381,696 3,633,661 10,236,308 9,679,273
Provision for loan losses 138,000 85,000 381,000 405,000
---------- ---------- ----------- -----------
Net interest income, after
provision for loan losses 3,243,696 3,548,661 9,855,308 9,274,273
---------- ---------- ----------- -----------
Other income
Service charge on deposit accounts 348,816 232,669 902,128 536,443
Gain on sale of securities 0 1,400 20,123 1,400
Gain on sale of loans and leases 68,621 8,219 147,774 68,993
Gain on loans available-for-sale 66,808 0 145,871 0
Other income 420,154 198,722 1,057,783 1,067,096
---------- ---------- ----------- -----------
Total other income 904,399 441,010 2,273,679 1,673,932
---------- ---------- ----------- -----------
Other expenses
Salaries and employee benefits 1,345,344 1,302,981 4,223,643 3,785,539
Occupancy and equipment 582,116 367,149 1,564,947 1,080,151
Shares Tax Expense 93,398 83,433 209,619 181,388
Advertising 100,906 94,216 330,449 310,813
(Gain)/loss - sale of foreclosed assets held
for sale 0 1,183 69,035 35,542
Other expenses 808,422 817,982 2,441,492 2,045,152
---------- ---------- ----------- -----------
Total other expenses 2,930,186 2,666,944 8,839,185 7,438,585
---------- ---------- ----------- -----------
Income before income taxes 1,217,909 1,322,727 3,289,802 3,509,620
Provision for income taxes 270,050 303,770 633,750 784,900
---------- ---------- ----------- -----------
Net Income $ 947,859 $1,018,957 $2,656,052 $2,724,720
========== ========== =========== ===========
Net income per weighted average share $0.53 $0.57 $1.47 $1.52
Diluted earnings per share $0.53 $0.57 $1.47 $1.52
Dividends per weighted average share
$0.195 $0.15 $0.57 $0.45
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 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 2,724,720 2,724,720
Change in net unrealized holding
gains/(losses) on available-for-sale
securities, net of reclassification
adjustment and tax effects (3,176,374) (3,176,374)
-----------
Comprehensive income (451,654)
-----------
Cash dividends (805,509) (805,509)
Dividend reinvestment 4,089 6,389 259,054 265,443
-------- ---------- ---------- ----------- ----------- -----------
Balance, September 30, 1999 897,736 $1,402,713 $7,085,723 $27,576,055 ($3,042,506) $33,021,985
======== ========== ========== =========== =========== ===========
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 2,656,052 2,656,052
Change in net unrealized
holding gains/(losses) on
available-for-sale
securities,
net of reclassification
adjustment and tax effects 928,675 928,675
-----------
Comprehensive income 3,584,727
-----------
Cash dividends (1,027,821) (1,027,821)
Stock exchange 901,816
Stock options exercised 250 391 15,109 15,500
Dividend reinvestment 1,553 2,424 107,021 109,445
--------- ---------- ---------- ----------- ----------- -----------
Balance September 30, 2000 1,804,011 $1,409,678 $7,388,298 $29,755,149 ($3,745,038) $34,808,087
========= ========== ========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
----- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.................................................... $ 2,656,052 $ 2,724,720
Adjustments to reconcile net income to net
cash provided by, (used in), by operating activities:
Depreciation............................................... 716,700 430,299
Amortization of securities
(net of accretion)................................. (52,374) (103,809)
Provision for loan losses.................................. 381,000 405,000
Deferred income tax........................................ 503,625 (16,800)
Amortization of mortgage servicing rights ................. 15,629 0
(Gain)/loss sale of investment securities.................. (20,123) (1,400)
(Gain)/loss on sale of loans............................... (147,774) (68,993)
(Gain)/loss on sale of foreclosed assets held for sale..... 69,035 35,542
(Appreciation)/depreciation available-for-sale
loans.............................................. (145,871) 0
(Increase)/decrease in interest receivable ................ (1,193,892) (1,515,133)
Increase/(decrease) in accrued expenses.................... 506,332 126,073
(Increase)/decrease in other assets........................ (711,025) (1,059,848)
-------------- --------------
Net cash provided by, (used in), operating activities ..... 2,577,314 955,651
-------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from paydown of held-to-maturity
securities ............................................... 157,489 0
Proceeds from sale
of available-for-sale securities........................... 4,809,783 201,400
Proceeds from maturity, call and paydown
of available-for-sale securities........................... 854,360 22,687,019
Purchase of available-for-sale securities..................... (5,896,249) (55,509,440)
(Increase)/decrease in federal funds sold..................... 0 6,500,000
Proceeds from sale of loans................................... 5,424,884 9,738,225
(Increase)/decrease in loans and leases....................... (53,410,703) (65,443,971)
Purchase of bank premises and equipment....................... (2,643,384) (2,663,416)
Capital expenditures on foreclosed assets held for sale....... (41,177) (420,583)
Proceeds from sale of foreclosed assets held for sale......... 197,509 165,718
-------------- --------------
Net cash used in investing activities...................... (50,547,488) (84,745,048)
-------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase(decrease) in non interest-bearing deposits ...... 3,279,106 1,901,833
Net increase(decrease) in interest-bearing deposits .......... 7,125,609 18,883,604
Net increase(decrease) in CD's $100,000 or more .............. 36,537,990 36,870,437
Increase(decrease) in short term borrowings .................. (2,885,678) 21,076,471
Net increase (decrease) in long term debt .................... 0 5,000,000
Dividends paid................................................ (1,027,821) (805,509)
Proceeds from stock options exercised......................... 15,500 0
Proceeds from dividend reinvestment .......................... 109,445 265,442
-------------- --------------
Net cash provided by financing activities ................. 43,154,151 83,192,278
-------------- --------------
Net increase(decrease) in cash and cash equivalents ............... (4,816,023) (597,119)
Cash and cash equivalents at beginning of period................... 17,957,379 8,719,744
-------------- --------------
Cash and cash equivalents at end of period......................... $ 13,141,356 $ 8,122,625
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q SEPTEMBER 30, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 10, 1999 Fidelity D&D Bancorp, Inc. (the Company) was
incorporated. Effective June 30, 2000, by operation of law, one share of The
Fidelity Deposit & Discount Bank (the Bank) stock became the right to receive
two shares of Fidelity D&D Bancorp, Inc. common stock. Fidelity D&D Bancorp,
Inc. did not issue fractional shares. Cash was paid at the fair market value for
the fractional shares of The Fidelity Deposit & Discount Bank stock.
The accompanying unaudited financial statements of Fidelity D&D
Bancorp, Inc. and subsidiary, The Fidelity Deposit & Discount Bank, have been
prepared in accordance with generally accepted accounting principles (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 period
ended December 31, 1999.
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.
5
<PAGE>
In the opinion of management, the balance sheets as of September 30,
2000 and December 31, 1999 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 nine month periods ended September
30, 2000 and 1999 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, 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 Quarterly 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 Annual Report on 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 company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
6
<PAGE>
Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the period,
(1,803,388 in 2000 and 1,790,712 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 September 30, 2000 and
1999:
<TABLE>
<CAPTION>
Common Earnings
Income Shares per
September 30, 2000 Numerator Denominator Share
--------- ----------- -----
<S> <C> <C> <C>
Basic EPS $2,656,052 1,803,388 $1.47
=====
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 14,400
Hypothetical share repurchase at $37.75 (12,634)
---------- ---------
Diluted EPS $2,656,052 1,805,154 $1.47
========== ========= =====
September 30, 1999
Basic EPS $2,724,720 1,790,712 $1.52
=====
Dilutive effect of potential common stock
Stock options;
Exercise of outstanding options 7,500
Hypothetical share repurchase at $34.75 (6,691)
---------- ---------
Diluted EPS $2,724,720 1,791,521 $1.52
========== ========= =====
</TABLE>
Diluted earnings per share have been restated for the June 30, 2000
two-for-one stock exchange.
7
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q SEPTEMBER 30, 2000
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1. Changes in Financial Condition
Total deposits increased $46,943,000 or 15.93% from $294,701,000 at
December 31, 1999 to $341,644,000 at September 30, 2000. The success at
attracting new customers and additional funds from existing depositors, may be
linked to the new and renovated branches and competitive product pricing.
Non interest-bearing deposits rose $3,279,000 or 8.73% during 2000.
Interest-bearing deposits increased $43,664,000 or 16.98%. The
introduction of the tiered balance Super NOW accounts helped to generate a
$8,256,000 overall increase in NOW accounts. An increase of $15,038,000 in
public fund CD's of $100,000 or more and $20,833,000 in personal and
non-personal CD's of $100,000 or more, caused CD's of $100,000 or more to
increase $36,538,000 or 54.83% during 2000. Included in the non-personal CD's
were brokered funds totaling $9,851,000. The Company accessed this source of
funds to satisfy liquidity demands. CD's under $100,000 increased $10,403,000 in
2000. Withdrawals from savings and money market accounts, particularly public
funds, reduced the amount of the increases.
Short-term Borrowings, which are comprised of Repurchase Agreements
(Repos), Treasury Tax and Loan Retained Funds and Federal Funds Purchased,
decreased $2,886,000 or 4.79%. Of the total decrease, Federal Funds Purchased
were reduced $13,400,000. The reduction in Federal Funds Purchased was due in
part to reductions in currency, which had been increased for Year 2000
considerations and the increase in deposits and Repos. Repos increased
$11,313,000, 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 Liabilities and Shareholder Equity
to increase $47,245,000 or 10.56% since December 31, 1999.
During 2000, net loans grew $27,515,000 or 10.93%. Commercial loans
increased $24,205,000 and consumer loans and leases rose $7,306,000. Residential
mortgages, SBA guaranteed loans and student loans totaling $5,315,000 were sold
during 2000 to provide liquidity and improve yield. In addition, residential
mortgages of $7,833,000 were securitized and reclassified as investments. This
activity provided the Company 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 Company has classified certain residential mortgages,
indirect dealer loans, student loans and SBA guaranteed loans of $17,424,000 as
available-for-sale at September 30, 2000.
8
<PAGE>
The following table reflects the composition of the loan portfolio:
September 30, 2000 December 31, 1999
------------------ -----------------
Real estate $111,876,370 $111,242,490
Consumer 63,504,197 64,998,362
Commercial 137,265,773 113,061,093
Direct financing leases 13,165,770 5,710,579
Real estate construction 3,115,048 5,335,753
-------------------------------------------------------------------------------
Gross Loans 328,927,158 300,348,277
Less:
Unearned discount 2,096,696 982,384
Allowance for loan loss 3,121,703 3,172,375
-------------------------------------------------------------------------------
Net Loans $323,708,759 $296,193,518
===============================================================================
Paydowns and early calls of US Agency and Municipal bonds totaled
$1,012,000. Municipal bonds of $4,790,000, classified as available-for-sale,
were sold prior to being called. US Government Agency bond of $4,000,000 and
municipal bonds totaling $1,896,000 were purchased during 2000. These activities
combined with the addition of the $7,833,000 securitized loans plus a $1,407,000
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.
Securities held-to-maturity and available-for-sale at September 30,
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 $7,675,982 $0 $310,032 $7,365,950
----------------------------------------------------------------------
Total held-to-maturity $7,675,982 $0 $310,032 $7,365,950
======================================================================
Available-for-sale
Agencies $83,294,533 $0 $5,013,885 $78,280,648
State and municipal 20,407,859 59,003 527,847 19,939,015
Mortgage backed securities 7,374,689 7,855 268,033 7,114,511
----------------------------------------------------------------------
Sub total 111,077,081 66,858 5,809,765 105,334,174
Equity securities 5,571,126 149,478 80,869 5,639,734
----------------------------------------------------------------------
Total available-for-sale $116,648,206 $216,336 $5,890,634 $110,973,908
======================================================================
Grand total $120,904,672 $201,644 $7,575,236 $113,531,080
======================================================================
</TABLE>
9
<PAGE>
At September 30, 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 $7,675,982 $7,365,950
-----------------------------------------------------------------------------------------
Total held-to maturity $7,675,982 $7,365,950
=========================================================================================
Available-for-sale
------------------
One year or less $400,035 $400,232
One through five years 3,149,304 3,078,941
Five through ten years 33,895,800 32,630,816
Over ten years 66,257,253 62,109,674
-----------------------------------------------------------------------------------------
sub total 103,702,392 98,219,663
Mortgage backed securities 7,374,689 7,114,511
Equity securities 5,571,126 5,639,734
=========================================================================================
Total available-for-sale $116,648,206 $110,973,908
=========================================================================================
Grand total $124,324,188 $118,339,858
=========================================================================================
</TABLE>
Continued branching and improvements to both plant and equipment caused
bank premises and equipment to increase $1,927,000, net of depreciation, in
2000. During the first quarter of 2000 the Company opened a new branch at 1598
Main Street Peckville, Pa. The property is leased from a non-related entity.
The Company purchased a commercial property at 116-118 N. Blakely
Street, Dunmore, Pennsylvania, during the first quarter of 2000. The building is
currently occupied by the United States Postal Service and will continue to be
under a lease expiring January 31, 2005. The Postal Service has an option to
renew, scheduled to expire on January 31, 2010. The property was acquired for
future expansion.
Total assets of the Company have grown $62,985,000 or 14.60% from
$431,471,000 to $494,456,000 for the twelve months ending September 30, 2000.
The increase is a result of a $43,987,000 rise in deposits, a $16,935,000 net
increase in borrowings and a net increase in Capital of $1,786,000.
The funds accumulated through the increases in liabilities were used
for net loan growth of $35,784,000, an increase in investments of $8,544,000 and
fixed asset expansion of $2,751,000.
Excluding the effect of the net change in the market value of
available-for-sale securities, Shareholders' Equity increased $1,753,000 for the
nine months ending September 30, 2000 and by $2,489,000 for the twelve-month
period ending September 30, 2000. The increases are a result of the retention of
profits and the issuance of common stock under the Dividend Reinvestment plan.
10
<PAGE>
2. Changes in Results of Operations
Net Income
Net Income for the nine months ending September 30, 2000 and 1999 was
$2,656,052 and $2,724,720 respectively. The significant differences are as
follows:
<TABLE>
<CAPTION>
2000 1999 Difference
----- ----- ----------
<S> <C> <C> <C> <C>
Net interest income $10,236,308 $9,679,274 $557,034 A
Provision for loan losses 381,000 405,000 24,000
Deposit service charges and other income 1,959,911 1,603,539 356,372 B
Gain on sale of assets 167,897 70,393 97,504
AFS loan appreciation 145,871 0 145,871
Salaries and employee benefits 4,223,643 3,785,539 (438,104) C
Occupancy and equipment 1,564,947 1,080,151 (484,796) D
Other expense 3,050,595 2,572,896 (477,699) E
Provision for income tax 633,750 784,900 151,150 F
</TABLE>
A) The tax equivalent (TE) yield on Average Earning Assets increased 33 basis
points, from 7.46% at September 30, 1999 to 7.79% at September 30, 2000.
This action was caused by changes in the National Prime Rate, 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 accounts at the new branch
locations caused the cost of funds to increase 77 basis points. The decline
in TE net yield was offset by a rise in loan and investment volume and
permitted the Company to increase Net Interest Income by $557,034.
B) Service charges on deposit accounts increased $250,000 due to volume
increases and a new fee structure. Gross fees from the Trust Department &
merchant credit cards rose $77,000. Service charges on loans increased
$41,000.
C) Merit pay increases and additions to staff caused Personnel Expense to
increase 11.57%. At September 30, 2000 and 1999, the Company employed 164
full time equivalent employees. However on average, the number of full time
equivalent employees increased 9% since September 30, 1999.
D) Occupancy and Equipment Expense increased due to the opening of the new
branches. Included in the increase is a $286,000 increase in depreciation
expense.
11
<PAGE>
E) Included in Other Expense at September 30, 2000 are charges of $151,000
related to the organization of Fidelity D&D Bancorp, Inc. A rise in merchant
credit card volume caused related expenses to increase $53,000. Advertising,
postage, courier expense, supplies, ATM expenses and communications, all
impacted by the new locations, increased $160,000. Correspondent bank
expense rose $18,000, capital shares expense increased $28,000 and state
banking charges and the FDIC assessment increased $20,000.
F) The difference between the expected and actual provision for income taxes is
primarily the result of tax-free interest income. Also, for the nine months
ended September 30, 2000, the provision has been reduced by approximately
$92,000 of low income housing credits.
12
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in thousands of dollars)
<TABLE>
<CAPTION>
TAX EQUIVALENT YIELD
Average Earnings Sept. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
<S> <C> <C> <C>
Assets
Loans & Leases $ 324,036 $ 281,347 $ 272,788
Investments 121,164 100,882 96,142
Fed Funds 0 2,682 3,577
Interest Bearing
Deposits 7,126 6,629 6,803
----------- ----------- -----------
Total $ 452,326 $ 391,540 $ 379,310
=========== =========== ===========
Average Interest
Bearing Liabilities
Other Interest-bearing Deposits $ 86,432 $ 69,131 $ 66,664
CD's 195,327 173,626 170,499
Other Borrowed Funds 75,302 56,943 50,686
Repurchase Agreements 33,375 31,639 31,799
----------- ----------- -----------
Total $ 390,436 $ 331,339 $ 319,648
=========== =========== ===========
Nine months ended Year ended Nine months ended
Sept. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
Interest Income
Loans & Leases $ 20,146 $ 22,294 $ 16,149
Investments 6,190 6,774 4,819
Fed Funds 0 128 128
Interest Bearing
Deposits 42 89 81
----------- ----------- -----------
Total $ 26,378 $ 29,285 $ 21,178
=========== =========== ===========
Interest Expense
Other Interest-bearing Deposits $ 2,221 $ 1,589 $ 1,101
CD's 8,637 9,269 6,787
Other Borrowed Funds 3,361 2,999 1,964
Repurchase Agreements 1,387 1,519 1,125
----------- ----------- -----------
Total $ 15,606 $ 15,376 $ 10,978
=========== =========== ===========
Net Interest Income $ 10,772 $ 13,909 $ 10,200
=========== =========== ===========
Yield on Average
Earning Assets 7.79% 7.48% 7.46%
Cost of Average Interest-bearing
Liabilities 5.34% 7.48% 4.59%
----------- ----------- -----------
Interest Rate Spread 2.45% 2.84% 2.87%
=========== =========== ===========
Net Yield on Average Earning Assets 3.18% 3.55% 3.60%
</TABLE>
13
<PAGE>
FIDELITY D & D BANCORP, INC. and SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Provision for Loan Losses
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 31, 1999 Sept. 30, 1999
<S> <C> <C> <C>
Net Loans $323,708,759 $296,193,518 $281,924,997
Allowance for loan losses 3,121,703 3,172,375 3,195,220
Percentage to net loans 0.96% 1.07% 1.13%
Provision for loan losses
Year ended $530,000
Nine months ended $381,000 $405,000
Three months ended 138,000 85,000
(Charge offs)/recoveries, net
Year ended (365,338)
Nine months ended (431,672) (217,493)
Three months ended (310,486) (94,922)
</TABLE>
In addition to the Allowance for Loan Loss, 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 $167,000 at September
30, 2000. The reserve set aside by the Commonwealth of Pennsylvania for loans
registered in the PENNCAP program was $277,000 at September 30, 2000.
Loans secured by deposits were $7,999,000 at September 30, 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 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 affect the borrower's ability to
repay;
o Overall portfolio quality; and
o Review of specific impaired loans.
14
<PAGE>
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 September 30, 2000 were $1,226,000 and $5,532,000 respectively. At
September 30, 2000 the allowance for loan loss represents 254.67% of non-accrual
loans and 53.43% 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
September 30, 2000 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
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.
15
<PAGE>
Liquidity (in thousands of dollars)
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec 31, 1999 Sept. 30, 1999
<S> <C> <C> <C>
Assets due within one year $131,897 $117,952 $114,907
Liabilities due within one year $237,571 $210,598 $208,182
Percent of assets due within one year
to liabilities due within one year 55.52% 56.01% 55.20%
</TABLE>
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 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 September 30, 2000
Total Capital
(to Risk Weighted Assets) $41,674,828 12.68% $26,294,438 8.00% $32,868,048 10.00%
Tier 1 Capital
(to Risk Weighted Assets) $38,553,125 11.73% $13,147,219 4.00% $19,720,829 6.00%
Tier 1 Capital
(to Average Assets) $38,553,125 8.24% $18,710,018 4.00% $23,387,523 5.00%
</TABLE>
The ratios for the Company are not materially different from those of the Bank.
16
<PAGE>
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.
None
ITEM 5. Other Information.
On September 15, 2000, Herbert M. McDonald, MD, a member of the
Board of Directors, passed away unexpectedly. On October 3, 2000, the remaining
members of the Board of Directors appointed his wife Mary E. McDonald to fill
the vacancy.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 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.
17
<PAGE>
Exhibit 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.
Exhibit 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.
Exhibit 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 November 3, 1999, and as
amended on April 6, 2000.
Exhibit 10.3 Form of Deferred Compensation Plan of
The Fidelity Deposit and Discount.
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.
Exhibit 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.
Exhibit 11 Computation of Earnings per share.
Included herein on page 7.
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K
On July 12, 2000, Registrant filed a Current Report on Form 8-K with
the SEC to report, under Item 2, the acquisition of The Fidelity Deposit and
Discount Bank as Registrant's wholly owned subsidiary effective June 30, 2000.
18
<PAGE>
FIDELITY D&D BANCORP, INC. and SUBSIDIARY
DUNMORE, PA 18512
FORM 10-Q SEPTEMBER 30, 2000
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: November 10, 2000 /s/ Michael F. Marranca
----------------- --------------------------------
MICHAEL F. MARRANCA, PRESIDENT
AND CEO
DATE: November 10, 2000 /s/ Robert P. Farrell
----------------- --------------------------------
ROBERT P. FARRELL, TREASURER
19
<PAGE>
EXHIBIT INDEX
Exhibit 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.
Exhibit 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.
Exhibit 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.
Exhibit 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 November 3, 1999, and as
amended on April 6, 2000.
Exhibit 10.3 Form of Deferred Compensation Plan of
The Fidelity Deposit and Discount.
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.
Exhibit 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.
Exhibit 11 Computation of Earnings per share.
Included herein on page 7.
Exhibit 27 Financial Data Schedule.
20