|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 SEPTEMBER 30, 2003             
|                                                 
|                                                 
|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 October 31, 2003, the latest
practicable date, was 1,819,379 shares.
|--------------------------------------------------------------------------------------------------------------------------------------------------------

---

|FIDELITY D & D
BANCORP, INC.



FORM 10-Q SEPTEMBER 30,
2003



INDEX
|---------------------------------------------------------------------

|                                          |                                                             |   
|----------------------------------------- | ----------------------------------------------------------- | --
|PART I. FINANCIAL INFORMATION             | Page                                                       
|                                          |                                                            
|ITEM 1. FINANCIAL STATEMENTS (Unaudited): |                                                            
|                                          |                                                            
|                                          | Consolidated Balance Sheet as of September 30, 2003         |   
|                                          | and December 31, 2002                                       | 3 
|                                          | Consolidated Statement of Income for the three and nine     |   
|                                          | months ended September 30, 2003 and 2002                    | 4 
|                                          | Consolidated Statement of Changes in Shareholders' Equity   |   
|                                          | for the nine months ended September 30, 2003 and 2002       | 5 
|                                          | Consolidated Statement of Cash Flows for the nine months    |   
|                                          | ended September 30, 2003 and 2002                           | 6 
|                                          | Notes to Consolidated Financial Statements                  | 7 
|                                          |                                                            
|ITEM 2                                    | Management's Discussion and Analysis of Financial Condition |   
|                                          | and Results of Operations                                   | 10
|                                          |                                                            
|ITEM 3                                    | Quantitative and Qualitative Disclosure about Market Risk   | 23
|                                          |                                                             |   
|                                          |                                                            
|ITEM 4                                    | Controls and Procedures                                     | 27
|                                          |                                                            
|                                          |                                                            
|PART II.  OTHER INFORMATION               |                                                            
|                                          |                                                            
|ITEM 1                                    | Legal Proceedings                                           | 28
|                                          |                                                            
|ITEM 2                                    | Changes in Securities and Use of Proceeds                   | 28
|                                          |                                                            
|ITEM 3                                    | Defaults upon Senior Securities                             | 28
|                                          |                                                            
|ITEM 4                                    | Submission of Matters to a Vote of Security Holders         | 28
|                                          |                                                            
|ITEM 5                                    | Other Information                                           | 28
|                                          |                                                            
|ITEM 6                                    | Exhibits and Reports on Form 8-K                            | 29
|                                          |                                                            
|Signatures                                |                                                             | 30
|                                          |                                                            
|Exhibit Index                             |                                                             | 31

|
|

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED BALANCE SHEET
As of September 30, 2003 and December 31, 2002
|------------------------------------------------------------------------------------------------------

|                                                              |  |                   
|------------------------------------------------------------- |  | ------------------
|                                                              |  | September 30, 2003
|                                                              |  | (unaudited)       
|ASSETS                                                        | 
|Cash and due from banks                                       |  | $   17,057,288    
|Federal funds sold                                            |  | 6,110,000         
|Interest bearing deposits with financial institutions         |  | 453,820           
|Total cash and cash equivalents                               |  | 23,621,108        
|Available-for-sale securities                                 |  | 133,787,029       
|Held-to-maturity securities                                   |  | 5,616,087         
|Loans available-for-sale (fair value approximates $24,523,000 | 
|and $29,660,000 in 2003 and 2002, respectively)               |  | 23,864,025        
|Loans and leases, net of allowance for loan losses of         | 
|$3,782,671 and $3,899,753 in 2003 and 2002, respectively      |  | 356,258,143       
|Premises and equipment, net                                   |  | 12,356,654        
|Accrued interest receivable                                   |  | 2,364,998         
|Foreclosed assets held for sale                               |  | 176,162           
|Life insurance cash surrender value                           |  | 7,201,929         
|Other assets                                                  |  | 3,229,220         
|Total assets                                                  |  | $ 568,475,355     
|LIABILITIES                                                   | 
|Deposits                                                      | 
|Noninterest-bearing                                           |  | $   70,851,949    
|Certificates of deposit of $100,000 or more                   |  | 117,877,155       
|Other interest-bearing deposits                               |  | 220,675,960       
|Total deposits                                                |  | 409,405,064       
|Securities sold under repurchase agreements                   |  | 46,285,260        
|Short-term borrowings                                         |  | 497,358           
|Long-term debt                                                |  | 63,000,000        
|Accrued expenses and other liabilities                        |  | 4,011,838         
|Total liabilities                                             |  | 523,199,520       
|SHAREHOLDERS' EQUITY                                          | 
|Preferred stock authorized 5,000,000 shares,                  | 
|no par value, none issued                                     |  | --                
|Common stock authorized 10,000,000 shares,                    | 
|no par value                                                  |  | 9,700,060         
|Treasury stock                                                |  | (328,096          
|Accumulated other comprehensive income                        |  | 9,971             
|Retained earnings                                             |  | 35,893,900        
|Total shareholders' equity                                    |  | 45,275,836        
|Total liabilities and shareholders' equity                    |  | $ 568,475,355     

|See notes to consolidated financial statements
|----------------------------------------------

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
|-------------------------------------------------------------------------

|                                                      |  |                    |  |                   
|----------------------------------------------------- |  | ------------------ |  | ------------------
|                                                      |  |                    |  |                   
|                                                      |  | Three Months Ended |  | Nine Months Ended 
|                                                      |  | September 30, 2003 |  | September 30, 2002
|Interest Income                                       | 
|Interest and fees on loans:                           | 
|Taxable                                               |  | $5,550,672         |  | $ 6,101,228       
|Nontaxable                                            |  | 100,017            |  | 146,238           
|Interest and fees on leases                           |  | 68,773             |  | 136,400           
|Interest-bearing deposits with financial institutions |  | 1,087              |  | 3,145             
|Investment securities:                                | 
|US Government agencies                                |  | 897,928            |  | 1,937,666         
|States & political subdivisions (nontaxable)          |  | 108,079            |  | 112,615           
|Other securities                                      |  | 47,298             |  | 50,325            
|Federal funds sold                                    |  | 9,372              |  | 68,120            
|                                                      |  |                    |  |                   
|Total interest income                                 |  | 6,783,226          |  | 8,555,737         
|                                                      |  |                    |  |                   
|Interest expense                                      | 
|Certificates of deposit of $100,000 or more           |  | 1,125,724          |  | 1,527,874         
|Other deposits                                        |  | 1,305,852          |  | 1,816,353         
|Securities sold under repurchase agreements           |  | 103,554            |  | 228,868           
|Other short-term borrowings & long term debt          |  | 907,728            |  | 907,836           
|                                                      |  |                    |  |                   
|Total interest expense                                |  | 3,442,858          |  | 4,480,931         
|                                                      |  |                    |  |                   
|Net interest income                                   |  | 3,340,368          |  | 4,074,806         
|Provision for loan losses                             |  | 300,000            |  | 220,000           
|Net interest income, after provision for loan losses  |  | 3,040,368          |  | 3,854,806         
|Other income:                                         | 
|Service charges on deposit accounts                   |  | 552,181            |  | 317,866           
|Net gain on sale of investment securities             |  | --                 |  | (1,033            
|Net gain on sale of loans                             |  | 79,254             |  | 53,267            
|Net gain/(loss) on foreclosed assets held for sale    |  | 20,461             |  | (64,980           
|Other income                                          |  | 368,716            |  | 431,866           
|                                                      |  |                    |  |                   
|Total other income                                    |  | 1,020,612          |  | 736,986           
|                                                      |  |                    |  |                   
|Other operating expenses:                             | 
|Salaries and employee benefits                        |  | 1,660,377          |  | 1,606,407         
|Premises and equipment                                |  | 711,272            |  | 695,147           
|Advertising                                           |  | 110,727            |  | 124,679           
|Other operating expenses                              |  | 710,536            |  | 875,772           
|                                                      |  |                    |  |                   
|Total other operating expenses                        |  | 3,192,912          |  | 3,302,005         
|                                                      |  |                    |  |                   
|Income before provision for income taxes              |  | 868,068            |  | 1,289,787         
|Provision for income taxes                            |  | 183,433            |  | 356,733           
|                                                      |  |                    |  |                   
|Net income                                            |  | $   684,635        |  | $    933,054      
|                                                      |  |                    |  |                   
|Per share data:                                       | 
|Net income - basic                                    |  | $         0.38     |  | $          0.52   
|Net income - diluted                                  |  | $         0.38     |  | $          0.51   
|Dividends                                             |  | $         0.22     |  | $          0.21   

|See Notes to Consolidated Financial Statements.
|-----------------------------------------------

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
|--------------------------------------------------------------------------------------------------------------------------------------------------------

`Accumulated Other
                                                 Capital Stock           Treasury Stock         Retained      Comprehensive
                                             Shares       Amount     Shares       Amount        Earnings      Income/(Loss)        Total
                                          ----------------------------------------------------------------------------------------------------
                                          ----------------------------------------------------------------------------------------------------
Balance, December 31, 2001                  1,819,168  $ 9,353,452         -     $      -     $ 32,080,824      $ (1,262,046)   $ 40,172,230
                                                                                                                               ---------------
                                                                                                                               ---------------

Net income                                                                                       3,119,936                         3,119,936

Change in net unrealized holding
gains/(losses) on available-for-sale
securities, net of reclassification
adjustments and tax effects                                                                                        1,827,628      1,827,628

                                                                                                                               ---------------
                                                                                                                               ---------------
           Comprehensive income                                                                                                    4,947,564
                                                                                                                               ---------------
                                                                                                                               ---------------

Dividends declared ($.62 per share)                                                             (1,127,038)                       (1,127,038)

Treasury stock purchased                                             (12,960)    (479,640)                                          (479,640)

Issuance of shares of common stock
    through Dividend Reinvestment Plan          6,200      231,673     3,219       119,141                                           350,814
                                          ----------------------------------------------------------------------------------------------------
                                          ----------------------------------------------------------------------------------------------------
Balance, September 30, 2002                 1,825,368  $ 9,585,125    (9,741)  $ (360,499)    $ 34,073,722         $ 565,582    $ 43,863,930
                                          ====================================================================================================
                                          ====================================================================================================


Balance, December 31, 2002                  1,825,363  $ 9,590,142    (5,987)  $ (221,559)    $ 34,600,627       $ 1,265,224    $ 45,234,434
                                                                                                                               ---------------
                                                                                                                               ---------------

Net income                                                                                       2,494,906                         2,494,906

Change in net unrealized holding
gains/(losses) on available-for-sale
securities, net of reclassification
adjustments and tax effects                                                                                       (1,255,253)     (1,255,253)

                                                                                                                               ---------------
                                                                                                                               ---------------
           Comprehensive income                                                                                                    1,239,653
                                                                                                                               ---------------
                                                                                                                               ---------------

Dividends declared ($.66 per share)                                                             (1,201,633)                       (1,201,633)

Issuance of shares of common stock
   through Stock Option Plan                        -            -       800       29,800                                             29,800

Issuance of shares of common stock
    through Employee Stock Purchase Plan            -            -     1,264       42,654                                             42,654

Issuance of shares of common stock
    through Dividend Reinvestment Plan          3,133      109,918     7,529      278,929                                            388,847

Treasury stock purchased                                             (12,720)    (457,920)                                          (457,920)
                                          ----------------------------------------------------------------------------------------------------
                                          ----------------------------------------------------------------------------------------------------
Balance September 30, 2003                  1,828,496  $ 9,700,060    (9,114)   $(328,096)    $ 35,893,900           $ 9,971    $ 45,275,836
                                          ====================================================================================================
                                          ====================================================================================================`

|See notes to consolidated financial statements.



Comprehensive income (loss) for the
three months ended September 30, 2003 and September 30, 2002 was ($100,368) and
$1,387,985, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIDELITY D & D BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------

`2003                         2002
                                                                 =====================        =====================

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                           $ 2,494,906                  $ 3,119,936
     Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation                                                          942,335                      795,905
        Net amortization/(accretion) of securities                          1,366,784                        9,968
        Provision for loan losses                                           1,060,000                    1,176,000
        Deferred income tax                                                  (377,970)                     405,092
        Writedown of foreclosed assets held for sale                          543,752                            -
        Increase in cash surrender value of life insurance                   (201,929)                           -
        (Gain)/loss sale of investment securities                            (213,828)                     (58,828)
        (Gain)/loss on sale of loans                                         (503,660)                    (315,686)
        (Gain)/loss on sale of foreclosed assets held for sale                 19,711                       10,045
        (Gain)/loss on sale of leased assets                                  146,792                            -
        Amortization of loan servicing rights                                 206,255                       85,445
        Net change in interest receivable                                     (17,666)                     277,613
        Net change in interest payable                                       (271,785)                     282,184
        Net change in other assets                                            295,197                     (478,038)
        Net change in other liabilities                                       554,627                            -
                                                                 ---------------------        ---------------------
        Net cash provided by operating activities                           6,043,521                    5,309,636
                                                                 ---------------------        ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Held-to-maturity securities:
        Maturities, calls and paydowns                                      6,095,371                   14,132,688
        Purchases                                                                   -                   (9,057,722)
     Available-for-sale securities:
        Sales                                                              49,933,261                   37,251,761
        Maturities, calls and paydowns                                     46,416,179                   61,464,284
        Purchases                                                         (95,353,175)                (117,108,403)
     Net increase in loans available-for-sale                             (20,440,230)                 (23,361,033)
     Net increase in loans and leases                                      (5,113,402)                 (10,000,988)
     Purchase of life insurance policies                                   (7,000,000)                           -
     Purchase of bank premises and equipment                                 (563,788)                  (2,217,341)
     Proceeds from sale of available-for-sale loans                        22,817,694                   21,420,261
     Proceeds from sale of credit card recievables                          2,977,526                            -
     Proceeds from sale of leased assets                                      980,072                            -
     Proceeds from sale of foreclosed assets held for sale                    620,592                      550,644
                                                                 ---------------------        ---------------------
        Net cash provided by (used in) investing activities                 1,370,100                  (26,925,849)
                                                                 ---------------------        ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net change in noninterest-bearing deposits                             9,700,484                    1,460,209
     Net change in certificates of deposit of $100,000 or more            (11,609,343)                  24,970,969
     Net change in interest bearing deposits                               (2,474,253)                  (1,692,940)
     Net change in short term borrowings                                   (4,430,396)                  (6,075,627)
     Purchase of treasury stock                                              (457,920)                    (479,640)
     Dividends paid, net of dividend reinvestment                            (812,786)                    (776,224)
     Proceeds from employee stock purchase plan                                42,654                            -
     Proceeds from exercise of stock options                                   29,800                            -
                                                                 ---------------------        ---------------------
        Net cash provided by (used in) financing activities               (10,011,760)                  17,406,747
                                                                 ---------------------        ---------------------
Net decrease in cash and cash equivalents                                  (2,598,139)                  (4,209,466)
Cash and cash equivalents, beginning                                       26,219,247                   25,644,972
                                                                 ---------------------        ---------------------
Cash and cash equivalents, ending                                        $ 23,621,108                 $ 21,435,506
                                                                 =====================        =====================`

|See notes to consolidated financial statements.
|-----------------------------------------------

|
|

|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 & Discount Bank (Bank), (collectively, the Company)
have been prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP), for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for the periods have
been included. All significant inter-company balances and transactions have been
eliminated in the consolidation. Prior period amounts are reclassified when necessary to
conform to the current years presentation.


The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could differ from those
estimates. For additional information and disclosures required under GAAP, please refer to
the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



Nature
of Operations


The Bank is a commercial bank
chartered by the Commonwealth of Pennsylvania. Having commenced operations in 1903, the
Bank provides a full range of traditional banking services, 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 position
and results of operations of the Company.


In the opinion of management, the
consolidated balance sheets as of September 30, 2003 and December 31, 2002 present fairly
the consolidated financial position of the Company as of those dates. The related
statements of income, changes in shareholders equity and cash flows for the nine
months ended September 30, 2003 and 2002, present fairly the consolidated results of its
operations and its cash flows for the periods then ended. All material adjustments
required for fair presentation have been made. 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 this period.


This Quarterly Report on Form 10-Q
should be read in conjunction with the Companys audited financial statements for the
year ended December 31, 2002 and the notes included therein, included within the
Companys Annual Report on Form 10-K. The results of operations for interim periods
are not necessarily indicative of the results of operations to be expected for the entire
year.



Critical
Accounting Policies


The presentation of financial
statements in conformity with 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 is adequate and
reasonable. The Companys methodology for determining the allowance for loan losses
is described in Allowance for Loan Losses within
Managements Discussion and Analysis. Given the very subjective nature of identifying
and valuing loan losses, it is likely that well-informed individuals could make materially
different assumptions, and could, therefore calculate a materially different allowance
value. While management uses available information to recognize losses on loans, changes
in economic conditions may necessitate revisions in 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 through a broker. In developing these fair values, the valuation service uses
estimates of cash flows based on historical performance of similar instruments in similar
interest rate environments. Based on experience, management is aware that estimated fair
values of investment securities tend to vary among valuation services. Accordingly, when
selling investment securities, management typically obtains price quotes from more than
one source. The majority of the Companys investment securities are classified as
available-for-sale. Accordingly, these securities are carried at fair value on the
consolidated balance sheet, with unrealized gains and losses, net of income tax, excluded
from earnings and reported separately through accumulated other comprehensive income,
which is included within shareholders equity.


The fair value of residential
mortgage loans classified as available-for-sale is obtained from the Federal National
Mortgage Association (Fannie Mae). The fair value of SBA loans classified as
available-for-sale is obtained from an outside pricing source. The market to which the
Bank sells mortgage and other loans is restricted and price quotes from other sources are
not typically obtained.



2. Earnings per Share


Basic earnings per share is computed
by dividing net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares plus the incremental number of shares issuable from the
exercise of stock options, calculated using the treasury stock method.


The following data shows the amounts
used in computing earnings per share and the effects on income and the weighted average
number of shares of dilutive potential common stock for the nine months ended September
30, 2003 and 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Weighted Average          Earnings
                                                    Income            Common Shares             per
September 30, 2003                                Numerator            Denominator             Share
                                                  ---------         ----------------          ---------
Basic EPS                                        $ 2,494,906           1,820,446                $1.37
                                                                                               ======
Dilutive effect of potential common stock:
Stock options;
     Exercise of outstanding options                                      10,600
     Hypothetical share repurchase at $36.25                              (9,691)
                                             -------------------------------------------
Diluted EPS                                      $ 2,494,906           1,821,355                $1.37
                                             ===========================================       ======
September 30, 2002
Basic EPS                                        $ 3,119,936           1,817,736                $1.72
                                                                                               ======
Dilutive effect of potential common stock:
Stock options;
     Exercise of outstanding options                                      26,300
     Hypothetical share repurchase at $37.50                             (23,857)
                                             -------------------------------------------
Diluted EPS                                      $ 3,119,936           1,820,179                $1.71
                                             ===========================================       ======`

|3. Stock Compensation
Plans


As permitted by Accounting Principles
Board Opinion No. 25, the Company uses the intrinsic value method of accounting for stock
compensation plans. Using 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 amount an employee or director must pay to acquire the stock. Stock options
issued under the Companys stock option plans have no intrinsic value, and
accordingly, no compensation cost is recorded for them.


The alternative fair value method of
accounting for stock-based compensation provided under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires the use of option valuation
models, such as the Black-Scholes model, that were not developed for use in valuing
employee stock options. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded short-term options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility. Because the
Companys employee stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements option, the existing
models do no necessarily provide a reliable single measure of the fair value of its
employee stock options at the time of grant.


The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, to stock options.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                           |  |                  
|---------------------------------------------------------- |  | -----------------
|                                                           |  | Nine Months Ended
|(Net Income in Thousands, except per share data)           |  | September 30,    
|                                                           |  | 2003             
|Net income, as reported                                    |  | $      2,495     
|Deduct: Total stock option compensation expense determined | 
|under fair value method for all awards, net of tax effects |  | (--)             
|Pro forma net income                                       |  | $      2,495     
|Net Income per share-basic:                                | 
|As reported                                                |  | $        1.37    
|Pro forma                                                  |  | $        1.37    
|Net Income per share-diluted                               | 
|As reported                                                |  | $        1.37    
|Pro forma                                                  |  | $        1.37    

|4. Bank Owned Life
Insurance


The Bank invested in bank owned life
insurance (BOLI) with the intent that the tax-free earnings from the increase in cash
surrender value will be used to offset employee benefit expenses. BOLI involves the
purchasing of life insurance by the Bank on a chosen group of employees. The Bank is the
owner and beneficiary of the policies. The tax-free income generated from the increase in
cash surrender value of the policies is included in other income on the income statement.
A more detailed discussion of BOLI is included in Managements Discussion and
Analysis, below.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|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
results of operations for the three and nine months ended September 30, 2003 as compared
to the same periods in 2002 and changes in the balance sheet from December 31, 2002 to
September 30, 2003. Current performance may not be indicative of future performance. This
discussion should be read in conjunction with the Companys 2002 Annual Report on
Form 10-K.


STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION  This document, both in Managements
Discussion and Analysis and elsewhere, contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about managements confidence and strategies
and managements expectations about new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements may be
identified by such forward-looking terminology as expect, look,
believe, anticipate, consider, may,
will, or similar statements or variations of such terms. Forward-looking
statements involve certain risks and uncertainties. Actual results may differ materially
from the results discussed in these forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by the forward-looking
statements include, among others,


Unexpected changes in interest rates,Deterioration in economic conditions,Deterioration in deposit and loan volume trends,Deterioration in levels of loan quality,Failure to realize expected cost savings or revenue enhancements from changes in business models and acquisitions,The continued existence and availability of tax credits, especially its Section 29 credits and other tax advantaged investments,The effects of legal, tax and regulatory provisions applicable to the Company,The risk that managements analysis of these risks and forces could be incorrect
and/or that the strategies developed to address them could be unsuccessful.Management
cautions readers not to place undue reliance on the forward-looking statements, which
reflect analysis only as of this date. Management is not obliged to publicly revise or
update these forward-looking statements to reflect events or circumstances that arise
after this date. Readers should carefully review the risk factors described in other
documents that we file, from time to time, with the Securities and Exchange Commission,
including Annual Reports on Form 10-K and any Current Reports on Form 8-K.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 1. RESULTS OF OPERATIONS

|Net
income was $685,000 or $0.38 per common share, on a diluted basis, for the three months
ended September 30, 2003. This represents a decrease of $248,000 or 27% from the net
income of $933,000 or $0.51 per common share, on a diluted basis, reported for the same
period in 2002. Net interest income was $722,000 lower in 2003 compared to 2002 due to
reduced net interest rate spread and margin. Interest yielding assets re-priced lower,
while certain long-term time deposits and borrowings, due to the contractual time frame,
lagged in the corresponding reduction of rates paid on the interest-bearing liabilities.
Our net interest rate spread decreased 32 basis points from 2.52%, for the three months
ended September 30, 2002, to 2.20% for the three months ended September 30, 2003. Our net
interest margin decreased 40 basis points from 3.02%, for the three months ended September
30, 2002, to 2.62% for the three months ended September 30, 2003. Other non-interest
income was $284,000 or 38% higher for the three months ended September 30, 2003, compared
to the same period in 2002. Other income was higher, in 2003, due primarily to increased
collection of service charges on deposit accounts, increase in the cash surrender value of
bank owned life insurance, and gains on the sales of loans. Other operating expenses were
$97,000 or 3% lower for the three months ended September 30, 2003 compared to the same
period in 2002. Salaries and benefits and premises and equipment expenses continue to
trend higher due in part to the general inflationary increases in employee benefit costs,
the branch addition and core processing system conversion, which occurred late in 2002.
Other operating expenses have declined primarily from the effect of the accounting
treatment for direct loan origination costs.


Net
income was $2,495,000 or $1.37 earnings per common share, on a diluted basis, for the nine
months ended September 30, 2003. This represents a decrease of $625,000 or 20% from the
net income of $3,120,000 or $1.71 earnings per common share, on a diluted basis, reported
for the same period in 2002. Net interest income was $1,737,000 lower in 2003 compared to
2002. Net interest rate spread decreased 30 basis points from 2.60%, for the nine months
ended September 30, 2002, to 2.30% for the nine months ended September 30, 2003. Net
interest margin decreased 36 basis points from 3.09% for the nine months ended September
30, 2002, to 2.73% for the nine months ended September 30, 2003. Other non-interest income
was $550,000 or 20% higher for the nine months ended September 30, 2003 compared to the
same period in 2002. Other income was higher, in 2003, due primarily to an increased
effort to collect service charges and other deposit related fees, increase in the cash
surrender value of bank owned life insurance, and gains from the sales of loans and
investment securities available for sale. Other operating expenses were $91,000 or 1%
lower for the nine months ended September 30, 2003, compared to the same period in 2002.
Salaries and benefits and premises and equipment expenses continue to trend higher due in
part to the general inflationary increases in employee benefit costs, the branch addition
and core processing system conversion, which occurred late in 2002. Other operating
expenses have declined primarily from the effect of the accounting treatment for direct
loan origination costs.


Return
on average assets and return on average equity on an annualized basis were 0.58% and
7.36%, respectively, for the nine months ended September 30, 2003, compared to 0.72% and
9.89%, respectively, for the same period in 2002.



Net interest income


Net
interest income is the most significant component of our operating income. Net interest
income depends 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,
composition and characteristics of interest-earning assets and interest-bearing
liabilities, and by competition. The interest rate spread is also influenced by
differences in the maturity and repricing of assets versus the liabilities that fund them.


Responding
to generally weak economic conditions, the Federal Reserve cut the targeted federal funds
rate to 1.00%, in 2003. As a result, the current interest rate environment is at one of
its all time historic low levels. The Banks interest-earning assets and
interest-bearing liabilities continue to originate and reprice in this lower rate
environment. The yields on average loans, for the nine months ended September 30, 2003,
were 6.13% compared to 6.80%, for the nine months ended September 30, 2002. Similarly, the
yields on average investments, for the nine months ended September 30, 2003, were 3.51%,
compared to 5.57%, for the nine months ended September 30, 2002, mainly due to the
repricing of called securities and the restructuring of the portfolio at current lower
rates. The rate on average interest-bearing liabilities declined from 3.82%, for the nine
months ended September 30, 2002, to 3.16%, for the same period in 2003, due in part to
lower rates on interest-bearing transaction deposits and short-term certificates of
deposit. In the current economic environment, we had success in raising non-maturity
deposits that are generally less costly than time deposits. Changes in the composition of
and reduced yield on our interest-earning assets and relatively stable rates on
interest-bearing liabilities combined had a compounded negative effect on the net interest
rate spread and margin, for the nine months ended September 30, 2003, compared to the same
period in 2002.


For
the three and nine months ended September 30, 2003, net interest income, on a
tax-equivalent basis, was $749,000 and $1,830,000 lower, respectively, than for the
same periods in 2002. The decrease in net interest income in 2003 was primarily a function
of average interest-earning asset decline and a greater reduction in yield on
interest-earning assets over the rate savings on average interest-bearing liabilities. The
net interest margin, on a tax-equivalent basis, decreased 40 basis points from
3.02%, for the three months ended September 30, 2002, to 2.62%, for the same period in
2003. The net interest rate spread decreased 32 basis points from 2.52%, for the three
months ended September 30, 2002, to 2.20%, for the same period in 2003.


The
net interest margin on a tax-equivalent basis decreased 36 basis points from 3.09%,
for the nine months ended September 30, 2002, to 2.73%, for the same period in 2003. The
net interest rate spread decreased 30 basis points from 2.60%, for the nine months ended
September 30, 2002, to 2.30%, for the same period in 2003.


Average
interest-earning assets declined $13,030,000 from $549,237,000, for the nine months ended
September 30, 2002, to $536,207,000, for the nine months ended September 30, 2003. Average
loan balances increased $3,349,000, while average investments, federal funds sold and
average interest-bearing deposits decreased $8,981,000, $7,205,000 and $193,000,
respectively. The ratio of average interest-earning assets to average interest-bearing
liabilities increased from 114.44%, for the nine months ended September 30, 2002, to
115.61%, for the nine months ended September 30, 2003. The yield on average
interest-earning assets and the rate on average interest-bearing liabilities decreased 96
basis points and 66 basis points, respectively, due to the decline in overall interest
rates. The decrease in rate on average interest-bearing liabilities is mostly due to the
repricing of short-term certificates of deposit in the lower interest rate environment and
the change in deposit mix. Short-term borrowings and repurchase agreements also re-priced
lower during 2003.


The
following tables set forth, for the periods indicated, certain average balance sheet
amounts and their corresponding full tax-equivalent earnings or expenses and annualized
tax-equivalent yields or rates:



AVERAGE BALANCES,
INTEREST INCOME AND EXPENSE AND YIELDS / RATES SUMMARY



(Dollars in Thousands)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`TAX-EQUIVALENT YIELD                          Nine months ended        Year ended        Nine months ended
                                              September 30, 2003    December 31, 2002    September 30, 2002
                                             ----------------------------------------------------------------
Average earning assets:
Loans and leases                                        $ 386,130             $ 384,791            $ 382,781
Investments                                               144,234               154,000              153,216
Federal funds sold                                          5,061                11,584               12,266
Interest-bearing deposits                                     782                   919                  974
                                             ----------------------------------------------------------------
      Total                                             $ 536,207             $ 551,294            $ 549,237
                                             ================================================================

Average interest-bearing liabilities:
Other Interest-bearing deposits                          $ 98,397              $ 84,782             $ 81,537
Certificates of deposit                                   258,520               286,496              289,777
Other borrowed funds                                       65,354                64,045               64,056
Repurchase agreements                                      41,517                45,872               44,547
                                             ----------------------------------------------------------------
      Total                                             $ 463,789             $ 481,195            $ 479,917
                                             ================================================================

Interest Income
Loans and leases                                         $ 17,871              $ 26,402             $ 19,653
Investments                                                 3,967                 8,382                6,546
Federal funds sold                                             45                   190                  157
Interest-bearing deposits                                       5                    17                   14
                                             ----------------------------------------------------------------
      Total                                              $ 21,888              $ 34,991             $ 26,370
                                             ================================================================

Interest Expense
Other Interest-bearing deposits                             $ 532                 $ 934                $ 715
Certificates of deposit                                     7,337                12,351                9,495
Other borrowed funds                                        2,702                 3,601                2,693
Repurchase agreements                                         395                   996                  792
                                             ----------------------------------------------------------------
      Total                                              $ 10,966              $ 17,882             $ 13,695
                                             ================================================================

Net Interest Income                                      $ 10,921              $ 17,109             $ 12,675
                                             ================================================================

Yield on average earning assets                             5.46%                 6.35%                6.42%
Cost of average interest-bearing liabilities                3.16%                 3.72%                3.82%
                                             ----------------------------------------------------------------
Interest rate spread                                        2.30%                 2.63%                2.60%
                                             ================================================================
Net yield on average earning assets                         2.73%                 3.10%                3.09%
                                             ================================================================`

|Provision for loan losses


The
provision for loan losses represents the amount necessary to be charged to operations to
bring 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 loss.


The
amount of the provision for loan losses and the amount 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 loansChanges 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 $300,000, for the three months ended September 30, 2003,
compared to $220,000, for the same period in 2002. The amount of the loan loss provision,
for the three months ended September 30, 2003, was driven by the risk profile of the
portfolio rather than an increase in loan volume. During the three months ended September
30, 2003, total gross loans fell $3,263,000, compared to a $229,000 reduction, for the
same period in 2002. The net decline in loans occurred because of the sale of conforming
conventional residential mortgage loans during the third quarter of 2003. Non-performing
loans, which consist of loans past due 90 days and over and non-accrual loans, were
$10,272,000 at September 30, 2003, compared to $7,428,000, at September 30, 2002. The rise
in non-performing loans resulted from increased commercial and mortgage delinquency and
from increased commercial non-accrual loans. During 2003, non-accrual loans increased
primarily due to the addition of three commercial relationships. Full liquidation of one
of these relationships should be completed during the fourth quarter of 2003.


For
the nine months ended September 30, 2003, the provision for loan losses was $1,060,000 or
$116,000 lower than the $1,176,000 recorded during the comparable period in 2002. Net
charge-offs were $1,177,000 and $1,057,000, for the nine months ended September 30, 2003,
and 2002. Total gross loans fell $2,972,000, during the nine months ended September 30,
2003, compared to growth of $11,157,000 during the same period in 2002. Net charge-offs
remained high in the commercial portfolio and increased substantially in the mortgage
portfolio. Gross loans fell in 2003 from the sale of conventional conforming residential
mortgages, which attributed to the overall reduction in the current years provision.


The
loan loss allowance as a percentage of total loans was 0.98% at September 30, 2003 as
compared to 1.00% at September 30, 2002.



Other income


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


For
the three months ended September 30, 2003, other income was $1,021,000 or $284,000 higher
than the $737,000 recorded during the same period in 2002. Of this increase, $234,000
pertained to service charge activities related to deposit accounts, $90,000 from the
increase in the cash surrender value of bank owned life insurance and $79,000 pertained to
the gain on the sale of loans. We recorded no gains or losses on the sale of investment
securities available-for-sale during the three months ended September 30, 2003, compared
to $1,000 loss in 2002. In addition, we recognized $57,000 and $20,000 in losses on the
sale of full-term leased assets and foreclosed assets held for sale, during the third
quarter of 2003, compared to $3,000 and $83,000 in losses, respectively, during the third
quarter of 2002.


For
the nine months ended September 30, 2003, other income was $3,238,000 or $550,000 higher
than the $2,688,000, recorded during the same period in 2002. Of this increase, $512,000
pertained to service charge activities related to deposit accounts, which have grown
considerably during 2003, $202,000 from the increase in the cash surrender value of bank
owned life insurance and $188,000 pertained to the gain on the sale of loans. During 2003,
we recorded $214,000 in gains on the sale of investment securities available for sale,
compared to $59,000 during 2002. Also, we recorded $147,000 and $20,000 in losses on the
sale of full-term leased assets and foreclosed assets held for sale, in 2003, compared to
$12,000 and $10,000, respectively, in losses in 2002. Other income classifications were
$362,000 lower from exiting certain unprofitable lines of business during 2002 and
increased amortization of mortgage servicing rights. Gross earnings recorded during 2002,
such as fees from providing merchant in-house processing, had no corresponding earnings
recorded in 2003. Another reduction in other income during 2003 was the significantly
increased amortization of mortgage servicing rights, due to mortgage re-financings, caused
by the historically low interest rates, of sold loans within the Banks servicing
portfolio.



Other operating expense


For
the three months ended September 30, 2003, other operating expenses were $3,205,000 or
$97,000 lower than the $3,302,000, recorded during the same period in 2002. For the nine
months ended September 30, 2003, other operating expenses were $9,514,000 or $91,000 lower
than the $9,605,000, recorded during the same period in 2002.


Salaries
and benefits were $54,000 higher in the third quarter of 2003 compared to the same period
in 2002. Premises and equipment expenses increased $16,000 primarily due to the increased
depreciation expense on the growth of the branch network and on the core processing
computer system. Advertising expenses decreased $14,000 or 11% because of reduced
advertising space purchased and using lower cost advertising approaches at branch
locations. Other expenses, which consist primarily of professional services, office
supplies, printing and postage, data processing, employee travel, meals and entertainment,
and Board of Directors fees, decreased $153,000 or 18% compared to the third quarter
of 2002. Of this decrease, $75,000 pertained to the accounting treatment for direct loan
origination costs.


Salaries
and benefits were $145,000 or 3% higher for the nine months ended September 30, 2003
compared to the same period in 2002. This increase was principally due to inflationary
increases in salary and benefit expenses and increased commission paid. Premises and
equipment expenses increased $201,000 primarily due to the increased depreciation expense
on the growth of the branch network and on the core processing computer system, along with
corresponding insurance and lease expense increases. Advertising expenses decreased
$58,000 or 18% from the overall reduction of advertising space purchased during the nine
months ended September 30, 2003. Other expenses decreased $379,000 or 20% in 2003 compared
to 2002. This decrease pertained to the accounting treatment of $453,000 in direct loan
origination costs resulting from the loans closed during 2003. Excluding this accounting
treatment, other expenses have increased for the nine months ended September 30, 2003 as
compared to the same period during 2002 primarily due to the increased professional
services resulting from required legal and audit services.



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.


We
recorded $183,000 tax provision representing an effective tax rate of 21% for the three
months ended September 30, 2003 compared to $357,000 or 28% for the same period in 2002.
We recorded a $783,000 tax provision representing an effective tax rate of 24% for the
nine months ended September 30, 2003 compared to $1,138,000 or 27% for the same period in
2002. The effective tax rates for the three and nine months ended September 30, 2003 were
lower than the comparable periods in 2002 due principally to total tax-free earnings
representing a larger percentage of pre-tax earnings.



2. FINANCIAL CONDITION


Consolidated
assets decreased $9,514,000 or 1.6%, during the nine months ended September 30, 2003, to
$568,475,000. Life insurance cash surrender value increased by $7,202,000, during the nine
months ended September 30, 2003. The asset decline resulted from $4,383,000 decrease in
deposits, mostly certificates of deposit of $100,000 or more and $3,484,000 reduction in
short-term borrowings. Cash and cash equivalents, investments and loans available-for-sale
decreased $2,598,000, $10,147,000 and $4,851,000, respectively, during the nine months
ended September 30, 2003. Securities sold under repurchase agreements decreased $947,000.
Shareholders equity increased $41,000 from $45,234,000, at December 31, 2002, to
$45,275,000, at September 30, 2003. This increase was attributable to net increase of
$1,293,000 in earnings after payment of dividends, $110,000 increase in common stock from
shares issued under the employee stock purchase and dividend re-investment plans, a
$1,255,000 reduction in the estimated fair value of investment securities
available-for-sale, net of tax, and $107,000 increase 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
September 30, 2003, was $139,888,000 or 25% of total assets. At September 30, 2003
approximately 60% of the investment portfolio was comprised of mortgage-backed securities
that amortize and provide monthly cash flow. Agency bonds and municipal bonds comprised
25% 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. Investment security purchases provide a
way to quickly invest excess liquidity in order to generate additional earnings. The Bank
generally earns a positive interest 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
marked to market in the consolidated balance sheet with an adjustment to equity, net of
tax that is presented in the caption Accumulated other comprehensive income (loss).


At
September 30, 2003, the AFS portfolio had an estimated market appreciation of $15,000
before tax and an equity adjustment of $10,000, net of tax. This represents a $1,255,000
reduction in the estimated fair value of securities AFS, net of tax, over the prior
year-end. This reduction occurred due to the addition of securities in this low rate
environment, in which these underlying securities will de-value temporarily as
corresponding market yields increase.






Investment Securities held-to-maturity and available-for-sale at September 30, 2003 consist of the following:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`GROSS          GROSS
                                             AMORTIZED        UNREALIZED     UNREALIZED          FAIR
                                                COST            GAINS          LOSSES           VALUE
                                      --------------------------------------------------------------------
Securities held-to-maturity:
Mortgage-backed securities                   $ 5,616,087      $ 217,244      $       -        $ 5,833,331
                                      --------------------------------------------------------------------

   Total securities held-to-maturity         $ 5,616,087      $ 217,244      $       -        $ 5,833,331
                                      --------------------------------------------------------------------

Securities available-for-sale:
Agencies                                    $ 35,153,742       $ 81,959      $ 652,592       $ 34,583,109
State and municipal                           12,912,762         99,814         26,610         12,985,966
Corporate Bonds                                3,990,520         25,737              -          4,016,257
Mortgage-backed securities                    77,517,973        724,326        330,325         77,911,973
                                      --------------------------------------------------------------------

   Sub total                                 129,574,997        931,835      1,009,527        129,497,305

Equity securities                              4,196,925         92,799              -          4,289,724
                                      --------------------------------------------------------------------

   Total securities available-for-sale     $ 133,771,922    $ 1,024,635    $ 1,009,527      $ 133,787,029
                                      --------------------------------------------------------------------

       Total Securities                    $ 139,388,009    $ 1,241,878    $ 1,009,527      $ 139,620,360
                                      ====================================================================`

|At
September 30, 2003, the contractual maturities of securities held-to-maturity and
available-for-sale are listed below. Federal agency securities are listed based upon their
stated maturities. Mortgage backed securities, which are based upon weighted-average lives
and subject to monthly principal reductions, are listed in total. Equity securities have
no stated maturity dates and are also listed in total.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Amortized           Market
           Securities held-to-maturity                       cost              value
Mortgage-backed securities                               $ 5,616,087       $ 5,833,331
---------------------------------------------------------------------------------------
        Total securities held-to maturity                $ 5,616,087       $ 5,833,331
---------------------------------------------------------------------------------------
          Securities available-for-sale
One year or less                                       $           -       $         -
One through five years                                     4,445,012         4,460,530
Five through ten years                                    24,656,294        24,404,724
Over ten years                                            22,955,718        22,720,077
---------------------------------------------------------------------------------------

                    sub total                             52,057,024        51,585,332
Mortgage-backed securities                                77,517,973        77,911,973
Equity securities                                          4,196,925         4,289,724
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
       Total securities available-for-sale             $ 133,771,922     $ 133,787,029
---------------------------------------------------------------------------------------

                Total securities                       $ 139,388,009     $ 139,620,360
=======================================================================================`

|Loans available-for-sale


The
balance of loans available-for-sale was $23,864,000, at September 30, 2003, compared to
$28,715,000, at December 31, 2002. The $4,851,000 decrease in loans available-for-sale
relates to the timing of residential mortgage loan originations versus their sale.


Residential
mortgages, SBA loans and student loans of $22,362,000 and $21,105,000 were sold, during
the nine months ended September 30, 2003 and 2002, respectively. Residential mortgage
originations and sales are significantly influenced by the interest rate environment.



Loans and leases


Loans
and leases increased from $358,162,000, at December 31, 2002, to $360,041,000, at
September 30, 2003.


We
originate a wide variety of loans primarily to small to mid-sized businesses and
professionals. 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. Most loans are adjustable rate that
reset in intervals of five years or less. When possible, the Bank originates strictly
variable rate loans.


The following table reflects the
composition of the loan portfolio:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`September 30, 2003     December 31, 2002
                                               ------------------     -----------------
 Residential real estate                             $ 83,884,338          $ 85,447,703
 Commercial and commercial real estate                214,970,907           202,974,155
 Consumer and home equity                              49,265,632            56,984,927
 Real estate construction and development               7,984,329             6,797,002
 Direct lease financing                                 4,250,527             6,578,720
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
    Gross loans and leases                            360,355,734           358,782,507
 Less:
    Unearned income                                       314,919               620,704
    Allowance for loan losses                           3,782,671             3,899,753
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
        Loans and leases, net                       $ 356,258,143         $ 354,262,050
========================================================================================
========================================================================================`

|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 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 nine month period, ended September 30, 2003, was $1,177,000, compared
to $1,057,000, for the same period in 2002. Consumer loan net charge-offs decreased from
$682,000, through September 30, 2002, to $589,000, through September 30, 2003. Commercial
loans remained relatively steady at $356,000 of net charge offs, for the first nine months
of 2003, compared to same period in 2002. The increase in net charge-offs occurred in the
mortgage loans as $232,000 was taken through September 30, 2003, compared to $20,000,
during 2002. The mortgage charge offs were the result of properties foreclosed upon during
2003 with a required write down taken to the fair market value of the real estate prior to
transfer to Other Real Estate. The reduction in the allowance for loan losses balance was
mainly due to the credit card portfolio sale, which occurred in the first quarter of 2003,
and sales of residential mortgages throughout 2003, which resulted in a reduction of
$117,000 in the allowance.


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 nor past due 90 days or more.


Management
believes that the allowance, at September 30, 2003, provides adequate protection against
portfolio loss. However, there could be instances of which Management is unaware that may
require additional charge-offs and/or increases to the provision.


At
September 30, 2003, the allowance for loan losses was $3,782,670 or 0.98% of total loans,
compared to 1.01% and 1.00%, at December 31, 2002, and September 30, 2002, respectively.



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

`ALLOWANCE FOR LOAN LOSSES
                                              For the Nine                  For the                  For the Nine
                                              Months Ended                 Year Ended                Months Ended
                                           September 30, 2003          December 31, 2002          September 30, 2002
                                          ----------------------      ---------------------      ----------------------

Balance, beginning of period                   $ 3,899,753                $ 3,741,933                 $ 3,741,933
                                             --------------             --------------              --------------
Provision                                        1,060,000                  1,664,000                   1,176,000
                                             --------------             --------------              --------------
Charge-Offs
    Commercial                                     546,249                    928,543                     519,985
    Real Estate - Mortgages                        266,354                     39,659                      20,227
    Consumer                                       632,547                    850,226                     660,378
    Leases                                          71,578                    130,941                      91,825
                                             --------------             --------------              --------------
       Total Charge-Offs                         1,516,728                  1,949,369                   1,292,415

Recoveries
    Commercial                                     190,211                    358,908                     165,681
    Real Estate - Mortgages                         34,168                        110                          90
    Consumer                                       115,267                     69,040                      54,958
    Leases                                               -                     15,131                      15,131
                                             --------------             --------------              --------------
       Total Recoveries                            339,646                    443,189                     235,859

Net Charge-Offs                                  1,177,082                  1,506,180                   1,056,556
                                             --------------             --------------              --------------
Balance, end of period                         $ 3,782,671                $ 3,899,753                 $ 3,861,377
                                             ==============             ==============              ==============
Total Loans, end of period                   $ 383,904,839              $ 386,877,158               $ 385,025,416
                                             ==============             ==============              ==============

Ratios:
Net Charge-Offs to:
    Loans, end of period                              0.31%                      0.39%                       0.27%
    Allowance for Loan Losses                        31.11%                     38.62%                      27.36%
    Provisions for Loan Losses                      111.04%                     90.52%                     111.31%

Allowance for Loan Losses to:
    Total Loans                                       0.98%                      1.01%                       1.00%
    Non-Accrual Loans                                70.05%                     97.52%                      78.24%
    Non-Performing Loans                             36.83%                     59.10%                      51.98%`

|Non-performing assets


Non-performing
assets are defined as accruing loans past due 90 days or more, non-accruing loans,
restructured loans, other real estate owned, and repossessions. Non-performing assets
represented 1.84% of total assets, at September 30, 2003, compared to 1.55% of total
assets, at September 30, 2002, and 1.45%, at December 31, 2002.


The
non-accrual loan balance increased $1,400,000 for the first nine months of 2003.
Additional loans classified as non-accrual in 2003 of $2,580,000 were added during the
nine month period. This increase was offset by payoffs or foreclosures, resulting in
liquidation, of $783,000 and pay downs of $397,000 on non-accrual loans reported at
December 31, 2002.


As
shown in the table below, non-performing loans, defined as non-accrual loans and loans
past due 90 days or more and still accruing, increased $3,673,000 since the beginning of
2003. The increase was primarily in commercial loans, both non-accrual and 90 days past
due. The ratio of non-performing loans to end of period total loans rose 101 basis points,
for the nine month period. For the same period in 2002, the ratio of non-performing loans
to total loans was 1.93%, compared to 2.68% in 2003, or an increase of 79 basis points.
The ratio of non-performing assets to total assets increased to 1.84%, at September 30,
2003, from 1.45%, at year end 2002.


Restructured
loans shown below in the prior periods represent outstanding loans to one borrower that
were modified as to terms and conditions, in September 2002. These restructured loans have
become past 90 days delinquent during the third quarter, and as such, the relationship has
been transferred into non-accrual loans as of September 30, 2003.


Other
Real Estate represents two properties that were foreclosed upon and transferred to the
account. Both properties are currently listed with a realtor. Repossessions represent
indirect auto loans that became delinquent and the vehicles were repossessed.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`NON-PERFORMING ASSETS
                                             September 30, 2003       December 31, 2002       September 30, 2002
                                            ---------------------   ----------------------   ---------------------

Loans past due 90 days or more
   and accruing                                  $ 4,872,159              $ 2,599,489             $ 2,492,574
Non-accrual Loans                                  5,399,638                3,999,701               4,935,612
                                                 -----------              -----------             -----------
   Total Non-Performing Loans                     10,271,797                6,599,190               7,428,187

Restructured Loans                                         -                1,474,252               1,574,749
Other Real Estate                                     97,141                  262,000                  45,000
Repossessions                                         79,020                  174,932                 126,104
                                                 -----------              -----------             -----------
   Total Non-Performing Assets                  $ 10,447,958              $ 8,510,374             $ 9,174,039
                                                 ===========              ===========             ===========

Ratio of Non-Performing Loans to
   end of period Total Loans                            2.68%                    1.71%                   1.93%

Ratio of Non-Performing Assets to
   end of period Total Assets                           1.84%                    1.45%                   1.55%`

|Bank Owned Life Insurance


During
February 2003, the Bank purchased $7 million of bank owned life insurance (BOLI) for a
chosen group of employees, namely its officers, where the Bank is the owner and
beneficiary of the policies. The Banks excess liquidity from investment and loan pay
downs funded the BOLI. The earnings from the BOLI are recognized as other income. The BOLI
is profitable from the appreciation of the cash surrender values of the pool of insurance,
and its tax-free advantage to the Bank. This profitability is used to offset a portion of
current and future employee benefit costs. The BOLI is an asset that can be liquidated, if
necessary, with tax costs associated. However, the Bank intends to hold this pool of
insurance, because it provides income that enhances the Banks capital position.
Therefore, the Bank has not provided for deferred income taxes on the earnings from the
increase in cash surrender value.




Other assets


The
$494,000 decrease in other assets from $3,723,000, at December 31, 2002, to $3,229,000, at
September 30, 2003, was primarily due to the $250,000 net reduction of investment security
settlement-pending receivable. Other asset decreases resulted from normal operations,
including amortization of mortgage servicing rights.


Deposits

The
Bank is largely dependent upon its base of competitively priced core deposits to provide a
stable source of funding. The Bank has retained and grown its customer base through a
combination of rate, quality service, customer confidence and convenience, a stable and
experienced staff and expansion of our office locations. Core deposits, which exclude time
deposits of $100,000 and greater, increased $7,226,000 or 3%, during the nine months ended
September 30, 2003, to $291,528,000. Growth had occurred within certain transactional
deposit products, which primarily were generated by non-interest demand deposit accounts,
NOW and money market deposit accounts, which are interest-bearing checking accounts, and
savings products. Checking accounts increased $12,263,000 or 12.0%, and savings and club
accounts increased $5,923,000 or 15.4%, during the nine months ended September 30, 2003.
In addition, money market deposit accounts increased $3,573,000 or 21.6%, after
experiencing $4,825,000 run-off in public funds money market deposits, during the first
nine months of 2003. The Banks deposit mix, although heavily concentrated in time
deposits, shifted significantly toward customer based core deposit transactional and
savings accounts. Time deposits of $100,000 and greater at December 31, 2002 of
$129,486,000 reduced $11,609,000 or 9.0% to $117,877,000, at September 30, 2003. As the
table below reflects, the time deposit reductions occurred by allowing high cost
non-personal and public fund deposits run-off while shifting personal and non-personal
time deposits to money market accounts. Total time deposits, at September 30, 2003, were
$230,695,000 or 56% of total deposits compared to $256,836,000 or 62% of total deposits,
at December 31, 2002. Approximately $160,605,000 or 70% of time deposits are scheduled to
mature within the year. These time deposits, maturing within the next year, account for
about 39% of the Banks total deposit base and provide a significant opportunity for
the Bank to retain these deposits at substantially lower market rates. Of the amount
maturing within the next year, over $96,486,000 had original maturity terms of between
twenty-seven to sixty months and have weighted average rates ranging between 3.95% to over
4.50%. The vast majority of these time deposits reside in the thirty-month product, which
offered the customer the option to add to principal over the term at the original
contractual rate and the ability to withdraw principal once quarterly. Approximately
$66,718,000 in time deposits will mature after one year.


Total
deposits decreased $4,383,000 or 1.1%, during the nine months ended September 30, 2003, to
$409,405,000. Total average deposits decreased $8,423,000 or 2% from $424,564,000, for the
nine months ended September 30, 2002, to $416,141,000, for the nine months ended September
30, 2003. Non-interest-bearing deposits are an important source of funds for a Bank
because they lower overall deposit costs. The average balance of these accounts increased
$5,974,000 or 11.2%, during the nine months ended September 30, 2003, compared to the same
period in 2002. The interest rates offered on most deposit products were lowered in 2002
and throughout 2003 in response to overall market conditions. Management expects a
significant portion of the certificate of deposit portfolio, specifically in the
thirty-month time deposit product, to continue to reprice lower, as these higher rate
accounts mature.


In
2002 and continuing to date, the returns of the domestic equity markets were weak and
volatile as the U.S. economy was generally sluggish. These conditions improved the
environment for deposit growth for financial institutions as investors sought the relative
safety of FDIC insured deposits, despite a low interest rate environment. As the U.S. economy begins to recover
and the domestic equity markets once again produce favorable returns, the dollars
deposited with financial institutions as a flight to safety may revert back to the equity
markets. As this occurs, the deposit base would erode and without proper planning to
replace these funds, the Banks asset size may curtail to even lower levels.


We
plan to continue to grow deposits through strategic promotions, business development
programs and maturation of existing branches. In addition, the Bank introduced the
Fidelity 100th Anniversary $100,000 Checking Account Sweepstakes to allow
individuals to visit our branch locations and complete the entry form. Along with this
anniversary sweepstakes, we celebrated our 100thanniversary with a new free
checking program designed to develop Bank customers and grow our demand deposit accounts.
By opening a Fidelity checking account, the free checking program offered no minimum
balance requirements and monthly service charge for one year, free first order of
Anniversary checks, a $5 cash debit card activation reward following card
activation and the first point of sale transaction and based upon availability, a free
small safe deposit box for one year. We have also redesigned and employed through our
branch network our tiered money market deposit account with rates graduating up based upon
balances. This money market account offers check writing capabilities and complements our
existing money market savings account. Pricing of this tiered money market account at
current market rates offers our customers, especially time deposit customers, the choice
and flexibility during this low interest rate environment.


The
following table represents the composition of total deposits, as of September 30, 2003,
and comparative funding changes since previous year end.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Dollar        Percent
                                            September 30, 2003     December 31, 2002        change         change
                                            ------------------     -----------------     -----------      --------
     Noninterest-bearing deposits
Personal                                          $ 28,055,231          $ 22,956,626     $ 5,098,605       22.21%
Non-personal                                        29,546,285            24,877,991       4,668,293       18.76%
Public fund                                          5,561,185             4,039,547       1,521,639       37.67%
Bank checks                                          7,689,248             9,277,301      (1,588,053)     -17.12%
------------------------------------------------------------------------------------------------------------------
                 Total                            $ 70,851,949          $ 61,151,465     $ 9,700,484       15.86%
==================================================================================================================

             Time deposits
        of $100,000 or greater
Personal                                          $ 82,151,603          $ 79,169,750     $ 2,981,853        3.77%
Non-personal                                        16,927,670            23,571,462      (6,643,792)     -28.19%
Public fund                                         12,983,398            21,111,991      (8,128,593)     -38.50%
IRA's                                                5,814,484             5,633,296         181,188        3.22%
------------------------------------------------------------------------------------------------------------------
                 Total                           $ 117,877,155         $ 129,486,498    $(11,609,343)      -8.97%
==================================================================================================================

    Other interest-bearing deposits
Time deposits less than $100,000:
Personal                                          $ 87,119,310          $ 95,302,987    $ (8,183,677)      -8.59%
Non-personal                                         5,563,262            11,054,526      (5,491,264)     -49.67%
Public fund                                            476,720               633,489        (156,770)     -24.75%
IRA's                                               19,658,665            20,358,968        (700,303)      -3.44%
------------------------------------------------------------------------------------------------------------------
               sub total                           112,817,955           127,349,970     (14,532,014)     -11.41%
NOW acounts                                         43,281,767            40,719,446       2,562,321        6.29%
Money market deposits                               20,133,904            16,561,358       3,572,546       21.57%
Savings and clubs                                   44,442,335            38,519,440       5,922,895       15.38%
------------------------------------------------------------------------------------------------------------------
                 Total                           $ 220,675,960         $ 223,150,213    $ (2,474,252)      -1.11%
==================================================================================================================

            Total deposits
Noninterest-bearing deposits                      $ 70,851,949          $ 61,151,465     $ 9,700,484       15.86%
Interest-bearing deposits                          338,553,115           352,636,711     (14,083,595)      -3.99%
------------------------------------------------------------------------------------------------------------------
                 Total                           $ 409,405,065         $ 413,788,176    $ (4,383,111)      -1.06%
==================================================================================================================`

|Public
funds had been a significant source of deposits and now account for $38,353,000 or 9.4% of
total deposits, at September 30, 2003. The Bank was able to attract 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 changing political landscape. Thus, the Bank could continue to
experience material shifts in these outstanding balances throughout the year.



Borrowings


Borrowings
totaled $109,782,000 at September 30, 2003 compared to $114,213,000 at December 31, 2002.


Included
in borrowings are customer repurchase agreements of $46,285,000 and $47,232,000, at
September 30, 2003, and December 31, 2002, respectively. The balance in customer
repurchase agreements fluctuates daily because it is dependent on the level of available
funds in depositor accounts. Customer repurchase agreements are collateralized by
investment securities in an amount equal to or exceeding such borrowings. The Bank
controls these pledged securities and monitors them on a daily basis.


Borrowings
included $63,000,000 in long-term advances from the FHLB, at both September 30, 2003 and
December 31, 2002.


The
weighted average interest rate on borrowings was 5.53% and 5.62% at September 30, 2003 and
2002, respectively.



Accrued expenses and
other liabilities


Deferred
taxes decreased $378,000 from $775,000, at December 31, 2002, to $397,000, at September
30, 2003. This net decrease relates to the change in the estimated fair value of
investment securities available-for-sale.


Other
liabilities decreased $401,000 from $3,978,000, at December 31, 2002, to $3,615,000, at
September 30, 2003. This decrease relates principally to a $250,000 net pending investment
purchase obligation over the previous year-end. Accrued expenses from normal operating
activities also decreased by $113,000.



ITEM 3. Quantitative and
Qualitative Disclosure about Market Risk



Interest Rate Sensitivity


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 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
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
September 30, 2003, the Company maintained a one year cumulative positive gap of
$3,590,000 or 0.6% 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 decreasing 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 September 30, 2003
                                              ---------------------------------------------------------------------
                                               3 months       3 through     1 through         Over
                                                or less       12 months      3 years        3 years        Total
                                               --------      ----------     ---------      ---------      --------
                                                                     (Dollars in thousands)

Cash and cash equivalents...................  $  6,593       $      -       $       -      $  17,028      $ 23,621
Investment securities.......................     9,579         17,821          43,295         69,208       139,903
Loans.......................................   161,514         70,543          74,913         72,609       379,579
Fixed and other assets......................         -          7,202               -         17,773        24,975
                                              --------       --------       ---------      ---------      --------
   Total assets.............................  $177,686       $ 95,566       $ 118,208      $ 176,618      $568,078
                                              ========       ========       =========      =========      ========
   Total cumulative assets..................  $177,686       $273,252       $ 391,460      $ 568,078
                                              ========       ========       =========      =========

Non interest-bearing transaction deposits...  $      -       $  7,085       $  19,485      $  44,282      $ 70,852
Interest-bearing transaction deposits.......     4,027         51,916          40,950         10,965       107,858
Time deposits...............................    58,215        101,637          60,209         10,634       230,695
Repurchase Agreements.......................    36,890          9,395               -              -        46,285
Short-term borrowings.......................       497              -               -              -           497
Long-term debt..............................         -              -           5,000         58,000        63,000
Other liabilities...........................         -              -               -          3,615         3,615
                                              --------       --------       ---------      ---------      --------
   Total liabilities........................  $ 99,629       $170,033       $ 125,644      $ 127,496      $522,802
                                              ========       ========       =========      =========      ========
   Total cumulative liabilities.............  $ 99,629       $269,662       $ 395,306      $ 522,802
                                              ========       ========       =========      =========
Interest sensitivity gap....................  $ 78,057       $(74,467)      $  (7,436)     $  49,122

Cumulative gap..............................  $ 78,057       $  3,590       $  (3,846)     $  45,276
                                              ========       ========       =========      =========
Cumulative gap to total assets..............     13.74%          0.63%          -0.68%          7.97%`

|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 its 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 one for one 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.


Actual
results may differ from simulated results due to various factors including the time and
magnitude of interest rate changes, changes in customer behavior, effects of competition,
and other factors. These variables influence the interest-rate spread and product mix. The
consulting model predicts a base net interest income amount that is larger than that
actually earned in the past 12 months or last fiscal year. This is principally the result
of an actual increase in earning assets over the past year, which created a larger
starting point for the next 12-month projection. Past experience drives many of the
assumptions used in the models. Actual results could vary substantially if our future
performance differs from past experience.


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 September 30, 2003 remained constant. The impact of
the rate movements was developed by simulating the effect of rates changing over a
twelve-month period from the September 30, 2003 levels.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Rates +200                 Rates -200
                                                     ----------                 ----------
Earnings at risk:
   Percent change in:
      Net Interest Income                                2.8%                     (20.0)%
      Net Income                                         9.1                      (57.8)

Economic value at risk:
   Percent change in:
      Economic value of equity                         (15.7)                      (6.6)
      Economic value of equity
        as a percent of book assets                     (1.2)                      (0.5)`

|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 October 1, 2003, under alternate interest rate scenarios using the income
simulation model described above:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Change in Interst Rates |  | Net InterestIncome |  | Dollar Change |   | Percent Change
|----------------------- |  | ------------------ |  | ------------- | - | --------------
|+200 Basis Points       |  | $17,978            |  | $    484      |   | 2             
|+100 Basis Points       |  | 17,932             |  | 438           |   | 2             
|Flat Rate               |  | 17,494             |  | --            |   |               
|-100 Basis Points       |  | 15,854             |  | (1,640        | ) | -9.           
|-200 Basis Points       |  | 13,989             |  | (3,505        | ) | -20           

|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
for a bank is the ability to fund customers needs for borrowings, deposit
withdrawals and maturities and normal operating expenses of the Bank. Current sources of
liquidity are:

Cash and cash equivalentsAsset maturities and pay downs within one yearLoans and investments available-for-saleGrowth of core depositsGrowth of repurchase agreementsIncrease of other borrowed funds from correspondent banksIssuance of capital stockAs
detailed in the statement of cash flows, total cash and cash equivalents had a net
$2,598,000 decrease stemming from net cash used by financing activities due to the
$11,609,000 decline in certificates of deposit of $100,000 or more. This cash utilization
was offset by the $9,700,000 increase in non-interest bearing deposits. Other sources
providing cash were primarily in un-reinvested calls and pay downs from investment
securities and sale of loans available-for-sale, while other cash usages were funding the
$7,000,000 purchase of life insurance policies and funding new loan growth. The net cash
provided from operations and investments throughout the nine months was utilized to fund
the decrease in short-term public fund time deposits and pay down short term borrowings.


Management
believes that the present level of liquidity is strong and adequate for current operations
based upon the short-term liquidity position of $17,511,000 in cash and due from banks
along with $6,110,000 in Federal Funds sold. A secondary source of liquidity is provided
from expected cash flow from principal reductions in the investment and loan portfolios
and the ability to sell $23,864,000 in mortgage loans available for sale at September 30,
2003. Management monitors asset and liability maturities to match anticipated large cash
flow requirements. These cash flow requirements are reviewed daily with the use of
internally generated reports.


The
Bank considers our growing core deposit base as the primary source of liquidity. However,
the Bank can also borrow in the Federal Funds market to meet temporary liquidity needs.
The Bank has other sources to obtain liquidity from borrowings with the Federal Reserve
Discount Window and Federal Home Loan Bank advances.



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 a 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 a percentage 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 table below as defined in the
regulations) of total and Tier I capital to risk-weighted assets, and of Tier I capital to
average assets. As of September 30, 2003, the Company meets all capital adequacy
requirements to which it is subject.


The
Companys capital amounts and ratios, at September 30, 2003, are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`To be Well Capitalized
                                                                         For Capital           Under Prompt Corrective
                                             Actual                   Adequacy Purposes          Action Provisions
                                             Amount          Ratio         Amount         Ratio        Amount             Ratio
                                          ------------       ------   -----------------   -----  --------------------     -----
Total Capital
         (to Risk Weighted Assets)        $ 49,049,044       12.96%     $ 30,277,504      8.00%     $ 37,846,880          10.00%
Tier 1 Capital
        (to Risk Weighted Assets)         $ 45,224,613       11.95%     $ 15,138,752      4.00%     $ 22,708,128           6.00%
Tier 1 Capital
        (to Average Assets)               $ 45,224,613        7.91%     $ 22,858,523      4.00%     $ 28,573,154           5.00%`

|The ratios
for the Bank are not materially different from those of the Company.



ITEM 4. Controls and
Procedures


The
Company maintains a system of controls and procedures designed to provide reasonable
assurance as to the reliability of the financial statements and other disclosures included
in this report, as well as to safeguard assets from unauthorized use or disposition. The
President and Chief Financial Officer, with the direct assistance from other members of
management, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. Based upon
that evaluation, our President and Chief Financial Officer concluded that our disclosure
controls and procedures are effective, except for the internal control components
of risk assessment and monitoring, in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission filings. The
Company has made significant changes to our internal controls and other factors that could
significantly affect these controls subsequent to the date of evaluation by the President
and Chief Financial Officer, as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | * |  | A formal risk assessment was not completed for the year ended December 31, 2002. It was
managements intention to have a formally documented risk assessment completed and
submitted to the Companys Audit Committee for approval by April 30, 2003. The
Companys Internal Audit Department completed a formal risk assessment on April 28,
2003. On April 30, 2003, the Companys Audit Committee reviewed and approved the risk
assessment.
| |  |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | * |  | Management worked with the Internal Audit Department to complete a risk assessment, from
which an internal audit schedule was developed and submitted to the Companys Audit
Committee for approval. The Companys Internal Audit Department completed the
internal audit schedule for calendar years 2003 through 2005. On April 30, 2003, the
Companys Audit Committee reviewed and approved the risk assessment and internal
audit schedule. The Audit Committee has taken on the responsibility to monitor the risk
assessments and the timely completion of each scheduled internal audit.
| |  |  |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On
October 9, 2003, Parente Randolph, P.C., the Companys independent external auditor,
met with the Audit Committee to discuss their concerns on the monitoring component, which
resulted from the review of the Internal Audit Departments work papers of completed
audits through September 30, 2003, along with the audits completed as compared to the
audits scheduled through that same time period. Additional concerns raised, were the
adequate and timely completion of the approved audit schedule by year end.


Based
upon this assessment, the President and Chief Financial Officer concluded that our
disclosure controls and procedures are effective, except for the internal control
component of monitoring, in timely alerting them to material information required to be
included in our regulatory filings as of September 30, 2003.


Resulting
from these concerns, the Companys Audit Committee engaged McGrail Merkel Quinn &
Associates, as of October 15, 2003, to outsource the internal audit function, which
includes the direct supervision and review of the Companys internal audit staff. The
Audit Committee and Executive Management are committed to providing whatever resources are
necessary in order to complete the scheduled internal audits, take corrective action and
re-testing as required to meet the internal control components required under the Federal
Deposit Insurance Act of 1991 by December 31, 2003.



PART II. OTHER
INFORMATION


ITEM 1. Legal Proceedings.


On
July 1, 2002, the Bank was served with a civil complaint that was filed in the Court of
Common Pleas of Lackawanna County, Pennsylvania, on June 28, 2002. Scaccia Construction
Company, the plaintiff, based upon multiple causes of action, demands approximately
$250,000 in connection with certain environmental remediation activities. The activities
were purportedly performed prior to the opening of the Banks Eynon branch. On July
22, 2002, the Bank filed preliminary objections to the complaint. The preliminary
objections were decided on November 26, 2002, and the Bank filed its answer and new matter
raising various legal defenses. This lawsuit was settled on October 30, 2003.


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 other 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 other legal proceedings are
pending other than ordinary routine litigation incident 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 nor
its properties.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 2. Changes in Securities and Use of Proceeds.          
|------------------------------------------------------------
|                                                            
|                                                            
|ITEM 3. Default Upon Senior Securities.                     
|                                                            
|                                                            
|ITEM 4. Submission of matters to a Vote by Security Holders.
|                                                            
|                                                            
|ITEM 5. Other Information.                                  
|                                                            
|                                                            

|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  | Form of Employment Agreement with Joseph J. Earyes. Incorporated by reference to Exhibit 10.1 to Registrant's Form
                  8-K filed with the SEC on March 25, 2002.                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                               
|11    | Statement regarding computation of earnings per share. Included herein 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 pursuant to Section 906
                  of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                               
|32.2  | Certification of Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted              pursuant
        to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                               

|Current Reports on Form 8-K filed by the Registrant during the quarter ended September 30, 2003:



On July 30, 2003, Fidelity D & D Bancorp, Inc. announced iuts results of operations for the quarter ended June 30, 2003.  A copy of the related press release was
furnished with the Form 8-K filing on July 30, 2003.



FIDELITY D&D
BANCORP, INC.


Pursuant to the requirements of the
Securities Exchange Act of 1934, the Company has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | FIDELITY D&D BANCORP, INC.                      
|----------------------- | ------------------------------------------------
|                        |                                                 
|                        |                                                 
|                        |                                                 
|DATE: November 14, 2003 | /s/ Michael F. Marranca                         
|                        | Michael F. Marranca,                            
|                        | Chairman of the Board of Directors and President
|                        |                                                 
|                        |                                                 
|                        |                                                 
|DATE: November 14, 2003 | /s/ Salvatore R. DeFrancesco                    
|                        | Salvatore R. DeFrancesco,                       
|                        | Treasurer and Chief Financial Officer           

|FIDELITY D&D
BANCORP, INC.



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  | Form of Employment Agreement with Joseph J. Earyes.
                           Incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed
                           with the SEC on March 25, 2002.                                                                                                                                                                                                                           | *   
|11    | Statement regarding computation of earnings per share.
                           Included herein.                                                                                                                                                                                                                                                                                                                                           | 8   
|31.1  | Rule 13a-14(a) Certification of Principal Executive
                           Officer.                                                                                                                                                                                                                                                                                                                                                      | 33  
|31.2  | Rule 13a-14(a) Certification of Principal Financial
                           Officer.                                                                                                                                                                                                                                                                                                                                                      | 34  
|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.                                                                                                                                                                                                                                 | 35  
|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.                                                                                                                                                                                                                                 | 36  
|      | * - Incorporated by Reference                                                                                                                                                                                                                                                                                                                                                                                                                |