FIDELITY D & D BANCORP INC - Quarter Report: 2005 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FOR QUARTER ENDED MARCH 31, 2005

 

COMMISSION FILE NUMBER: 333-90273

 

FIDELITY D & D BANCORP, INC.

 

STATE OF INCORPORATION:		IRS EMPLOYER IDENTIFICATION NO:
PENNSYLVANIA		23-3017653
PRINCIPAL OFFICE:
BLAKELY & DRINKER ST.
DUNMORE, PENNSYLVANIA 18512
TELEPHONE:
570-342-8281

 

The Company (1) has filed all reports required to be filed by Section 13 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.

 

ý  YES    o  NO

 

The Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

 

o  YES    ý  NO

 

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. at April 29, 2005, the latest practicable date, was 1,843,997 shares.

 

 

FIDELITY D & D BANCORP, INC.

 

Form 10-Q March 31, 2005

 

Index

 

Part I. Financial information
Item 1. Financial Statements (unaudited):
	Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
	Consolidated Statements of Income for the three months ended March 31, 2005 and 2004
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2005 and 2004
	Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosure about Market Risk
Item 4.	Controls and Procedures
Part II. Other Information
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
Signatures
Exhibit index

 

2

 

FIDELITY D & D BANCORP, INC.

Consolidated Balance Sheets

As of March 31, 2005 and December 31, 2004

 

		March 31, 2005			December 31, 2004
		(unaudited)			(audited)
ASSETS
Cash and due from banks		$	11,188,920		$	9,013,060
Interest-bearing deposits with financial institutions		1,555,390			1,203,334
Federal funds sold		9,010,000			—
Total cash and cash equivalents		21,754,310			10,216,394
Available-for-sale securities		107,784,063			112,612,513
Held-to-maturity securities		2,890,448			3,056,305
Federal Home Loan Bank Stock		3,831,200			4,568,700
Loans and leases, net (allowance for loan losses of $6,000,956 in 2005 and $5,987,798 in 2004)		377,492,615			381,546,375
Loans available-for-sale (fair value $403,992 in 2005 and $582,141 in 2004)		399,992			576,378
Bank premises and equipment, net		10,955,283			11,163,292
Cash surrender value of bank owned life insurance		7,671,229			7,613,437
Other assets		4,794,769			3,385,790
Accrued interest receivable		2,078,349			1,722,850
Foreclosed assets held for sale		207,271			213,104
Total assets		$	539,859,529		$	536,675,138
LIABILITIES
Deposits
Non-interest-bearing		$	65,843,312		$	65,357,535
Certificates of deposit of $100,000 or more		92,501,794			93,986,033
Other interest-bearing deposits		221,680,263			206,271,767
Total deposits		380,025,369			365,615,335
Accrued interest payable and other liabilities		3,610,398			3,039,809
Short-term borrowings		39,070,822			50,534,046
Long-term debt		70,926,430			71,119,188
Total liabilities		493,633,019			490,308,378
SHAREHOLDERS’ EQUITY
Preferred stock authorized 5,000,000 shares with no par value; none issued		—			—
Capital stock authorized 10,000,000 shares with no par value; issued and outstanding 1,843,997 shares in 2005 and 1,839,572 shares in 2004		10,224,377			10,072,134
Retained earnings		37,010,484			36,396,027
Accumulated other comprehensive loss		(1,008,351		)	(101,401		)
Total shareholders’ equity		46,226,510			46,366,760
Total liabilities and shareholders’ equity		$	539,859,529		$	536,675,138

 

3

 

FIDELITY D & D BANCORP, INC.

Consolidated Statements of Income

(unaudited)

 

		Three Months Ended
		March 31, 2005			March 31, 2004
Interest income
Interest and fees on loans:
Taxable		$	5,664,675		$	5,412,352
Nontaxable		98,410			84,088
Leases		18,293			49,420
Interest-bearing deposits with financial institutions		2,688			1,115
Investment securities:
US Government agencies		910,157			1,218,595
States and political subdivisions (non-taxable)		112,455			135,378
Other securities		126,815			52,167
Federal funds sold		40,792			10,210
Total interest income		6,974,285			6,963,325
Interest expense
Certificates of deposit of $100,000 or more		676,023			890,671
Other deposits		880,216			1,050,649
Securities sold under repurchase agreements		196,809			102,861
Other short- and long-term borrowings and other		945,433			986,199
Total interest expense		2,698,481			3,030,380
Net interest income		4,275,804			3,932,945
Provision for loan losses		80,000			850,000
Net interest income, after provision for loan losses		4,195,804			3,082,945
Other income:
Service charges on deposit accounts		598,321			525,929
Gain (loss) on:
Investment securities		—			9,497
Loans		(11,442		)	23,611
Leased assets		(34,873		)	(93,266		)
Foreclosed assets held-for-sale		405			2,726
Write-down lease residual		(220,000		)	—
Fees, other service charges and other income		415,202			477,920
Total other income		747,613			946,417
Other operating expenses:
Salaries and employee benefits		1,742,921			1,744,516
Premises and equipment		734,455			719,411
Advertising		131,209			60,507
Professional fees and services		382,043			285,871
Other		575,284			464,722
Total other operating expenses		3,565,912			3,275,027
Income before provision for income taxes		1,377,505			754,335
Provision for income taxes		358,116			129,428
Net income		$	1,019,389		$	624,907
Per share data:
Net income - basic		$	0.55		$	0.34
Net income - diluted		$	0.55		$	0.34
Dividends		$	0.22		$	0.22

 

4

 

FIDELITY D & D BANCORP, INC.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2005 and 2004

 

															Accumulated other
		Capital stock					Treasury stock					Retained			comprehensive
		Shares		Amount			Shares		Amount			earnings			income (loss)			Total
Balance, December 31, 2003 (audited)		1,828,270		$	9,698,879		(5,227	)	$	(196,048	)	$	34,641,976		$	(212,908	)	$	43,931,899
Comprehensive income:
Net income												624,907						624,907
Change in net unrealized holding gains (losses) on available-for-sale securities, net net of reclassification adjustments															1,007,884			1,007,884
Comprehensive income																		1,632,791
Reissued treasury stock through Employee Stock Purchase Plan				(8,329		)	1,635		61,370									53,041
Dividends reinvested through Dividend Reinvestment Plan				(633		)	3,496		131,222									130,589
Fractional shares repurchased		(4	)	(110		)												(110		)
Dividends declared												(401,429		)				(401,429		)
Balance, March 31, 2004 (unaudited)		1,828,266		$	9,689,807		(96	)	$	(3,456	)	$	34,865,454		$	794,976		$	45,346,781
Balance, December 31, 2004 (audited)		1,839,572		$	10,072,134		—		$	—		$	36,396,027		$	(101,401	)	$	46,366,760
Comprehensive income:
Net income												1,019,389						1,019,389
Change in net unrealized holding gains (losses) on available-for-sale securities, net net of reclassification adjustments															(906,950		)	(906,950		)
Comprehensive income																		112,439
Stock issued through Employee Stock Purchase Plan		1,031		31,671														31,671
Dividends reinvested through Dividend Reinvestment Plan		3,394		120,572														120,572
Dividends declared												(404,932		)				(404,932		)
Balance, March 31, 2005 (unaudited)		1,843,997		$	10,224,377		—		$	—		$	37,010,484		$	(1,008,351	)	$	46,226,510

 

5

 

FIDELITY D & D BANCORP, INC.

Consolidated Statements of Cash Flows

(unaudited)

 

		Three Months Ended
		March 31, 2005			March 31, 2004
Cash flows from operating activities:
Net income		$	1,019,389		$	624,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		285,546			309,540
Amortization of securities (net of accretion)		108,079			143,131
Provision for loan losses		80,000			850,000
Deferred income tax		(105,682		)	(10,258		)
Write-down of foreclosed assets held-for-sale		28,603			46,098
Write-down lease residual		220,000			—
Increase in cash surrender value of life insurance		(57,792		)	(84,629		)
Gain on sale of investment securities		—			(9,497		)
Loss (gain) on sale of loans		11,442			(23,611		)
Gain on sale of foreclosed assets held-for-sale		(405		)	(2,726		)
Loss on sale of leased assets		34,873			93,266
Loss on disposal of equipment		—			2,541
Amortization of loan servicing rights		27,952			23,965
Change in:
Accured interest receivable		(355,499		)	(344,806		)
Other assets		(436,972		)	(164,980		)
Accrued interest payable and other liabilities		570,995			(310,809		)
Net cash provided by operating activities		1,430,529			1,142,132
Cash flows from investing activities:
Held-to-maturity securities:
Proceeds from maturities, calls and paydowns		164,184			382,321
Available-for-sale securities:
Proceeds from sales		—			3,850,562
Proceeds from maturities, calls and paydowns		4,376,627			9,386,214
Purchases		(1,454,954		)	(6,035,552		)
Net decrease FHLB stock		737,500			37,700
Proceeds from sale of loans available-for-sale		404,963			1,671,411
Net decrease (increase) in loans and leases		3,238,754			(2,018,977		)
Proceeds from sale of leased assets		210,671			274,616
Acquisition of bank premises and equipment		(77,537		)	(26,851		)
Proceeds from sale of foreclosed assets held-for-sale		5,817			185,763
Net cash provided by investing activities		7,606,025			7,707,207
Cash flows from financing activities:
Net increase in noninterest-bearing deposits		485,776			1,120,896
Net decrease in certificates of deposit of $100,000 or more		(1,484,239		)	(9,479,206		)
Net increase (decrease) in other interest-bearing deposits		15,408,496			(10,448,071		)
Net (decrease) increase in short-term borrowings		(11,463,224		)	3,352,356
Net decrease in long-term borrowings		(192,758		)	(187,105		)
Dividends paid, net of dividend reinvestment		(284,360		)	(270,951		)
Proceeds from employee stock purchase plan		31,671			53,042
Net cash provided by (used in) financing activities		2,501,362			(15,859,039		)
Net increase (decrease) in cash and cash equivalents		11,537,916			(7,009,700		)
Cash and cash equivalents, beginning		10,216,394			19,231,601
Cash and cash equivalents, ending		$	21,754,310		$	12,221,901

 

6

 

FIDELITY D & D BANCORP, INC.

 

Notes to Consolidated Financial Statements

(unaudited)

 

1. Nature of operations and critical accounting policies

 

Principles of consolidation

 

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

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.  For additional information and disclosures required under GAAP, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

 

Nature of operations

 

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

 

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

 

In the opinion of management, the consolidated balance sheets as of March 31, 2005 and December 31, 2004 and the related consolidated statements of income for each of the three month periods ended March 31, 2005 and March 31, 2004 and changes in shareholders’ equity and cash flows for each of the three month periods ended March 31, 2005 and March 31, 2004 present fairly the financial condition and results of operations of the Company.  All material adjustments required for a fair presentation have been made.  These adjustments are of a normal recurring nature.  There have been no material changes in accounting principles, practices or in the method of application and there have been no retroactive adjustments during these periods.  The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

 

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2004 and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

 

7

 

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 (the allowance).  Management believes that the allowance, as of March 31, 2005, is adequate and reasonable.  Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value.  While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance.  Such agencies may require the Company to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.

 

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

 

The fair market value of residential mortgage loans, classified as AFS, is obtained from the Federal National Mortgage Association (Fannie Mae).  The fair value of Small Business Administration (SBA) loans, classified as AFS, is obtained from an outside pricing source.  To determine the fair market value of student loans, classified as AFS, the Bank uses the pricing obtained from the most recent student loans sold from its AFS portfolio.  The market to which the Bank sells mortgage and other loans is restricted and price quotes from other sources are not typically obtained.  As of March 31, 2005 and December 31, 2004, the Company’s portfolio of loans AFS was comprised of student loans.

 

8

 

2. Earnings per share

 

Basic earnings per share (EPS) is computed using the weighted-average number of shares of common stock outstanding.  Diluted EPS is computed in the same manner as basic EPS but reflects the potential dilution of common stock equivalents.  Dilution would occur if Company-issued “in-the-money” stock options were exercised and converted into common stock.  Stock options are in-the-money if the market value of the underlying stock is greater than the option’s exercise or strike price.  The Company uses the treasury stock method to determine the dilutive effect of its unexercised stock options.  Under this method, the proceeds received from shares issued in a hypothetical exercise of stock options are assumed to be used to purchase treasury stock.

 

The following data illustrates the amounts used in computing EPS and the effects on income and the weighted-average number of shares of potentially dilutive common stock for the three months ended March 31, 2005 and 2004:

 

					Weighted-average
		Income			common shares
		numerator			denominator		EPS
March 31, 2005
Basic EPS		$	1,019,389		1,841,295		$	0.55
Dilutive effect of potential common stock:
Stock options:
Exercise of options outstanding					7,700
Hypothetical share repurchase at $35.75					(7,173	)
Diluted EPS		$	1,019,389		1,841,822		$	0.55
March 31, 2004
Basic EPS		$	624,907		1,824,766		$	0.34
Dilutive effect of potential common stock:
Stock options:
Exercise of options outstanding					10,600
Hypothetical share repurchase at $36.00					(9,758	)
Diluted EPS		$	624,907		1,825,608		$	0.34

 

3. Stock plans

 

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

 

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

 

9

 

Compensation, and supersedes APB Opinion 25, Accounting for Stock Issued to Employees.  SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements.  SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments.  Public entities such as the Company are not required to apply SFAS 123(R) until the beginning of the first interim reporting period or fiscal year beginning after December 31, 2005.  The Company does not plan early implementation of the provisions of SFAS 123(R).

 

In 2004 and for the first three months of 2005, the Company did not grant stock options under any of its stock plans.

 

Item 2:                                  Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

The following is Management’s discussion and analysis of the significant changes in the consolidated financial condition of the Company as of March 31, 2005 compared to December 31, 2004 and the results of operations for the three months ended March 31, 2005 and March 31, 2004.  Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2004 Annual Report filed on Form 10-K.

 

Forward looking statements

 

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

 

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

 

•                  the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control;

 

•                  there may be increases in competitive pressure among financial institutions or from non-financial institutions;

 

•                  changes in the interest rate environment may reduce interest margins;

 

•                  changes in deposit flows, loan demand or real estate values may adversely affect our business;

 

•                  changes in accounting principles, policies or guidelines may cause our financial condition to be perceived differently;

 

•                  general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the securities markets or the banking industry may be less favorable than we currently anticipate;

 

•                  legislative or regulatory changes may adversely affect our business;

 

•                  technological changes may be more rapid, difficult or expensive than we anticipate;

 

10

 

•                  success or consummation of new business initiatives may be more difficult or expensive than we anticipate; or

 

•                  acts of war or terrorism.

 

Management cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document.  We have no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.  Readers should review the risk factors described in other documents that we file or furnish, from time to time, with the Securities and Exchange Commission, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K and other current reports filed or furnished on Form 8-K.

 

General

 

The Company’s results of operations depend primarily on its net interest income.  Net interest income is the difference between interest income and interest expense.  Interest income is generated from yields on interest-earning assets which consist principally of loans and investment securities.  Interest expense is incurred from rates paid on interest-bearing liabilities which consist of deposits and borrowings.  Net interest income is determined by the Company’s interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.  The interest rate spread is influenced by the overall interest rate environment, the composition and characteristics of interest-earning assets and interest-bearing liabilities and by the competition in our marketplace.  The interest rate spread and the changes in the interest rate spread, from period-to-period, is also influenced by differences in the maturity and re-pricing characteristics of assets compared to the maturity and re-pricing characteristics of the liabilities that fund them.

 

The Company’s profitability is also affected by the level of its non-interest income and expenses, provision for loan losses and provision for income taxes.  Non-interest income consists of service charges on the Bank’s loan and deposit products, trust and asset management service fees, net gains or losses from sales of leases, securities and loans AFS and increases in the cash surrender value of the bank owned life insurance.  Non-interest expense consists of compensation and related employee benefit expenses, occupancy, equipment, data processing, advertising, marketing, professional fees, insurance and other operating overhead.

 

The Company’s profitability is significantly affected by general economic and competitive conditions, changes in market interest rates, government policies and actions of regulatory authorities.  The Company’s loan portfolio is comprised principally of commercial and commercial real estate loans.  The properties underlying the Company’s mortgages are concentrated in northeastern Pennsylvania.  Credit risk, which represents the possibility of the Company not recovering amounts due from its borrowers, is significantly related to local economic conditions in the areas the properties are located as well as the Company’s underwriting standards.  Economic conditions affect the market value of the underlying collateral as well as the levels of occupancy of multi-family dwellings and levels of adequate cash flow and revenue generation from other income-producing properties.

 

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED

MARCH 31, 2005 AND MARCH 31, 2004

 

Overview

 

Net income for the first quarter of 2005 was $1,019,000, an increase of $394,000 or 63% from the $625,000 recorded in the same quarter in 2004.  Diluted earnings per share for the same period improved $0.21 from $0.34 for the three months ended March 31, 2004 to $0.55 for the three months ended March 31, 2005.

 

The quarter-to-quarter improvement in net income was primarily the results of an increase in net interest income and a decrease in the provision for loan losses.   These items were partially offset by a decrease in non-interest income and increases in non-interest expense and the provision for income taxes.

 

11

 

Return on average assets and return on average equity were 0.77% and 8.85%, respectively, for the three months ended March 31, 2005 compared to 0.44% and 5.65%, respectively, for the same period in 2004.  The improvement in these ratios is principally due to the improved earnings.

 

Net interest income

 

Net interest income is the Company’s primary source of earnings and is influenced primarily by the amount, distribution and re-pricing characteristics of its interest-earning assets and interest-bearing liabilities as well as the relative levels and movements of interest rates.

 

Net interest income increased $343,000, or 9%, to $4,276,000 for the first quarter of 2005, from $3,933,000 recorded in the same period of 2004.  The increase was attributable to a $32,595,000 decrease in the average interest-bearing liabilities in conjunction with a nine basis point decrease in the rates paid thereon.  The decrease in average interest-bearing liabilities was predominantly in the Bank’s time deposits or certificate of deposits (CD’s), which experienced a decline of $44,811,000.  In addition, the average rate paid the Bank’s CD’s declined 16 basis points in the first quarter of 2005 compared to the same 2004 quarter.  The decline in the average balances of CD’s was prevalent in personal, business and public fund certificates.  Management’s focus will be to continue to reduce high-costing CD’s, in favor of low-cost transaction and savings accounts, and exit the competitive pricing pressure on these time deposits until a more cost effective funding level is attained.  As of March 31, 2005, CD’s represented 47% of total deposits, compared to 51% at December 31, 2004.

 

Partially offsetting the decrease in CD’s, the Bank experienced an increase in the average balances of lower-costing transaction and savings accounts and an increase in the average balances in repurchase agreements (repos).  The growth in the transaction and savings accounts was the caused by the success of the Bank’s marketing efforts in the promotion of our new savings products.  The increase in average balances of repos was due to temporary funds provided from the public sector.   As a result of the combination of time deposit reductions, decreases in rates and increases in the lower-costing deposit and repo balances, interest expense declined $332,000, or 11% during the first quarter of 2005, compared to the same 2004 quarter.

 

During the first quarter of 2005, interest income increased $11,000, despite a $28,353,000 decline in average interest-earning assets.  The increase was due to a 34 basis point increase in yield earned from the Bank’s investment securities and loans.  The yield on the Bank’s loan portfolio increased 40 basis points during the first quarter of 2005 due, in part, to the gradual increase in the national prime rate, the bench mark rate to which floating rate loans re-price and also due to new loan originations.  The investment securities portfolios experienced a five basis point decline in yield in the first quarter of 2005 compared to the same quarter of 2004 but also experienced $23,426,000 decline in average balances for the respective period.  Funds received from securities that have been called, matured or paid-down, as in the case of mortgage-backed securities, were used to fund high-cost time deposit outflow.  Operating in a flattening yield curve environment with rising short-term rates will present certain challenges to manage the investment securities portfolio in order to maintain acceptable yields.  As such, interest-earning assets that are benchmarked to prime should continue to bolster the performance of the loan portfolio; however the Bank will continue to scrutinize investment security purchases and use available cash flows to strategically run down high costing time deposits and borrowings and will focus on growing its core deposit base.

 

During the first quarter of 2005, the Bank’s tax-equivalent margin and spread both increased 46 and 43 basis points, respectively, compared to the first quarter of 2004.  The increase in margin and spread is the result of the rates on the Bank’s interest-bearing liabilities, most notably on time deposits, declining and the yield on interest-earning assets increasing.

 

12

 

The following table sets forth, a comparison of average balance sheet amounts and their corresponding tax-equivalent interest income and expense and annualized tax-equivalent yield and cost for the periods indicated (dollars in thousands):

 

		Three months ended						Year ended
		March 31,						December 31,
		2005			2004			2004
Average interest-earning assets:
Loans and leases		$	385,854		$	392,668		$	387,292
Investments		118,421			141,846			132,130
Federal funds sold		6,369			4,407			1,530
Interest-bearing deposits		642			718			637
Total		$	511,286		$	539,639		$	521,589
Average interest-bearing liabilities:
Other interest-bearing deposits		$	116,709		$	111,598		$	111,325
Certificates of deposit		182,905			227,716			205,203
Borrowed funds		76,300			75,107			78,318
Repurchase agreements		48,801			42,889			41,695
Total		$	424,715		$	457,310		$	436,541
Interest income:
Loans and leases		$	5,832		$	5,588		$	22,431
Investments(1)		1,211			1,479			5,385
Federal funds sold		40			10			17
Interest-bearing deposits		3			1			6
Total		$	7,086		$	7,078		$	27,839
Interest expense:
Other interest-bearing deposits		$	232		$	184		$	742
Certificates of deposit		1,324			1,757			5,994
Borrowed funds		945			986			3,980
Repurchase agreements		197			103			464
Total		$	2,698		$	3,030		$	11,180
Net interest income		$	4,388		$	4,048		$	16,659
Yield on average interest-earning assets		5.62		%	5.28		%	5.34		%
Rate on average interest-bearing liabilities		2.58		%	2.67		%	2.56		%
Net interest spread		3.04		%	2.61		%	2.78		%
Net interest margin		3.48		%	3.02		%	3.19		%

 

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

 

(1)           The 2004 tax equivalent calculations were adjusted to eliminate the effect attributable to the dividend from the Federal Home Loan Bank.

 

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Provision for loan losses

 

The provision for loan losses represents the necessary amount to charge against current earnings, the purpose of which is to increase the allowance for loan losses to a level that represents management’s best estimate of known and inherent losses in the Bank’s loan portfolio.  Loans and leases determined to be uncollectible are charged-off against the allowance for loan losses.

 

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

•                  Levels of and trends in delinquencies and non-accrual loans

•                  Levels of and trends in charge-offs and recoveries

•                  Trends in volume and terms of loans

•                  Changes in risk selection and underwriting standards

•                  Changes in lending policies, procedures and practices

•                  Experience, ability and depth of lending personnel

•                  National and local economic trends and conditions

•                  Changes in credit concentrations

 

The provision for loan losses was $80,000, for the three months ended March 31, 2005, compared to $850,000 for the three months ended March 31, 2004.  The decrease in the provision for loan loses was due to a decrease in non-performing loans, which consist of loans past due 90 days or more and non-accrual loans.  The balance of non-performing loans declined $729,000 to $9,733,000 at March 31, 2005, compared to $10,462,000 at December 31, 2004.  Non-performing loans also decreased $2,945,000 from $12,679,000 at March 31, 2004.  The decrease was mainly attributable to the collection and pay-offs of non-accrual loans that produced significant recoveries.  The addition of an experienced Special Assets Officer during the third quarter of 2004 has enabled us to more aggressively manage and pursue the collection and resolution of non-accruing loans.

 

Other income

 

Other (non-interest) income consists of service charges or fees collected on the Bank’s various deposit and loan products, net mortgage servicing revenue, fees from trust, asset management and other financial services, the increase in cash surrender value of bank owned life insurance (BOLI), the net realized gains and losses from the sales of investment securities, loans, leased assets and foreclosed assets held for sale and other various classifications of non-interest related income.

 

Total other income decreased $199,000, or 21% for the three months ended March 31, 2005 compared to the same period in 2004.  During the quarter the Bank recognized an estimated impairment charge of $220,000 in anticipation of projected realized losses from the future sales of its leased vehicles.  The estimated losses are based on the historical performance of terminated leases that are typically sold below their residual value.  The balance of the Bank’s leased vehicles should mature or pay-off during 2005 and periodic adjustments will be made to this estimate, throughout 2005.  The final determination will be dependent upon actual sales.  Service charges on deposit accounts grew by $72,000 or 14% due to the heightened effort to better manage the collection of account maintenance and analysis fees charged to customer.  Fees, other service charges and other non-interest related income decreased $63,000 or 13% principally from reduced benefit crediting rates to the cash surrender value of BOLI during the first quarter of 2005 compared to the same period of 2004.

 

14

 

Other operating expenses

 

Other (non-interest) expenses increased $291,000, or 9% for the three months ended March 31, 2005 compared to the same period in 2004.  Professional service fees increased due to increased fees related to the Bank’s annual financial audit, internal audit, Sarbanes-Oxley compliance, the cost for the Bank-wide participation in management skills development and sales training programs and increased FDIC assessments.  Advertising expenses for the first quarter of 2005 increased $71,000 or more than doubled from the same quarter of 2004.  The Bank continues to concentrate in its marketing endeavors and has begun its various sales and spring campaigns with primary focus on home equity loan originations and direct mail initiatives to garner new customer deposits in new deposit account programs.  Variances in other operating expenses, for the first quarter of 2005, included increases in ancillary training expense for the management skills training program, an increase in Pennsylvania shares tax and an increase in collection expense.

 

Income tax provision

 

Income before provision for income taxes increased $623,000 for the first quarter of 2005 compared the first 2004 quarter.  The effective federal income tax rate was 26.0% and 17.2% for the respective quarters.  The effective tax rate increase is attributable to a decreased portion of combined tax-free interest income from municipal securities, tax-free loans and tax-free earnings from the BOLI, collectively representing a smaller portion of pre-tax earnings.

 

COMPARISON OF FINANCIAL CONDITION AT

MARCH 31, 2005 AND DECEMBER 31, 2004

 

Overview

 

Consolidated assets increased $3,184,000 or 0.6%, during the three months ended March 31, 2005 to $539,860,000.  The asset increase resulted from an increase in deposits of $14,410,000, partially offset by a decrease in short-term borrowings of $11,463,000.  Cash and cash equivalents increased $11,538,000 while investments and loans decreased $4,994,000 and $4,230,000, respectively, since December 31, 2004.   Shareholders’ equity decreased $140,000 from $46,367,000 at December 31, 2004 to $46,227,000 at March 31, 2005.  The decrease in shareholders’ equity was primarily attributable to a $907,000 net unrealized holding loss on AFS securities, recorded in other comprehensive income (loss), partially offset by earnings net of dividends paid of $614,000 and an increase in common stock of $152,000.  The decline in investments AFS is due to the recent and seemingly prevailing increasing interest rate environment which began in the second half of 2004.  Generally, the value of stocks and bonds will move in the opposite direction of interest rate movements.  Common stock grew from shares issued under the employee stock purchase and dividend re-investment plans.

 

A comparison of selected balance sheet information as of March 31, 2005 and December 31, 2004 follows:

 

Investment securities

 

The Bank’s investment policy is designed to complement its lending activities, generate a favorable return without incurring undue interest rate and credit risk, manage interest rate sensitivity, provide monthly cash flow and manage liquidity at acceptable levels.  In establishing investment strategies, the Bank considers its business and growth or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities held, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations.  The policy prescribes permissible investment categories that meet the policy standards and Management is responsible for structuring and executing the specific investment purchases within these policy parameters.  Management buys and sells investment securities from time-to-time depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies.  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.

 

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At the time of purchase, the Bank classifies investment securities into one of three categories: trading, 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, structuring strategies and/or changes in market conditions.  Securities AFS are carried at net fair market value in the consolidated balance sheet with an adjustment to stockholders’ equity, net of tax, which is presented under the caption “Accumulated other comprehensive income (loss).”  Securities designated as HTM are carried at amortized cost.

 

At March 31, 2005, the carrying value of investment securities totaled $110,675,000 or 20.5% of total assets compared to $115,669,000 or 21.6% as of December 31, 2004.  At March 31, 2005, approximately 54.6% of the investment portfolio was comprised of mortgage-backed securities that amortize and provide monthly cash flow.  At the same time, agency and municipal bonds comprised 27.3% and 9.5%, respectively, of the investment portfolio.  The portfolio is comprised of HTM and AFS securities with carrying values of $2,890,000 and $107,784,000, respectively.

 

At March 31, 2005, the AFS debt securities were recorded with a net unrealized loss in the amount of $1,703,000.  Also at March 31, 2005, AFS equity securities were recorded at $454,000 including an unrealized gain of $175,000.

 

The amortized cost and fair value of investment securities HTM and AFS at March 31, 2005 consisted of the following (dollars in thousands):

 

		Amortized cost			Gross unrealized gains			Gross unrealized losses			Fair value
Held-to-maturity securities:
Mortgage-backed securities		$	2,890		$	91		$	—		$	2,981
Available-for-sale securities:
U.S. government agencies and corporations		$	31,029		$	—		$	823		$	30,206
Obligations of states and municipal subdivisions		10,538			71			63			10,546
Corporate bonds		9,030			41			9			9,062
Mortgage-backed securities		58,436			82			1,002			57,516
Sub total		109,033			194			1,897			107,330
Equity securities		279			175			—			454
Total available-for-sale		$	109,312		$	369		$	1,897		$	107,784
Total securities		$	112,202		$	460		$	1,897		$	110,765

 

16

 

The amortized cost and fair value of investments HTM and AFS by contractual maturity at March 31, 2005 are as follows (dollars in thousands):

 

 

Expected maturities will differ from contractual maturities because issuers and borrowers may have the right to call or repay obligations with or without call or prepayment penalty.  Federal agency and municipal securities are included based upon their original stated maturity.  Mortgage-backed securities, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total.  Equity securities, which have no stated maturity and are listed in total, include restricted regulatory stock of the Federal Home Loan Bank which is carried at cost.

 

Loans available - for- sale (AFS)

 

Generally, upon origination, certain residential mortgages, the guaranteed portions of Small Business Administration loans and student loans are classified as AFS.  In the event of market rate increases, fixed-rate loans and loans not immediately scheduled to re-price would no longer produce yields consistent with the current market.  In a declining interest rate environment, the Bank would be exposed to prepayment risk and, as rates on adjustable rate loans decrease, interest income would be negatively affected.  To better manage prepayment and interest rate risk, loans that meet these conditions may be classified as AFS.  Consideration is also given to the Company’s current liquidity position and expected future liquidity needs.  Loans AFS are carried at the lower of cost or estimated fair value.  If the fair market values of these loans fall below their amortized cost, the loan is written down by the difference with a corresponding charge to current earnings.  Subsequent appreciation, if any, is credited to current earnings but only to the extent of previous write-downs.

 

At March 31, 2005, loans AFS amounted to $400,000 with a corresponding fair value of $404,000, compared to $576,000 and $582,000, respectively, at December 31, 2004.  For the first quarter of 2005, student loans with principal balances of $401,000 were sold into the secondary market with gains of approximately $4,010 being recognized.  At March 31, 2005 and December 31, 2004, the entire balance of loans AFS consisted of student loans.

 

17

 

Loans and leases

 

The Bank originates commercial and commercial real estate loans, residential, consumer, home equity and construction loans.  The relative volume of originations is dependent upon customer demand, current interest rates and the perception and duration of future interest levels.  The Bank continues to focus its efforts on the expansion of variable-rate portfolios of residential and consumer loans as well as commercial loans and fixed-rate residential loans.  The broad spectrum of products provides diversification which helps manage, to an extent, interest rate risk and credit concentration risk.  Credit risk is further managed through underwriting policies and procedures and loan monitoring practices.  Interest rate risk is managed using various asset/liability modeling techniques and analyses.  The interest rates on most commercial loans are adjustable with reset intervals of five years or less.  Whenever practical, the Bank originates variable-rate loans.

 

The majority of our loan portfolio is collateralized, at least in part, by real estate in the greater Lackawanna and Luzerne counties of Pennsylvania.  Commercial lending activities generally involve a greater degree of credit risk than residential lending because they typically have larger balances and are more affected by adverse conditions in the economy.  Because payments on loans secured by commercial and commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control.  Such factors may include adverse conditions in the real estate market, the economy, the industry or changes in government regulations.  As such, commercial loans require more ongoing evaluation and monitoring which occurs with the Bank’s credit administration and outsourced loan review functions.

 

During the first quarter of 2005, the Bank established a reserve for estimated impairment from the future sales of its leased vehicles which was netted against the gross amount of direct finance leasing.  The estimated impairment is based on the historical sales performance of terminated leases which are typically sold below their residual value.  The balance of the Bank’s leased vehicles should mature or payoff during 2005 and periodic adjustments will be made to this reserve, during this timeframe.  The amount of periodic adjustments will depend upon actual sales proceeds from the leased vehicles.  Currently, the Company does not anticipate re-entering the direct finance lease business when the current agreements expire in 2005 or in the near-term.

 

Loans, net of unearned income of $383,494,000 at March 31, 2005 decreased from $387,534,000 at December 31, 2004.  The decrease was predominantly from the sold participation of a commercial loan during the quarter ended March 31, 2005.  Advances in consumer and home equity loans have improved by $1,663,000, since year-end 2004 on the successful implementation of the Bank’s home equity loan campaign.

 

The following table sets forth the composition of the loan portfolio at March 31, 2005 and December 31, 2004:

 

		March 31, 2005			December 31, 2004
Commercial and commercial real estate		$	214,826,162		$	221,968,137
Residential real estate		93,042,493			91,294,401
Consumer and home equity		63,150,516			61,487,608
Real estate construction		10,876,343			10,620,472
Direct financing leases		1,625,644			2,211,978
Gross loans		383,521,158			387,582,596
Less:
Unearned discount		27,587			48,423
Allowance for loan losses		6,000,956			5,987,798
Net loans		$	377,492,615		$	381,546,375
Loans available-for-sale		$	399,992		$	576,378
Total loans		$	377,892,607		$	382,122,753

 

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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 losses (the allowance) adequacy, on a quarterly basis.  The allowance reflects management’s best estimate of the amount of credit losses in the 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 including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates may be susceptible to significant change.  The provision for loan losses represents the amount necessary to maintain an appropriate allowance.  Loan losses are charged directly against the allowance 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 credit administration;

•                  Calculation of specific allowances required based on collateral and other persuasive evidence;

•                  Identification of loans collateralized by cash and cash equivalents;

•                  Determination of remaining homogenous pools by loan category and eliminating loans collateralized by cash and cash equivalents and eliminating loans with specific allocations;

•                  Application of historical loss percentages (three-year average) to pools to determine the allowance allocation; and

•                  Application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio.

 

Allocation of the allowance for different categories of loans is based on the methodology as explained above.  A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk-grading of individual commercial loans.  Commercial loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement.  That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower.  The changes in the allocations from period to period are based upon reviews of the loan and lease portfolios.

 

Net charge-offs for the three months ended March 31, 2005 were $67,000, compared to $71,000, for the same period in 2004.  Net charge-offs of commercial loans were $36,000 for the three months ended March 31, 2005 compared to $32,000 in the first quarter of 2004.  Real estate mortgage net charge-offs declined to $1,800 in the first quarter of 2005 compared to $33,000 in the first quarter of 2004.  Consumer loan net charge-offs were $29,000 for the quarter ended March 31, 2005 as opposed to a net recovery of $12,000 in the first quarter of 2004.  There were no lease financing charge-offs in the March 31, 2005 quarter.

 

Management believes that the current balance in the allowance for loans losses of $6,001,000 is sufficient to withstand the identified potential credit quality issues that may arise and are inherent to the portfolio.  Currently, Management is unaware of any potential problem loans that have not been reviewed.  Potential problem loans are those where there is known information that leads Management to believe repayment of principal and/or interest is in jeopardy and the loans are neither non-accrual status nor past due 90 days or more.  However, there could be instances which become identified over the year that may require additional charge-offs and/or increases to the allowance.  The ratio of allowance for loan losses to total loans was 1.56% at March 31, 2005 compared 1.54% at December 31, 2004 and 1.47% at March 31, 2004.

 

19

 

The following tables set forth the activity in the allowance for loan losses and certain key ratios for the period indicated:

 

		As of and for the			As of and for the			As of and for the
		three months ended			year ended			three months ended
		March 31, 2005			December 31, 2004			March 31, 2004
Balance at beginning of period		$	5,987,798		$	4,996,966		$	4,996,966
Provision charged to operations		80,000			2,150,000			850,000
Charge-offs:
Commercial		322,425			775,252			151,762
Real estate		1,846			266,324			33,082
Consumer		70,437			480,462			74,260
Lease financing		—			84,902			37,651
Total		394,708			1,606,940			296,755
Recoveries:
Commercial		286,133			226,082			119,719
Real estate		30			20,039			—
Consumer		41,703			178,727			86,621
Lease financing		—			22,924			19,824
Total		327,866			447,772			226,164
Net charge-offs		66,842			1,159,168			70,591
Balance at end of period		$	6,000,956		$	5,987,798		$	5,776,375
Total loans, end of period		$	383,893,563		$	388,110,551		$	391,700,054

 

		As of and for the			As of and for the			As of and for the
		three months ended			year ended			three months ended
		March 31, 2005			December 31, 2004			March 31, 2004
Net charge-offs to:
Loans, end of period		0.02		%	0.30		%	0.02		%
Allowance for loan losses		1.11		%	19.36		%	1.22		%
Provision for loan losses		83.55		%	53.91		%	8.30		%
Allowance for loan losses to:
Total loans		1.56		%	1.54		%	1.47		%
Non-accrual loans		65.76		%	60.46		%	47.89		%
Non-performing loans		61.65		%	57.24		%	45.56		%
Net charge-offs		89.78		x	5.17		x	81.83		x
Loans 30-89 days past due and still accruing		$	3,709,674		$	4,316,453		$	3,874,870
Loans 90 days past due and accruing		$	608,130		$	557,492		$	617,454
Non-accrual loans		$	9,125,051		$	9,904,276		$	12,061,062
Allowance for loan losses to loans 90 days or more past due and accruing		9.87		x	10.75		x	9.35		x

 

20