|UNITED STATES                                    
|-------------------------------------------------
|                                                 
|SECURITIES AND EXCHANGE COMMISSION               
|Washington, D.C. 20549                           
|FORM 10-Q                                        
|                                                 
|                                                 
|QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
|SECURITIES EXCHANGE ACT OF 1934                  
|                                                 
|                                                 
|FOR QUARTER ENDED MARCH 31, 2004                 
|                                                 
|                                                 
|COMMISSION FILE NUMBER: 333-90273                
|                                                 
|                                                 
|FIDELITY D & D BANCORP, INC.                     
|                                                 
|                                                 
|STATE OF INCORPORATION:                          
|PENNSYLVANIA                                     
|                                                 
|                                                 
|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 or 15(d) 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 Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2)
|------------------------------------------------------------------------------

| | YES | X | NO
| | --- | - | --
| |     |   |   

|The number of outstanding shares of
Common Stock of Fidelity D & D Bancorp, Inc. at April 30, 2004, the latest
practicable date, was 1,828,266 shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------

|FIDELITY D & D
BANCORP, INC.



Form 10-Q March 31, 2004



Index
|-----------------------------------------------------------------

|                                          |                                                                                  |   
|----------------------------------------- | -------------------------------------------------------------------------------- | --
|PART I. FINANCIAL INFORMATION             | Page                                                                            
|                                          |                                                                                 
|ITEM 1. FINANCIAL STATEMENTS (Unaudited): |                                                                                 
|                                          |                                                                                 
|                                          | Consolidated Balance Sheet as of March 31, 2004                                  |   
|                                          | and December 31, 2003                                                            | 3 
|                                          | Consolidated Statement of Income for the three                                   |   
|                                          | months ended March 31, 2004 and 2003                                             | 4 
|                                          | Consolidated Statement of Changes in Shareholders' Equity                        |   
|                                          | for the three months ended March 31, 2003 and 2004                               | 5 
|                                          | Consolidated Statement of Cash Flows for the three months                        |   
|                                          | ended March 31, 2004 and 2003                                                    | 6 
|                                          | Notes to Consolidated Financial Statements                                       | 7 
|                                          |                                                                                 
|ITEM 2.                                   | Management's Discussion and Analysis of Financial Condition                      |   
|                                          | and Results of Operations                                                        | 9 
|                                          |                                                                                 
|ITEM 3.                                   | Quantitative and Qualitative Disclosure about Market Risk                        | 22
|                                          |                                                                                  |   
|                                          |                                                                                 
|ITEM 4.                                   | Controls and Procedures                                                          | 26
|                                          |                                                                                 
|                                          |                                                                                 
|PART II.  OTHER INFORMATION               |                                                                                 
|                                          |                                                                                 
|ITEM 1.                                   | Legal Proceedings                                                                | 26
|                                          |                                                                                 
|ITEM 2.                                   | Changes in Securities, Use of Proceeds and Issuer Purchases or Equity Securities | 26
|                                          |                                                                                 
|ITEM 3.                                   | Defaults upon Senior Securities                                                  | 27
|                                          |                                                                                 
|ITEM 4.                                   | Submission of Matters to a Vote of Security Holders                              | 27
|                                          |                                                                                 
|ITEM 5.                                   | Other Information                                                                | 27
|                                          |                                                                                 
|ITEM 6.                                   | Exhibits and Reports on Form 8-K                                                 | 27
|                                          |                                                                                 
|Signatures                                |                                                                                  | 29
|                                          |                                                                                 
|Exhibit Index                             |                                                                                  | 30

|
|

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED BALANCE SHEET
As of March 31, 2004 and December 31, 2003
|--------------------------------------------------------------------------------------------------

|                                                        | March 31, 2004(unaudited) | December 31, 2003(audited)
|------------------------------------------------------- | ------------------------- | --------------------------
|ASSETS                                                  |                          
|Cash and due from banks                                 |                           | $   11,687,749            
|Interest-bearing deposits with financial institutions   |                           | 534,152                   
|Total cash and cash equivalents                         |                           | 12,221,901                
|Held-to-maturity securities                             |                           | 4,325,925                 
|Available-for-sale securities                           |                           | 133,853,667               
|Loans and leases, net (allowance for loan losses of     |                          
|$5,776,375 in 2004 and $4,996,966 in 2003)              |                           | 366,265,860               
|Loans available-for-sale (fair value $20,300,713 in     |                          
|2004; $20,500,507 in 2003)                              |                           | 19,657,819                
|Accrued interest receivable                             |                           | 2,151,887                 
|Bank premises and equipment, net                        |                           | 11,806,706                
|Foreclosed assets held for sale                         |                           | 320,764                   
|Cash surrender value of bank owned life insurance       |                           | 7,378,167                 
|Other assets                                            |                           | 2,695,713                 
|Total assets                                            |                           | $ 560,678,409             
|LIABILITIES                                             |                          
|Deposits                                                |                          
|Non-interest bearing                                    |                           | $   65,519,553            
|Certificates of deposit of $100,000 or more             |                           | 103,378,214               
|Other interest-bearing deposits                         |                           | 213,738,398               
|Total deposits                                          |                           | 382,636,165               
|Accrued interest payable and other liabilities          |                           | 2,897,200                 
|Short-term borrowings                                   |                           | 58,109,334                
|Long-term debt                                          |                           | 71,688,929                
|Total liabilities                                       |                           | 515,331,628               
|SHAREHOLDERS' EQUITY                                    |                          
|Preferred stock authorized 5,000,000 shares with no par |                          
|value; none issued                                      |                           | --                        
|Capital stock authorized 10,000,000 shares with no par  |                          
|value; issued and outstanding 1,828,266 shares in       |                          
|2004 and 1,828,270 shares in 2003                       |                           | 9,689,807                 
|Treasury stock, at cost                                 |                           | (3,456                    
|Retained earnings                                       |                           | 34,865,454                
|Accumulated other comprehensive income (loss)           |                           | 794,976                   
|Total shareholders' equity                              |                           | 45,346,781                
|Total liabilities and shareholders' equity              |                           | $ 560,678,409             

|
|

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|--------------------------------------------------------------------------

|                                                      | Three Months Ended |                
|----------------------------------------------------- | ------------------ | ---------------
|
|Interest Income                                       |                   
|Interest and fees on loans:                           |                   
|Taxable                                               |                    | $ 5,412,352    
|Nontaxable                                            |                    | 84,088         
|Leases                                                |                    | 49,420         
|Interest-bearing deposits with financial institutions |                    | 1,115          
|Investment securities:                                |                   
|US Government agencies                                |                    | 1,218,595      
|States and political subdivisions (nontaxable)        |                    | 135,378        
|Other securities                                      |                    | 52,167         
|Federal funds sold                                    |                    | 10,210         
|Total interest income                                 |                    | 6,963,325      
|Interest expense                                      |                   
|Certificates of deposit of $100,000 or more           |                    | 890,671        
|Other deposits                                        |                    | 1,050,649      
|Securities sold under repurchase agreements           |                    | 102,861        
|Other short- and long-term borrowings and other       |                    | 986,199        
|Total interest expense                                |                    | 3,030,380      
|Net interest income                                   |                    | 3,932,945      
|Provision for loan losses                             |                    | 850,000        
|Net interest income, after provision for loan losses  |                    | 3,082,945      
|Other income:                                         |                   
|Service charges on deposit accounts                   |                    | 525,929        
|Gain on sale of:                                      |                   
|Investment securities                                 |                    | 9,497          
|Loans                                                 |                    | 23,611         
|Loss on leased assets                                 |                    | (93,266        
|Loss on foreclosed assets held for sale               |                    | --             
|Fees, other service charges and other income          |                    | 480,646        
|Total other income                                    |                    | 946,417        
|Other operating expenses:                             |                   
|Salaries and employee benefits                        |                    | 1,744,516      
|Premises and equipment                                |                    | 719,411        
|Advertising                                           |                    | 60,507         
|Other                                                 |                    | 750,593        
|Total other expenses                                  |                    | 3,275,027      
|Income before provision for income taxes              |                    | 754,335        
|Provision for income taxes                            |                    | 129,428        
|Net income                                            |                    | $    624,907   
|Per share data:                                       |                   
|Net income - basic                                    |                    | $          0.34
|Net income - diluted                                  |                    | $          0.34
|Dividends                                             |                    | $          0.22

|
|

|FIDELITY D & D BANCORP, INC.
Consolidated Staements of Changes in Shareholders' Equity
For the three months ended March 31, 2003 and 2004
|-----------------------------------------------------------------------------------------------------------------------------------------

|                                               | Capital Stock | Treasury Stock | Retained | Accumulated othercomprehensive |  
|---------------------------------------------- | ------------- | -------------- | -------- | ------------------------------ | -
|
|                                               |              
|Balance, December 31, 2002 (audited)           |               | 1,825,363      |          | $ 9,590,142                    |  
|                                               |              
|Comprehensive income:                          |              
|Net income                                     |               |                |          |                                |  
|Change in net unrealized holding gains         |              
|(losses) on available-for-sale securities, net |              
|net of reclassification adjustments            |               |                |          |                                |  
|                                               |              
|Comprehensive income                           |               |                |          |                                |  
|                                               |              
|Issuance of common stock through               |              
|Employee Stock Purchase Plan                   |               |                |          |                                |  
|Dividends reinvested through Dividend          |              
|Reinvestment Plan                              |               | 71             |          | 2,684                          |  
|Stock options exercised                        |               |                |          |                                |  
|Dividends declared                             |               |                |          |                                |  
|                                               |              
|Balance, March 31, 2003 (unaudited)            |               | 1,825,434      |          | $ 9,592,826                    |  
|                                               |              
|Balance, December 31, 2003 (audited)           |               | 1,828,270      |          | $ 9,698,879                    |  
|                                               |              
|Comprehensive income:                          |              
|Net income                                     |               |                |          |                                |  
|Change in net unrealized holding gains         |              
|(losses) on available-for-sale securities, net |              
|net of reclassification adjustments            |               |                |          |                                |  
|                                               |              
|Comprehensive income                           |               |                |          |                                |  
|                                               |              
|Reissued treasury stock through                |              
|Employee Stock Purchase Plan                   |               | --             |          | (8,329                         | )
|Dividends reinvested through Dividend          |              
|Reinvestment Plan                              |               | --             |          | (633                           | )
|Fractional shares repurchased                  |               | (4             | )        | (110                           | )
|Dividends declared                             |               |                |          |                                |  
|                                               |              
|Balance, March 31, 2004 (unaudited)            |               | 1,828,266      |          | $ 9,689,807                    |  
|                                               |              

|
|

|FIDELITY D & D BANCORP, INC.
Consolidated Statements of Cash Flows
(unaudited)
|------------------------------------------------------------------------------

|                                                                       | Three Months Ended
|---------------------------------------------------------------------- | ------------------
|
|Cash flows from operating activities:                                  |                   
|Net income                                                             |                   
|Adjustments to reconcile net income to net                             |                   
|cash provided by operating activities:                                 |                   
|Depreciation                                                           |                   
|Amortization of securities (net of accretion)                          |                   
|Provision for loan losses                                              |                   
|Deferred income tax                                                    |                   
|Write-down of foreclosed assets held-for-sale                          |                   
|Increase in cash surrender value of life insurance                     |                   
|Gain on sale of investment securities                                  |                   
|Gain on sale of loans                                                  |                   
|(Gain) loss on sale of foreclosed assets held- for-sale                |                   
|Loss on sale of leased assets                                          |                   
|Loss on sale of equipment                                              |                   
|Amortization of loan servicing rights                                  |                   
|Net (increase) decrease in accrued interest receivable                 |                   
|Net (increase) decrease in other assets                                |                   
|Net decrease in accrued interest payable and other liabilities         |                   
|Net cash provided by operating activities                              |                   
|Cash flows from investing activities:                                  |                   
|Held-to-maturity securities:                                           |                   
|Proceeds from maturities, calls and paydowns                           |                   
|Available-for-sale securities:                                         |                   
|Proceeds from sales                                                    |                   
|Proceeds from maturities, calls and paydowns                           |                   
|Purchases                                                              |                   
|Proceeds from sale of loans available-for-sale                         |                   
|Net increase in loans and leases                                       |                   
|Purchase of life insurance policies                                    |                   
|Proceeds from sale of leased assets                                    |                   
|Acquisition of bank premises and equipment                             |                   
|Proceeds from sale of credit card receivables                          |                   
|Proceeds from sale of foreclosed assets held-for-sale                  |                   
|Net cash provided by (used in) investing activities                    |                   
|Cash flows from financing activities:                                  |                   
|Net increase (decrease) in noninterest-bearing deposits                |                   
|Net (decrease) increase in certificates of deposit of $100,000 or more |                   
|Net decrease in other interest-bearing deposits                        |                   
|Net increase in short-term borrowings                                  |                   
|Repayment of long-term debt                                            |                   
|Dividends paid, net of dividend reinvestment                           |                   
|Proceeds from exercise of stock options                                |                   
|Proceeds from employee stock purchase plan                             |                   
|Net cash (used in) provided by financing activities                    |                   
|Net decrease in cash and cash equivalents                              |                   
|Cash and cash equivalents, beginning                                   |                   
|Cash and cash equivalents, ending                                      |                   

|FIDELITY D & D BANCORP,
INC.



Notes to Consolidated
Financial Statements



(unaudited)


     1.    
          Nature of operations and critical accounting policies



Principles
of consolidation


The accompanying unaudited
consolidated financial statements of Fidelity D&D Bancorp, Inc., and its wholly owned
subsidiary, The Fidelity Deposit and Discount Bank (the 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 this Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and footnote
disclosures required by GAAP for complete financial statements. In the opinion of
management, all normal recurring adjustments necessary for a fair presentation of the
financial condition and results of operations for the periods have been included. All
significant inter-company balances and transactions have been eliminated in consolidation.
Prior period amounts are reclassified when necessary to conform to the current
periods presentation.


The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ from those
estimates. For additional information and disclosures required under GAAP, please refer to
the Companys Annual Report on Form 10-K for the year ended December 31, 2003.



Nature
of operations


The Bank is a commercial bank
chartered in the Commonwealth of Pennsylvania and a wholly owned subsidiary of the
Company. Having commenced operations in 1903, the Bank provides a full range of
traditional banking services, trust services and alternative financial products from its
main office located in Dunmore and other branches throughout Lackawanna and Luzerne
counties.


Management is responsible for the
fairness, integrity and objectivity of the unaudited financial statements included in this
report. Management prepared the unaudited financial statements in accordance with GAAP. In
meeting its responsibility for the financial statements, management depends on the
Companys accounting systems and related internal controls. These systems and
controls are designed to provide reasonable, but not absolute, assurance that the
financial records accurately reflect the transactions of the Company, the Companys
assets are safeguarded and that financial statements present fairly the financial
condition and results of operations of the Company.


In the opinion of management, the
consolidated balance sheets as of March 31, 2004 and December 31, 2003 and the related
consolidated statements of income, changes in shareholders equity and cash flows for
each of the three month periods ended March 31, 2004 and March 31, 2003 present fairly the
financial condition and results of operations of the Company. All material adjustments
required for a fair presentation have been made. These adjustments are of a normal
recurring nature. There have been no material changes in accounting principles, practices
or in the method of application and there have been no retroactive adjustments during
these periods. The results of operations for interim periods are not necessarily
indicative of the results of operations for the entire year.


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, 2003 and the notes included therein, included within the
Companys Annual Report filed on Form 10-K.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Critical accounting
policies


The presentation of financial
statements in conformity with GAAP requires management to make estimates and assumptions
that affect many of the reported amounts and disclosures. Actual results could differ from
these estimates.


A material estimate that is
particularly susceptible to significant change is the determination of the allowance for
loan losses. Management believes that the allowance for loan losses, as of March 31, 2004,
is adequate and reasonable. Given the subjective nature of identifying and valuing loan
losses, it is likely that well-informed individuals could make materially different
assumptions, and could, therefore calculate a materially different allowance value. While
management uses available information to recognize losses on loans, changes in economic
conditions may necessitate revisions in the future. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review the
Companys allowance for loan losses. Such agencies may require the Company to
recognize adjustments to the allowance based on their judgments of information available
to them at the time of their examination.


Another material estimate is the
calculation of fair values of the Companys investment securities. The Company
receives estimated fair values of investment securities from an independent valuation
service. In developing these fair values, the valuation service uses estimates of cash
flows based on historical performance of similar instruments in similar interest rate
environments. Based on experience, management is aware that estimated fair values of
investment securities tend to vary among valuation services. Accordingly, when selling
investment securities, management typically obtains price quotes from more than one
source. The majority of the Companys investment securities are classified as
available-for-sale. Available-for-sale securities are carried at fair market value on the
consolidated balance sheet, with unrealized gains and losses, net of income tax, reported
as a separate component of shareholders equity in accumulated other comprehensive
income (loss).


The fair market value of residential
mortgage loans, classified as available-for-sale (AFS), is obtained from the Federal
National Mortgage Association (Fannie Mae). The fair value of Small Business
Administration (SBA) loans, classified as AFS, is obtained from an outside pricing source.
To determine the fair market value of student loans, classified as AFS, the Bank uses the
pricing obtained from the most recent student loans sold from its AFS portfolio. The
market to which the Bank sells mortgage and other loans is restricted and price quotes
from other sources are not typically obtained.



2. Earnings per share


Basic earnings per share
(EPS) is computed by dividing net income by the weighted-average number of
common shares outstanding during the period. Diluted EPS is computed by dividing net
income by the weighted- average number of common shares outstanding plus the number of
incremental shares that would be outstanding after giving effect to the assumed exercise
of stock options.


The following data illustrates the
amounts used in computing EPS and the effects on income and the weighted-average number of
shares of potentially dilutive common stock for the three months ended March 31, 2004 and
2003:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|March 31, 2004                             | Incomenumerator | Weighted-averagecommon sharesdenominator | EPS
|------------------------------------------ | --------------- | ---------------------------------------- | ---
|Basic EPS                                  |                 | $ 624,907                                |    
|Dilutive effect of potential common stock: |                
|Stock options:                             |                
|Exercise of outstanding options            |                 |                                          |    
|Hypothetical share repurchase at $36.00    |                 |                                          |    
|                                           |                 |                                         
|Diluted EPS                                |                 | $ 624,907                                |    
|                                           |                 |                                         
|March 31, 2003                             |                
|                                           |                 |                                         
|Basic EPS                                  |                 | $ 887,300                                |    
|Dilutive effect of potential common stock: |                
|Stock options:                             |                
|Exercise of outstanding options            |                 |                                          |    
|Hypothetical share repurchase at $36.50    |                 |                                          |    
|                                           |                 |                                         
|Diluted EPS                                |                 | $ 887,300                                |    
|                                           |                 |                                         

|3. Stock plans


As permitted by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, the
Company uses the intrinsic value method of accounting for stock compensation plans. Under
the intrinsic value method, compensation cost is measured by the excess of the quoted
market price of the stock, as of the grant date (or other measurement date) over the
stocks exercise price. Since all options issued under the plans had an exercise
price equal to the quoted market value of the underlying common stock on the date of
grant, the stock is deemed to have no intrinsic value, and accordingly, no compensation
cost is recorded.


The alternative fair value method of
accounting for stock-based compensation provided under Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, requires
the use of option valuation models, such as the Black-Scholes option pricing model. The
Black-Scholes option pricing model was not developed for use in valuing stock options
granted under employer stock option plans. Rather, the Black-Scholes option pricing model
was developed for use in estimating the fair market value of short-term options traded in
organized exchanges. Options traded on organized exchanges have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected or implied volatility of the options
underlying stock. Since the options granted under the Companys stock option plans
have characteristics significantly different from those of marketable options and because
changes in the subjective input assumptions can materially impact the estimated fair
market value, in Managements opinion, the existing valuation models do no
necessarily provide a reliable single measure of the fair market value of its employee
stock options at the time of grant. In 2003 and for the first three months of 2004, the
Company did not grant stock options under any of its stock plans.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

|The following is Managements
discussion and analysis of the significant changes in the consolidated financial condition
of the Company as of March 31, 2004 and December 31, 2003 and the results of operations
for the three months ended March 31, 2004 compared to the three months ended March 31,
2003. Current performance may not be indicative of future performance. This discussion
should be read in conjunction with the Companys 2003 Annual Report filed on Form
10-K.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Forward looking
statements


This Interim Report on Form 10-Q
contains a number of forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be
identified by the use of the words anticipate, believe,
could, estimate, expect, intend,
may, outlook, plan, potential,
predict, project, should, will,
would and similar terms and phrases, including references to assumptions.
Forward looking statements include risks and uncertainties.


Forward-looking statements are based
on various assumptions and analyses made by us in light of our Managements
experience and its perception of historical trends, current conditions and expected future
developments, as well as other factors it believes are appropriate under the
circumstances. These statements are not guarantees of future performance and are subject
to risks, uncertainties and other factors (many of which are beyond our control) that
could cause actual results to differ materially from future results expressed or implied
by such forward-looking statements. These factors include, without limitation, the
following:

the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;there may be increases in competitive pressure among financial institutions or from non-financial
                      institutions;changes in the interest rate environment may reduce interest margins;changes in deposit flows, loan demand or real estate values may adversely affect our business;changes in accounting principles, policies or guidelines may cause our financial condition to be perceived
                      differently;general economic conditions, either nationally or locally in some or all areas in which we
do business, or conditions in the securities markets or the banking industry may be less
favorable than we currently anticipate;legislative or regulatory changes may adversely affect our business;technological changes may be more difficult or expensive than we anticipate;success or consummation of new business initiatives may be more difficult or expensive than we anticipate;
                      oracts of war or terrorism.Management cautions readers not to
place undue reliance on forward-looking statements, which reflect analyses only as of the
date of this report. We have no obligation to update any forward-looking statements to
reflect events or circumstances after the date of this document. Readers should review the
risk factors described in other documents that we file, from time to time, with the
Securities and Exchange Commission, including Annual Reports, Annual Reports filed on Form
10-K and other current reports filed on Form 8-K.



1.
Results of operations


Net income was $625,000 or $0.34 per
common share, on a diluted basis, for the three months ended March 31, 2004. This
represents a decrease of $262,000 or 30% from the net income of $887,000 or $0.49 per
common share, on a diluted basis, reported for the three months ended March 31, 2003.
Despite a reduction in the balance sheet size, net interest income was $101,000 greater in
the three months ended March 31, 2004 compared to the same period in 2003. The increase in
net interest income is primarily due to a reduction of rates paid on interest-bearing
liabilities. Interest income on earning-assets re-priced lower, but at a slower pace, than
rates paid on interest-bearing liabilities. On a tax-
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|equivalent basis, our net interest
rate spread increased 11 basis points to 2.61%, for the three months ended March 31, 2004,
from 2.50%, for the three months ended March 31, 2003. Our net interest margin, on a
tax-equivalent basis increased 10 basis points to 3.02% for the three months ended March
31, 2004 from 2.92% for the three months ended 2003. The provision for loan losses for the
first quarter of 2004 was $850,000 or $550,000 more than the provision recorded in the
first quarter of 2003, due to an increase in non-performing loans of approximately
$5,515,000. Other (non-interest) income was $946,000, or slightly lower for the three
months ended March 31, 2004 compared to the same period in 2003. Other income was lower,
in 2004, due primarily to losses recorded on the sales of leased assets, which the Bank
did not incur during the first quarter of 2003. These recorded losses were only partially
offset by growth in service charges on deposit accounts and other fees and charges,
including an increase in the cash surrender value of bank owned life insurance. Other
expenses were marginally lower for the three months ended March 31, 2004 compared to the
same period in 2003. Decreases in advertising and other expenses more than offset
increases in salaries and employee benefits and premises and equipment expenses.


Return on average assets and return
on average equity were 0.44% and 5.65%, respectively, for the three months ended March 31,
2004 compared to 0.62% and 7.90%, respectively, for the same period in 2003.



Net interest income


Net interest income is the most
significant component of operating income. The amount of net interest income is dependent
upon the levels of interest-earning assets and interest-bearing liabilities and the
difference or spread between the respective yields earned and rates paid. The
interest rate spread is influenced by the overall interest rate environment, the
composition and characteristics of interest-earning assets and interest-bearing
liabilities and by the competition in our marketplace. The interest rate spread is also
influenced by differences in the maturity and re-pricing characteristics of assets
compared to the liabilities that fund them.


Because of a slow and weak recovery
of the economy, the Federal Reserve maintained the low interest rate environment
throughout the first quarter of 2004. The Banks interest-earning assets and
interest-bearing liabilities continue to originate and reprice lower in this interest rate
environment. The tax-equivalent yield on average loans and leases, for the three months
ended March 31, 2004, was 5.72% compared to 6.43%, for the three months ended March 31,
2003. The tax-equivalent yield on average investments for the three months ended March 31,
2004 was 4.21% and approximated the same yield for the three months ended March 31, 2003.
The rate on average interest-bearing liabilities declined from 3.26%, for the three months
ended March 31, 2003, to 2.67% for the same period in 2004, due in part to lower rates
offered on interest-bearing deposits. In addition, a significant portion of the
Banks time deposits greater that $100,000 have matured and those that have been
retained have moved into lower costing time deposits or transaction accounts. Changes in
the composition of and reduced rate on our interest-bearing liabilities, even though lower
yields on interest-earning assets occurred, produced a positive impact on the net interest
rate spread and margin, for the three months ended March 31, 2004, compared to the same
period in 2003.


For the three months ended March 31,
2004, net interest income, on a tax-equivalent basis, was approximately $4,100,000
compared to approximately $3,900,000 for the three months ended March 31, 2003. The
increase in net interest income was primarily due to a combined decrease in average
interest-bearing liabilities and a decline of 59 basis points on the rates paid under the
previous year period. Somewhat holding back this positive impact was a marginal volume
decline of average-earning assets compounded by a 48 basis point reduction in yield.


Average interest-earning assets
declined approximately $5,200,000 from $544,800,000, for the three months ended March 31,
2003, to $539,600,000, for the three months ended March 31, 2004. Average loans and leases
increased $3,600,000, while average investments, federal funds sold and average
interest-bearing deposits decreased in total by $8,800,000. The ratio of average
interest-earning assets to average interest-bearing liabilities increased from 115%, at
March 31, 2003, to 118%, at March 31, 2004. The aforementioned decrease in yield on
average interest-earning assets and rate on average interest-bearing liabilities was due
to the sustained low interest rate environment which causes rates on new and re-pricing
product to set at lower than average levels.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The following table sets forth, a
comparison of average balance sheet amounts and their corresponding tax equivalent
earnings and expenses and annualized tax-equivalent yield and rate for the periods
indicated (dollars in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Three months endedMarch 31, 2004 | Year endedDecember 31, 2003 | Three months endedMarch 31, 2003
|-------------------------------------------- | -------------------------------- | --------------------------- | --------------------------------
|                                            
|Average earning assets:                      |                                  |                             |                                 
|Loans and leases                             |                                  | $392,668                    |                                 
|Investments                                  |                                  | 141,846                     |                                 
|Federal funds sold                           |                                  | 4,407                       |                                 
|Interest-bearing deposits                    |                                  | 718                         |                                 
|                                            
|Total                                        |                                  | $539,639                    |                                 
|                                            
|Average interest-bearing liabilities:        |                                 
|Other interest-bearing deposits              |                                  | $111,598                    |                                 
|Certificates of deposit                      |                                  | 227,716                     |                                 
|Borrowed funds                               |                                  | 75,107                      |                                 
|Repurchase agreements                        |                                  | 42,889                      |                                 
|                                            
|Total                                        |                                  | $457,310                    |                                 
|                                            
|Interest income                              |                                 
|Loans and leases                             |                                  | $    5,588                  |                                 
|Investments                                  |                                  | 1,485                       |                                 
|Federal funds sold                           |                                  | 10                          |                                 
|Interest-bearing deposits                    |                                  | 1                           |                                 
|                                            
|Total                                        |                                  | $    7,084                  |                                 
|                                            
|Interest expense                             |                                 
|Other interest-bearing deposits              |                                  | $       184                 |                                 
|Certificates of deposit                      |                                  | 1,757                       |                                 
|Borrowed funds                               |                                  | 986                         |                                 
|Repurchase agreements                        |                                  | 103                         |                                 
|                                            
|Total                                        |                                  | $    3,030                  |                                 
|                                            
|Net Interest Income                          |                                  | $    4,054                  |                                 
|                                            
|Yield on average earning assets              |                                  | 5.28                        | %                               
|Cost of average interest-bearing liabilities |                                  | 2.67                        | %                               
|                                            
|Net interest spread                          |                                  | 2.61                        | %                               
|                                            
|Net interest margin                          |                                  | 3.02                        | %                               
|                                            

|In the table above, interest income
was adjusted to a tax-equivalent basis to recognize the income from the various tax-exempt
assets as if the interest was fully taxable. This treatment allows a uniform comparison
among the yields on the interest-earning assets. The calculations were computed on a fully
tax-equivalent basis using the corporate federal tax rate of 34%. Net interest spread
represents the difference between the yield on interest-earning assets and the rate on
interest-bearing liabilities. Net interest margin represents the ratio of net interest
income to total average interest-earning assets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Provision for loan losses


The provision for loan losses
represents the necessary amount charged to operations with the purpose to increase the
allowance for loan losses to a level that represents Managements best estimate of
known and inherent losses in the Banks loan portfolio. Loans and leases determined
to be uncollectible are charged-off against the allowance for loan losses.


The required amount of the provision
for loan losses, based upon the adequate level of the allowance for loan losses, is
subject to ongoing analysis of the loan portfolio. The Bank maintains a Special Asset
Committee which meets periodically to review problem loans and leases. The committee is
comprised of Bank management, including the credit administration officer, loan workout
officer and collection personnel. The committee reports quarterly to the Credit
Administration Committee of the Board of Directors.


Management continuously reviews the
risks inherent in the loan and lease portfolio. Specific factors used to evaluate the
adequacy of the loan loss provision during the formal process include:

Specific loans that could have loss potentialLevels of and trends in delinquencies and non-accrual loansLevels of and trends in charge-offs and recoveriesTrends in volume and terms of loans o Changes in risk selection and underwriting standardsChanges in lending policies, procedures and practicesExperience, ability and depth of lending managementNational and local economic trends and conditionsChanges in credit concentrationsThe provision for loan losses was
$850,000, for the three months ended March 31, 2004, compared to $300,000 for the three
months ended March 31, 2003. The increase in the provision for loan loses was due to an
increase in non-performing loans, which consist of loans past due 90 days or more and
non-accrual loans. The balance of non-performing loans increased to $12,679,000 at March
31, 2004, compared to $8,281,000 at December 31, 2003. Of this amount, non-accrual loans
increased $4,738,000. The increase in non-accrual loans was primarily due to a single
commercial relationship consisting of two loans aggregating to $4,825,000, in which the
contractual payments became over 90 days past due, during the current quarter.



Other income


Other income consists primarily of
service charges and other deposit account related fees, fees from trust, asset management
and other financial services, the increase in cash surrender value of bank owned life
insurance and the realized gains and losses from the sales of investment securities
available-for-sale, loans, leased assets and foreclosed assets, held for sale.


For the three months ended March 31,
2004, other income was $946,000 or approximately $11,000 lower than the $957,000 recorded
during the same period in 2003. Of this decrease $93,000 pertained to losses recognized
from the sales of leased assets for the three months ended March 31, 2004 compared to none
for the same period in 2003. Sales of the Banks loans available-for-sale (AFS) and
AFS securities amounted to $24,000 and $9,000, respectively for the first three months of
2004 compared to $68,000 and $82,000, respectively for the comparable period in 2003.
During 2004, the bank experienced less mortgage refinance activity than it had in 2003. As
a result, there were fewer loans sold into the secondary market in 2004 compared to 2003.
These reductions in other income were almost offset by the growth in the Banks
combined service charges. Service charges on deposit accounts and other fees and service
charges grew $196,000 for the three months ended March 31, 2004 over the three months
ended March 31, 2003. Included in this increase is $85,000 recorded from the increase in
the cash surrender value of the bank owned life insurance (BOLI) policies compared to
$23,000 recorded in March 31, 2003, when the BOLI was first established.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Other expenses


For the three months ended March 31,
2004, other operating expenses were $3,275,000 compared to $3,295,000, recorded during the
same period in 2003.


Salaries and benefits were $84,000
higher in the first quarter of 2004 compared to the same period in 2003. The increase was
due to increased premiums for the Banks health insurance plan and increases in both
sales commissions and incentive bonuses. Premises and equipment expenses increased $22,000
due mostly to increases in equipment repairs and rentals. Advertising expenses decreased
approximately $14,000 or 19% because of a concerted effort to target lower costing media
for the Banks branch system. Other expenses, which consist primarily of professional
services, office supplies, printing and postage, data processing, employee travel, meals,
entertainment and Board of Directors fees, decreased $112,000 or 13% in the first
quarter of 2004 compared to the first quarter of 2003. Of this decrease, approximately
$80,000 pertained to the accounting treatment for direct loan origination costs and a
$41,000 reduction in the credit card receivable servicing program for the credit card
portfolio that was sold early in the first quarter of 2003.



Income tax provision


The difference between the expected
provision and actual provision for income taxes is primarily due to tax-free interest
income and use of low-income housing tax credits.


For the three months ended March 31,
2004, the Company recorded a tax provision of $129,000 representing an effective tax rate
of 17.2% compared to a provision of $307,000 or 25.7% for the three months ended March 31,
2003. The effective tax rate for the three months ended March 31, 2004 was lower due
principally to total tax-free earnings representing a larger percentage of pre-tax
earnings.



2.
Financial condition


Consolidated assets decreased
$14,500,000, or 2.5%, during the three months ended March 31, 2004 to $560,678,000. The
asset decline resulted from an $18,800,000 decrease in deposits, approximately half of
which were certificates of deposit of $100,000 or more. Short-term borrowings increased
$3,400,000 during the first three months of 2004. Cash and cash equivalents, investments
and loans available-for-sale decreased $7,010,000, $6,228,000 and $585,000, respectively,
during the three months ended March 31, 2004.


Shareholders equity increased
$1,415,000 from $43,932,000, at December 31, 2003, to $45,347,000, at March 31, 2004. This
increase was attributable to $223,000 of earnings net of dividends paid, an increase in
common stock from shares issued under the employee stock purchase and dividend
re-investment plans, a $1,008,000 appreciation in the estimated fair value of investment
securities available-for-sale, net of tax, and a $185,000 decrease in treasury stock.



Investment securities


Investment
policies dictate permissible investment categories, credit quality, maturity intervals and
investment concentrations. Management is responsible for making the specific investment
purchases within these standards. The carrying value of investment securities, at March
31, 2004, was $136,975,000 or 24% of total assets. At March 31, 2004, approximately 58% of
the investment portfolio was comprised of mortgage-backed securities that amortize and
provide monthly cash flow. Agency bonds and municipal bonds comprised 27% and 9% of the
investment portfolio, respectively.


Management buys and sells investment
securities from time to time depending on market conditions, business trends, liquidity
and capital levels. Security purchases provide a vehicle to quickly invest excess liquid
assets in order to generate additional earnings. The Bank generally earns a positive
interest rate spread by assuming interest rate risk and using deposits and/or borrowings
to purchase securities with longer maturities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Management classifies investment
securities at the time of purchase by one of three categories: trading, available for sale
(AFS) or held to maturity (HTM). To date, Management has not purchased any securities for
trading purposes. Management classifies most securities as AFS even though it has no
immediate intent to sell them. The AFS designation affords Management the flexibility to
sell securities and adjust the balance sheet in response to capital levels, liquidity
needs and/or changes in market conditions. Securities AFS are carried at fair market value
in the consolidated balance sheet with an adjustment to stockholders equity, net of
tax, which is presented under the caption Accumulated other comprehensive income
(loss)". Securities HTM are carried at amortized cost.


At March 31, 2004, the AFS portfolio
had an estimated market appreciation of $1,205,000 before tax and an equity adjustment of
$795,000, net of tax. This represents an appreciation of $1,008,000, net of tax in the
estimated fair value of securities AFS from December 31, 2003. This increase occurred due
to the composition of the Banks investment portfolio which includes securities with
yields greater than what can be readily obtained from similar securities in the investment
markets.


The amortized cost and fair value of
investment securities held-to-maturity and available-for-sale at March 31, 2004 consisted
of the following (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Amortizedcost | Gross unrealizedgains | Gross unrealizedlosses | Fairvalue
|------------------------------ | ------------- | --------------------- | ---------------------- | ---------
|                               |              
|Held-to-maturity securities:   |               |                       |                        |          
|                              
|Mortgage-backed securities:    |               | $    4,326            |                        | $   203  
|                               |              
|Available-for-sale securities: |               |                       |                       
|U.S. government agencies       |               |                       |                       
|and corporations               |               | $  37,033             |                        | $   216  
|Obligations of states and      |               |                       |                       
|municipal subdivisions         |               | 12,042                |                        | 128      
|Corporate bonds                |               | 3,992                 |                        | 25       
|Mortgage-backed securities     |               | 74,587                |                        | 879      
|                               |              
|Sub total                      |               | 127,654               |                        | 1,248    
|Equity securities:             |              
|                              
|Restricted (regulatory equity) |               | 4,716                 |                        | --       
|Other                          |               | 279                   |                        | 177      
|                               |              
|Total available-for-sale       |               | $132,649              |                        | $1,425   
|                               |              
|Total securities               |               | $136,975              |                        | $1,628   
|                               |              

|
|

|The amortized cost and fair value of
investments held-to-maturity and available-for-sale by contractual maturity at March 31,
2004 are as follows (dollars in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Amortizedcost | Marketvalue
|------------------------------ | ------------- | -----------
|Held-to-maturity securities:   |               |            
|                              
|Due after ten years            |               | $    4,326 
|                               |              
|Available-for-sale securities: |              
|                              
|One year or less               |               | $       785
|One through five years         |               | 3,435      
|Five through ten years         |               | 22,107     
|Over ten years                 |               | 26,740     
|                               |              
|Total agency and muncipal      |               | 53,067     
|Mortgage-backed securities     |               | 74,587     
|Equity securities              |               | 4,995      
|                               |              
|Total available-for-sale       |               | $132,649   
|                               |              

|Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay obligations
with or without call or prepayment penalty. Federal agency and municipal securities are
included based upon their original stated maturity. Mortgage-backed securities, which are
based on weighted-average lives and subject to monthly principal pay-downs, are listed in
total. Equity securities have no stated maturity dates and are also listed in total.



Loans available-for-sale


The balance of loans AFS was
$19,658,000, at March 31, 2004, compared to $19,864,000, at December 31, 2003. The
$206,000 decrease in loans available-for-sale relates to the timing of residential
mortgage loan originations versus their sale. In general, upon origination, residential
mortgages, the guaranteed portions of Small Business Administration loans and student
loans are classified as AFS. Should market rates increase, fixed-rate loans and loans not
immediately scheduled to re-price would no longer produce yields consistent with the
current market. In a declining interest rate environment, the Bank would be exposed to
prepayment risk and, as rates on adjustable rate loans decrease interest income would be
negatively affected. To better manage interest rate risk, loans that meet these conditions
may be classified as AFS. Consideration is also given to the current liquidity position
and expected future liquidity needs. Loans AFS are carried at the lower of cost or
estimated fair value in the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income. Unrealized gains are recognized to the extent of
previous write- downs.



Loans


Loans, net of unearned income
increased slightly from $371,979,000 at December 31, 2003, to $372,042,000 at March 31,
2004.


The Bank originates a wide variety of
loans to small to mid-sized businesses and consumers. Our policies as well as applicable
laws and regulations require risk analysis and ongoing portfolio and credit management.
The majority of our loan portfolio is collateralized, at least in part, by real estate in
the greater Lackawanna and Luzerne counties of Pennsylvania. Real estate values are
typically subject to risks associated with the general economy, among other matters.


Inherent in the lending function is
the evaluation and acceptance of credit risk and interest rate risk. We manage credit risk
through portfolio diversification, underwriting policies and procedures and loan
monitoring practices. We manage interest rate risk using various asset/liability modeling
techniques and analyses. The interest rates on most commercial loans are adjustable and
reset in intervals of five years or less. Whenever possible, the Bank originates variable
rate loans.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The following table sets forth the
composition of the loan portfolio at March 31, 2004 and December 31, 2003:
|-------------------------------------------------------------------------------------------------------------

|                                      | March 31, 2004 | December 31, 2003
|------------------------------------- | -------------- | -----------------
|Residential real estate               |                | $  91,999,206    
|Commercial and commercial real estate |                | 221,843,445      
|Consumer and home equity              |                | 47,051,337       
|Real estate construction              |                | 7,564,812        
|Direct financing leases               |                | 3,767,865        
|                                     
|Gross loans                           |                | 372,226,665      
|Less:                                 |               
|Unearned discount                     |                | 184,430          
|Allowance for loan losses             |                | 5,776,375        
|                                     
|Net loans                             |                | $366,265,860     
|                                     
|Loans available-for-sale              |                | $  19,657,819    
|                                     

|Allowance for loan losses


Management continually evaluates the
credit quality of the Banks loan portfolio and performs a formal review of the
allowance for loan loss adequacy, on a quarterly basis. The allowance for loan loss
reflects managements best estimate of losses, both known and inherent, in the
existing loan portfolio. Managements judgment is based on the evaluation of
individual loans, past experience, the assessment of current economic conditions, and
other relevant factors. The provision for loan losses represents the amount necessary to
maintain an appropriate allowance. Loan losses are charged directly against the allowance
for loan losses when loans are deemed to be uncollectible. Recoveries on previously
charged-off loans are added to the allowance when received.


Management applies two primary
components during the loan review process to determine proper allowance levels. The two
levels are specific loan loss allocation for loans that are deemed impaired and a general
loan loss allocation for those loans not specifically allocated. The methodology to
analyze the adequacy of the allowance for loan losses is as follows:

Identification of specific problem loans by loan category by the credit administrationCalculation of specific reserves required based on collateral and other persuasive evidenceIdentification of loans collateralized by cashDetermination of remaining homogenous pools by loan category and eliminating loans collateralized by cash and loans with specific reservesApplication of historical loss percentages (3 year average) to pools to determine the allowance allocationApplication of a qualitative factor adjustment percentage for trends or changes in the loan portfolioAllocation of the allowance for loan
losses for different categories of loans is based on the methodology used by the Bank, as
explained above. The changes in the allocations from period to period are based upon
reviews of the loan and lease portfolios.


Net charge-offs for the three months ended March 31, 2004 were $71,000, compared to $499,000, for the same period in 2003. Commercial
and real estate mortgage net charge-offs decreased $212,000 and $36,000, respectively, for the three months ended March 31, 2004
compared to the same period in 2003.  Consumer loans experienced a $12,000 net recovery during the first quarter of 2004 compared to
a net charge-off of $170,000 in the first quarter of 2003.  The recent addition of a new credit administration officer and
collections manager, in conjunction with our existing loan work-out officer, has enabled us to aggressively manage and timely pursue
the recovery of previously written-off loans.


Management believes that the current
balance in the allowance for loans losses of $5,776,000 is sufficient to withstand the
identified potential credit quality issues that may arise and are inherent to the
portfolio. Currently Management is unaware of any potential problem loans that have not
been reviewed. Potential problem loans are those where there is known information that
leads Management to believe repayment of principal and/or interest is in jeopardy and the
loans are neither non-accrual status nor past due 90 days or more. However, there could be
instances which become identified over the year that may require additional charge-offs
and/or increases to the allowance. The ratio of allowance for loan losses to total loans
was 1.47% at March 31, 2004 compared to 1.28% at December 31, 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The following table sets forth the
activity in the allowance for loan losses and certain key ratios for the period indicated:
|-----------------------------------------------------------------------------------------------------------------------------

|                                             | As of and for thethree months endedMarch 31, 2004 | As of and for theyear endedDecember 31, 2003 | As of and for thethree months endedMarch 31, 2003
|-------------------------------------------- | ------------------------------------------------- | -------------------------------------------- | -------------------------------------------------
|                                             |                                                   |                                              |                                                  
|Balance at beginning of period               |                                                   | $    4,996,966                               |                                                  
|                                             |                                                   |                                              |                                                  
|Provision charged to operations              |                                                   | 850,000                                      |                                                  
|                                             |                                                   |                                              |                                                  
|Charge-offs:                                 |                                                  
|Commercial                                   |                                                   | 151,762                                      |                                                  
|Real estate                                  |                                                   | 33,082                                       |                                                  
|Consumer                                     |                                                   | 74,260                                       |                                                  
|Lease financing                              |                                                   | 37,651                                       |                                                  
|                                             |                                                   |                                              |                                                  
|Total                                        |                                                   | 296,755                                      |                                                  
|Recoveries:                                  |                                                  
|Commercial                                   |                                                   | 119,719                                      |                                                  
|Real estate                                  |                                                   | --                                           |                                                  
|Consumer                                     |                                                   | 86,621                                       |                                                  
|Lease financing                              |                                                   | 19,824                                       |                                                  
|                                             |                                                   |                                              |                                                  
|Total                                        |                                                   | 226,164                                      |                                                  
|Net charge-offs                              |                                                   | 70,591                                       |                                                  
|                                             |                                                   |                                              |                                                  
|Balance at end of period                     |                                                   | $    5,776,375                               |                                                  
|                                             |                                                   |                                              |                                                  
|Total loans, end of period                   |                                                   | $391,700,054                                 |                                                  
|                                             |                                                   |                                              |                                                  
|Net charge-offs to:                          |                                                  
|Loans, end of period                         |                                                   | 0.02                                         | %                                                
|Allowance for loan losses                    |                                                   | 1.22                                         | %                                                
|Provisions for loan losses                   |                                                   | 8.30                                         | %                                                
|Allowance for loan losses to:                |                                                  
|Total loans                                  |                                                   | 1.47                                         | %                                                
|Non-accrual loans                            |                                                   | 47.89                                        | %                                                
|Non-performing loans                         |                                                   | 45.56                                        | %                                                
|Net charge-offs                              |                                                   | 81.83x                                       |                                                  
|Loans 30-89 days past due and still accruing |                                                   | $    3,874,870                               |                                                  
|Loans 90 days past due and accruing          |                                                   | $       617,454                              |                                                  
|Allowance for loan losses to loans 90        |                                                  
|days or more past due and accruing           |                                                   | 9.35x                                        |                                                  
|Non-accrual loans                            |                                                   | $  12,061,062                                |                                                  

|
|

|Non-performing assets


The Bank defines non-performing
assets as accruing loans past due 90 days or more, non-accrual loans, restructured loans,
other real estate owned and repossessed assets. The Bank did not have restructured loans
at March 31, 2004, December 31, 2003 or March 31, 2003. As of March 31, 2004,
non-performing assets represented 2.32% of total assets compared to 1.52% at December 31,
2003.


The non-accrual loan balance
increased $4,738,000 during the first three months of 2004. Loans classified as
non-accrual of $5,733,000 were added during the first three months of 2004. The increase
was mostly in commercial loans caused primarily by a single relationship with two loans of
$4,825,000, in the aggregate. This increase was partially offset by payoffs or pay downs
of $311,000, charge offs of $163,000 and $532,000 of loans that have migrated back to
performing status.


Foreclosed assets held for sale
includes other real estate owned (OREO) and repossessed assets. OREO represents four
properties that were foreclosed upon and transferred from loans. All of the properties are
currently listed for sale with a realtor. Repossessed assets represent indirect auto loans
that have become delinquent and the vehicles repossessed.


Non-performing loans increased
$4,398,000 since December 31, 2003. The increase was primarily in commercial loans as
described above. The ratio of non-performing loans to end of period total loans increased
115 basis points, during the three month period. For the same period in 2003, the ratio of
non-performing loans to total loans was 2.05%, compared to 3.29% in 2004, or an increase
of 124 basis points. The ratio of non-performing assets to total assets increased to
2.32%, at March 31, 2004, from 1.52%, at year end 2003.


The following table sets forth
non-performing assets data as of the period indicated:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | March 31, 2004 | December 31, 2003 | March 31, 2003
|--------------------------------------------- | -------------- | ----------------- | --------------
|Loans past due 90 days or more                |                |                   |               
|and accruing                                  |                |                   | $             
|Non-accrual loans                             |                |                   |               
|                                              |                |                   |               
|Total non-performing loans                    |                |                   |               
|Other real estate owned                       |                |                   |               
|Repossessed assets                            |                |                   |               
|                                              |                |                   |               
|Total non-performing assets                   |                |                   | $             
|                                              |                |                   |               
|Net loans including AFS                       |                |                   | $             
|Total assets                                  |                |                   | $             
|Non-accrual loans to net loans                |                |                   |               
|Non-performing assets to net loans,           |                |                  
|foreclosed real estate and repossessed assets |                |                   |               
|Non-performing assets to total assets         |                |                   |               
|Non-performing loans to net loans             |                |                   |               

|Other assets


The $376,000 decrease in other assets
from $3,072,000, at December 31, 2003, to $2,696,000, at March 31, 2004, was primarily due
to a $506,000 reduction in the deferred tax asset resulting from the change in the
estimated fair value of investment securities available-for-sale. This was partially
offset by other asset increases from normal recurring operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Deposits


The following table represents the
components of total deposits as of March 31, 2004 and comparative funding changes since
December 31, 2003:
|--------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | March 31, 2004 | December 31, 2003 | Dollarchange | Percentchange
|----------------------------------- | -------------- | ----------------- | ------------ | -------------
|Non-interest-bearing deposits       |                |                   |              |              
|Personal                            |                |                   | $            | 27,908,244   
|Non-personal                        |                |                   |              | 27,920,966   
|Public fund                         |                |                   |              | 4,320,279    
|Bank checks                         |                |                   |              | 5,370,064    
|                                   
|Total                               |                |                   | $            | 65,519,553   
|                                   
|Time deposits                       |                |                  
|of $100,000 or greater              |                |                  
|Personal                            |                |                   | $            | 67,996,113   
|Non-personal                        |                |                   |              | 16,477,430   
|Public fund                         |                |                   |              | 13,018,449   
|IRA's                               |                |                   |              | 5,886,222    
|                                   
|Total                               |                |                   | $            | 103,378,214  
|                                   
|Other interest-bearing deposits     |                |                  
|Time deposits less than $100,000:   |                |                  
|Personal                            |                |                   | $            | 77,726,019   
|Non-personal                        |                |                   |              | 4,696,828    
|Public fund                         |                |                   |              | 695,809      
|IRA's                               |                |                   |              | 19,352,281   
|                                   
|sub total                           |                |                   |              | 102,470,937  
|NOW accounts                        |                |                   |              | 37,364,000   
|Money market deposits               |                |                   |              | 30,173,409   
|Savings and clubs                   |                |                   |              | 43,730,052   
|                                   
|Total                               |                |                   | $            | 213,738,398  
|                                   
|Total deposits                      |                |                  
|Noninterest-bearing deposits        |                |                   | $            | 65,519,553   
|Interest-bearing deposits           |                |                   |              | 317,116,612  
|                                   
|Total                               |                |                   | $            | 382,636,165  
|                                   
|Public funds                        |                |                  
|Noninterest-bearing                 |                |                   | $            | 4,320,279    
|Certificates of deposit             |                |                   |              | 13,714,258   
|NOW accounts                        |                |                   |              | 8,116,801    
|Money market deposits               |                |                   |              | 6,496,574    
|Savings and clubs                   |                |                   |              | 2,109,451    
|                                   
|Total                               |                |                   | $            | 34,757,363   
|                                   
|Internet deposits                   |                |                  
|Noninterest-bearing                 |                |                   | $            | --           
|Interest-bearing                    |                |                   |              | 4,247,514    
|                                   
|Total                               |                |                   | $            | 4,247,514    
|                                   
|Total assets                        |                |                   | $            | 560,678,409  
|Total deposits to total assets      |                |                   |              | 68.25%       
|Internet deposits to total deposits |                |                   |              | 1.11%        
|Public funds to total deposits      |                |                   |              | 9.08%        
|Public funds to total assets        |                |                   |              | 6.20%        

|Total deposits decreased $18,806,000
or 5% during the first three months of 2004 to $382,636,000. Total average deposits
decreased $7,717,000 or 2% from $412,068,000, at December 31, 2003 to $404,351,000 at
March 31, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Non-interest bearing deposits are an
important source of funds for the Bank because they lower overall deposit costs. The
average balance of these accounts increased $4,191,000, or 7%, during 2004. The interest
rates offered on most interest-bearing deposit products were reduced in 2003 and continued
through 2004 with slight upward adjustments in a few of the Banks offerings to
remain competitive in the markets in which we operate. Management expects over one-half of
the certificate of deposit portfolio to continue to re-price to lower market rates over
the next year, specifically, over $35,000,000 remains in the thirty-month time deposit
product, as these higher-rate certificates reach maturity.


The Bank is largely dependent upon
its base of competitively priced core deposits to provide a stable source of funding. The
Bank attempts to retain and grow its customer base through a combination of rate, quality
of service, convenience and a stable, experienced staff. Core deposits, which excludes
time deposits of $100,000 or greater, decreased $9,327,000 or 3% during the first quarter
of 2004, to $279,258,000. The Bank experienced a reduction in its transactional deposit
products which includes both non-interest bearing demand deposit (DDA) and NOW accounts.
Checking accounts which includes transactional accounts, less bank checks,
decreased $6,179,000 or 6%, while savings and club accounts increased $855,000 or 2%.
Money market accounts grew $1,889,000 or 7% in the first quarter of 2004. The Banks
deposit mix, though concentrated in time deposits, experienced deposit outflow in most
deposit categories.


Time deposits of $100,000 or greater
decreased $9,479,000, or 8%, from $112,857,000 million at December 31, 2003 to
$103,378,000 at March 31, 2004. This high-costing time deposit reduction occurred mostly
from the anticipated run-off of thirty-month personal certificate of deposit accounts.
Only a portion of this amount shifted into savings and money market accounts. The time
deposit run-off is suspected to have gone to other institutions offering promotional short
term  above market rate products, in which management believes a portion may be
recaptured throughout 2004. Total time deposits, at March 31, 2004, were $205,849,000 or
54% of total deposits compared to $221,595,000 million or 55% at December 31, 2003.
Approximately $94,361,000, or 46%, of total time deposits or 25% of total deposits are
scheduled to mature in 2004. These maturing time deposits provide a significant
opportunity for the Bank to service these customers and retain these deposits at
potentially lower rates.


Public funds have been a somewhat
stable source of deposits and now represent $34,757,000 or 9% of total deposits at March
31, 2004 compared to $37,804,000 or 9% at December 31, 2003. The Bank is able to maintain
public funds due to long established relationships and competitive product pricing.
However, Management recognizes that public fund deposits are sensitive to the operating
demands of the various public entities and the forever-changing political landscape. As
such, the Bank could continue to experience shifts and outflows of these balances
throughout the year.


The Bank is strategically planning
various campaigns to be implemented throughout 2004, the objectives of which are to
curtail deposit outflows that were experienced during the last three quarters, retain
maturing time deposits and grow the deposit base to a higher level. However, the
Banks asset size may shrink further if it continues to experience deposit outflow.



Borrowings


Borrowings totaled $129,798,000 at
March 31, 2004 compared to $126,633,000 at December 31, 2003.


Included in borrowings is short-term
customer repurchase (repos) agreements of $39,543,000 and $39,363,000, at March 31, 2004
and December 31, 2003, respectively. Repos are non-insured interest-bearing liabilities
that have a security interest in qualified investment securities of the Bank. Repos
offered are either fixed-term or a daily- sweep product of the Bank. The balance in
customer repurchase agreements fluctuates daily because the daily-sweep product is
dependent on the level of available funds in depositor accounts.


Borrowings included $71,689,000 and
$71,876,000 in long-term advances from the Federal Home Loan Bank, at March 31, 2004 and
December 31, 2003, respectively.


The combined short- and long-term
weighted-average interest rate on borrowings was 3.47% and 3.39% at March 31, 2004 and
December 31, 2003, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Accrued interest payable
and other liabilities


Accrued expenses and other
liabilities decreased $311,000 during the first three months of 2004 and represents
fluctuations that would be considered normal recurring operating transactions. Accrued
interest payable decreased $90,000 while other liabilities and accrued expenses declined
$221,000.



Item 3. Quantitative and
Qualitative Disclosure about Market Risk



Management of interest
rate risk and market risk analysis


The Company is subject to the
interest rate risks inherent in our lending, investing and financing activities.
Fluctuations of interest rates will impact interest income and interest expense along with
affecting market values of all interest-earning assets and interest-bearing liabilities,
except for those assets or liabilities with a short term remaining to maturity. Interest
rate risk management is an integral part of the asset/liability management process. The
Company has instituted certain procedures and policy guidelines to manage the interest
rate risk position. Those internal policies enable the Company to react to changes in
market rates to protect net interest income from significant fluctuations. The primary
objective in managing interest rate risk is to minimize the adverse impact of changes in
interest rates on net interest income along with creating an asset/liability structure
that maximizes earnings.


Asset/Liability Management:
One major objective of the Company when managing the rate sensitivity of its assets and
liabilities is to stabilize net interest income. The management of and authority to assume
interest rate risk is the responsibility of the Companys Asset/Liability Committee
(ALCO), which is comprised of senior management and Board members. ALCO meets quarterly to
monitor the ratio of interest sensitive assets to interest sensitive liabilities. The
process to review interest rate risk management is a regular part of management of the
Company. Consistent policies and practices of measuring and reporting interest rate risk
exposure, particularly regarding the treatment of non-contractual assets and liabilities,
are in effect. In addition, there is an annual process to review the interest rate risk
policy with the Board of Directors which includes limits on the impact to earnings from
shifts in interest rates.


Interest Rate Risk
Measurement: Interest rate risk is monitored through the use of three complementary
measures: static gap analysis, earnings at risk simulation and economic value at risk
simulation. While each of the interest rate risk measurements has limitations, taken
together they represent a reasonably comprehensive view of the magnitude of interest rate
risk in the Company and the distribution of risk along the yield curve, the level of risk
through time and the amount of exposure to changes in certain interest rate relationships.


Static Gap: The ratio between
assets and liabilities repricing in specific time intervals is referred to as an interest
rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of
the slope of the yield curve as well as forecasted changes in the level of interest rate
changes.


To manage this interest rate
sensitivity position, an asset/liability model called cumulative gap analysis
is used to monitor the difference in the volume of the Companys interest sensitive
assets and liabilities that mature or reprice within given periods. A positive gap (asset
sensitive) indicates that more assets reprice during a given period compared to
liabilities, while a negative gap (liability sensitive) has the opposite effect. The
Company employs computerized net interest income simulation modeling to assist in
quantifying interest rate risk exposure. This process measures and quantifies the impact
on net interest income through varying interest rate changes and balance sheet
compositions. The use of this model assists the ALCO to gauge the effects of the interest
rate changes on interest sensitive assets and liabilities in order to determine what
impact these rate changes will have upon the net interest spread.


At March 31, 2004, the Company
maintained a one-year cumulative positive gap of $47,140,000 or 8.41% of total assets. The
effect of this gap position provided a positive mismatch of assets and liabilities, which
may expose the Bank to an increased interest rate risk position during a period of
declining interest rates. Conversely, in an increasing interest rate environment, net
income could be positively affected because more assets will reprice during a one-year
period.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Interest sensitivity gap at March 31, 2004
|----------------------------------------- | ------------------------------------------
|
|
|Cash and cash equivalents                 |                                           
|Investment securities                     |                                           
|Loans                                     |                                           
|Fixed and other assets                    |                                           
|Total assets                              |                                           
|Total cumulative assets                   |                                           
|Non interest-bearing transaction deposits |                                           
|Interest-bearing transaction deposits     |                                           
|Time deposits                             |                                           
|Repurchase agreements                     |                                           
|Short-term borrowings                     |                                           
|Long-term debt                            |                                           
|Other liabilities                         |                                           
|Total liabilities                         |                                           
|Total cumulative liabilities              |                                           
|Interest sensitivity gap                  |                                           
|Cumulative gap                            |                                           
|Cumulative gap to total assets            |                                           

|Investments and loans are included
in the earlier of the period in which interest rates were next scheduled to adjust or the
period in which they are due.  In addition, loans were included in the periods in which
they are scheduled to be repaid based on scheduled amortization.  For amortizing loans
and mortgage-backed securities, annual prepayment rates are assumed reflecting historical
experience as well as management's knowledge of and experience with loan products.


The Bank's demand and savings
accounts were generally subject to immediate withdrawal.  However, management considers a
certain amount of such accounts to be core accounts having significantly longer effective
maturities based on the retention experiences of such deposits in changing interest rate
environments.  The effective maturities presented are the recommended maturity
distribution limits for non-maturing deposits based on historical deposit studies.


Certain shortcomings are inherent in
the method of analysis presented in the above table.  Although certain assets and
liabilities may have similar maturities or periods of repricing, they may react in
different degrees to changes in market interest rates.  The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types of assets and liabilities may lag behind
changes in market interest rates.  Certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and over the
life of the asset.  In the event of a change in interest rates, prepayment and early
withdrawal levels may deviate significantly from those assumed in calculating the table.
 The ability of many borrowers to service their adjustable-rate debt may decrease in the
event of an interest rate increase.


Earnings at Risk and Economic Value
at Risk Simulations: The Company recognizes that more sophisticated tools exist for
measuring the interest rate risk in the balance sheet beyond static gap analysis.
 Although it will continue to measure its static gap position, the Company utilizes
additional modeling for identifying and measuring the interest rate risk in the overall
balance sheet.  The ALCO is responsible for focusing on "earnings at risk" and "economic
value at risk", and how both relate to the risk-based capital position when analyzing the
interest rate risk.


Earnings at Risk: Earnings at risk
simulation measure the change in net interest income and net income should interest rates
rise and fall.  The simulation recognizes that not all assets and liabilities reprice on
a one-for-one basis with market rates (e.g., savings rate).  The ALCO looks at "earnings
at risk" to determine income changes from a base case scenario under an increase and
decrease of 200 basis points in interest rates simulation model.


Economic Value at Risk: Earnings at
risk simulation measure the short-term risk in the balance sheet.  Economic value (or
portfolio equity) at risk measures the long-term risk by finding the net present value of
the future cash flows from the Company's existing assets and liabilities.  The ALCO
examines this ratio quarterly utilizing an increase and decrease of 200 basis points in
interest rates simulation model. The ALCO recognizes that, in some instances, this ratio
may contradict the "earnings at risk" ratio.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The following table illustrates the
simulated impact of 200 basis points upward or downward movement in interest rates on net
interest income, net income, and the change in economic value (portfolio equity).  This
analysis assumed that interest-earning asset and interest-bearing liability levels at
March 31, 2004 remained constant.  The impact of the rate movements was developed by
simulating the effect of rates changing over a twelve-month period from the March 31,
2004 levels:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Rates +200 | Rates -200
|--------------------------- | ---------- | ----------
|Earnings at risk:           |            |           
|Percent change in:          |            |           
|Net interest income         |            |           
|Net income                  |            |           
|Economic value at risk:     |            |           
|Percent change in:          |            |           
|Economic value of equity    |            |           
|Economic value of equity    |            |           
|as a percent of book assets |            |           

|Economic value has the most meaning
when viewed within the context of risk-based capital.  Therefore, the economic value may
change beyond the Company's policy guideline for a short period of time as long as the
risk-based capital ratio, after adjusting for the excess equity exposure, is greater than
10%.


The table below summarizes estimated
changes in net interest income over a twelve-month period beginning April 1, 2004, under
alternate interest rate scenarios using the income simulation model described above:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Change in interest rates | Net interstincome | Dollar variance | Percent change
|------------------------ | ----------------- | --------------- | --------------
|
|+200 basis points        |                   |                 | $             
|+100 basis points        |                   |                 |               
|Flat rate                |                   |                 |               
|-100 basis points        |                   |                 |               
|-200 basis points        |                   |                 |               

|Simulation models require assumptions
about certain categories of assets and liabilities. The models schedule existing assets
and liabilities by their contractual maturity, estimated likely call date, or earliest
repricing opportunity. Mortgage-backed securities and amortizing loans are scheduled based
on their anticipated cash flow including estimated prepayments. For investment securities,
we use a third party service to provide cash flow estimates in the various rate
environments. Savings accounts, including passbook, statement savings, money market, and
interest checking accounts, do not have a stated maturity or repricing term and can be
withdrawn or reprice at any time. This may impact the margin if more expensive alternative
sources of deposits are required to fund loans or deposit runoff. Management projects the
repricing characteristics of these accounts based on historical performance and
assumptions that it believes reflect their rate sensitivity. The consulting model
reinvests all maturities, repayments and prepayments for each type of asset or liability
into the same product for a new like term then applies growth or run-off estimates
provided by management. As a result, the mix of interest-earning assets and interest
bearing-liabilities is not held constant.



Liquidity


Liquidity management ensures that
adequate funds will be available to meet customers needs for borrowings, deposit
withdrawals and maturities and normal operating expenses of the Bank. Current sources of
liquidity are cash and cash equivalents, asset maturities and pay downs within one year,
loans and investments available-for-sale, growth of core deposits, growth of repurchase
agreements, increase of other borrowed funds from correspondent banks and issuance of
capital stock. In addition, the Banks other sources of liquidity are borrowings from
the Federal Reserve Discount Window and Federal Home Loan Bank advances. Although
regularly scheduled investment and loan payments are dependable sources of daily funds,
the sale of loans and investment securities available-for-sale, deposit activity, and
investment and loan prepayments are significantly influenced by general economic
conditions and the level of interest rates.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|At March 31, 2004, the Company
maintained $12.2 million in cash and cash equivalents. In addition, the Company had $19.5
million of loans available-for-sale and $133.9 million in investments available-for-sale.
This combined total of $165.6 million represented 30% of total assets at March 31, 2004.
Management believes that the present level of liquidity is strong and adequate for current
operations.



Capital


The Company is subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct material
effect on the Companys financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Companys assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Companys capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other
factors.


Capital is fundamental to support our
continued growth. In addition, the Company and Bank are subject to various regulatory
capital requirements. Regulatory capital is defined in terms of Tier 1 capital
(shareholders equity plus the allowable portion of the minority interest in equity
of subsidiaries, minus unrealized gains or plus unrealized losses on available for sale
securities, and minus certain intangible assets), Tier 2 capital (which includes the
allowable portion of the allowance for loan losses, minority interest in equity of
subsidiaries and subordinated debt), and total capital (Tier 1 plus Tier 2). Risk-based
capital ratios are expressed as percentages of risk-weighted assets. Risk-weighted assets
are determined by assigning various weights to all assets and off-balance sheet financial
instruments, such as letters of credit and loan commitments, based on associated risk.
Regulators have also adopted minimum Tier 1 leverage ratio standards, which measure the
ratio of Tier 1 capital to total average quarterly assets.


Quantitative measures, established by
regulation to ensure capital adequacy, require the Company to maintain minimum amounts and
ratios (set forth in the following table as defined in the regulations) of total and Tier
I capital to risk-weighted assets, and of Tier I capital to average assets. Capital is
evaluated in relation to total assets and the risk associated with those assets. As of
March 31, 2004, the Company meets all capital adequacy requirements to which it is
subject. Both the Companys and the Banks actual capital amounts and ratios are
presented.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         
|-------------------------
|                         
|Amount                   
|                         
|Total Capital            
|(to Risk Weighted Assets)
|Consolidated             
|Bank                     
|                         
|Tier I Capital           
|(to Risk Weighted Assets)
|Consolidated             
|Bank                     
|                         
|Tier I Capital           
|(to Average Assets)      
|Consolidated             
|Bank                     

|
|

|Item 4. Controls and
Procedures


The Company maintains controls and
procedures designed to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures as of the end of the period covered by this report, the Acting
Chief Executive and Chief Financial Officers of the Company concluded that the
Companys disclosure controls and procedures were adequate.



PART II. Other
Information



Item 1. Legal Proceedings


The nature of the Companys
business generates some litigation involving matters arising in the ordinary course of
business. However, in the opinion of the Company, after consulting with legal counsel, no
legal proceedings are pending, which, if determined adversely to the Company or the Bank,
would have a material effect on the Companys undivided profits or financial
condition. No legal proceedings are pending other than ordinary routine litigation
incidental to the business of the Company and the Bank. In addition, to managements
knowledge, no governmental authorities have initiated or contemplated any material legal
actions against the Company or the Bank its properties.


Item  2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Issuer Purchases of Equity Securities                                                                                                                                                                                    
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                         
|Period                                                                                                                                                                                                                   
|January 1, 2004-January 31, 2004                                                                                                                                                                                         
|February 1, 2004-February 29, 2004                                                                                                                                                                                       
|March 1, 2004-March 31, 2004                                                                                                                                                                                             
|Total*                                                                                                                                                                                                                   
|* The above table represents the buy back of fractional shares, by the Company,
from participants terminating out of the Company's Dividend Reinvestment Plan,
who optioned to receive cash-in-lieu of fractional shares.

|
|

|Item 3. | Default upon Senior Securities                     
|------- | ---------------------------------------------------
|        | None                                               
|Item 4. | Submission of Matters to a Vote by Security Holders
|        | None                                               
|Item 5. | Other Information                                  
|        | None                                               
|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 November 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 by Pre-Effective Amendment No. 1 on October 11, 2000 and by Post-Effective
                  Amendment No. 1 on May 30, 2001.
|10.5           | Registrant's 2000 Independent Directors Stock Option Plan. Incorporated by reference to Exhibit 4.3
                  to Registrant's Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.                                                                                                                                                      
|10.6           | Registrant's 2000 Stock Incentive Plan. Incorporated by reference to Exhibit 4.4 to Registrant's
                  Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.                                                                                                                                                                         
|10.7           | Registrant's 2002 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 4.5 to
                  Registrant's Registration Statement No. 333-113339 on Form S-8 filed with the SEC on March 5, 2004
                  and Appendix A to Registrant's Definitive Proxy Statement filed with the SEC on March 28, 2002.                                              
|11             | Statement regarding computation of earnings per share.Included
herein in Note 2 Earnings per Share, contained within the Notes to
Consolidated Financial Statements, and incorporated herein by reference.                                                                                                                                                                    
|31.1           | Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.                                                                                                                                                                                                                                                                                                    

|
|

|31.2 | Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.
|---- | ----------------------------------------------------------------------------

|32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted
|---- | -------------------------------------------------------------------------------------------
|32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted

|b)    
          Current Reports on Form 8-K filed by the Registrant during the quarter ended
          March 31, 2004: </PRE>


On February 13, 2004, Fidelity
D&D Bancorp, Inc. announced its results of operations for the year ended December 31,
2003. A copy of the related press release was furnished with the Form 8-K filing of
February 13, 2004.


On January 23, 2004, Fidelity D&D
Bancorp, Inc. announced its President and acting Chief Executive Officer retired on
January 21, 2004. A copy of the related press release was furnished with the Form 8-K
filing of January 23, 2004.


On January 9, 2004, Fidelity D&D
Bancorp, Inc. announced the resignation of Joseph J. Earyes on January 2, 2004. A copy of
the related press release was furnished with the Form 8-K filing of January 9, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIDELITY D & D BANCORP, INC.
|----------------------------

|                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Pursuant to the
requirements of section 13 or 15(d) of the Securities and 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 13, 2004 | By: /s/ Daniel J. Santaniello        
|                   |                                       | Daniel J. Santaniello,                            
|                   |                                       | Vice Presiudent and Acting Chief Executive Officer
|                   |                                      
|Date: May 13, 2004 | By: /s/ Salvatore R. DeFrancesco, Jr.
|                   |                                       | Salvatore R. DeFrancesco, Jr.,                    
|                   |                                       | Treasurer and Chief Financial Officer             
|                   |                                      
|                   |                                      

|
|

|Exhibit Index
|-------------

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              | Page
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|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 by Pre-Effective Amendment No. 1 on October 11, 2000
                           and by Post-Effective Amendment No. 1 on May 30, 2001.       | *   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|10.5  | Registrant's 2000 Independent Directors Stock Option
                           Plan. Incorporated by reference to Exhibit 4.3 to Registrant's
                           Registration Statement No.  333-64356 on Form S-8 filed with the SEC on
                           July 2, 2001.                                                                                                                                                   | *   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|10.6  | Registrant's 2000 Stock Incentive Plan.
                           Incorporated by reference to Exhibit 4.4 to Registrant's Registration
                           Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.                                                                                                                                                                                                  | *   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|10.7  | Registrant's 2002 Employee Stock Purchase
                           Incorporated by reference to Exhibit 4.5 to Registrant's Registration Statement N. 333-113339 on Form S-8 filed with the SEC on March 5, 2004.                                                                                                                                                                                                                          | *   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|11    | Statement regarding computation of earnigs per share.
                           Included herein.                                                                                                                                                                                                                                                                                                                                            | 8   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|14    | Code of Ethics.  Incorporated by refernece to Exhibit 14 to Registrant's 2003 Annual Report filed on form 10K filed with the SEC on March 29, 2004.                                                                                                                                                                                                                                                                                          | *   
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|31.1  | Rule 13a-14(a) Certification of Principal Executive
                           Officer.                                                                                                                                                                                                                                                                                                                                                      | 32  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|31.2  | Rule 13a-14(a) Certification of Principal Financial
                           Officer.                                                                                                                                                                                                                                                                                                                                                      | 33  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|32.1  | Certification of Principal Executive Officer pursuant to
                           18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                 | 34  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|32.2  | Certification of Principal Financial Officer pursuant to
                           18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                 | 35  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                              |     
|      | * - Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                |     

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