FDBC - Fidelity D & D Bancorp Inc. Reports Second Quarter 2019 Financial Results

DUNMORE, Pa., July 24, 2019 (GLOBE NEWSWIRE) -- Fidelity D & D Bancorp, Inc. (NASDAQ: FDBC) and its banking subsidiary Fidelity Deposit and Discount Bank, announced net income for the quarter ended June 30, 2019 of $3.0 million, or $0.79 diluted earnings per share, compared to $2.8 million, or $0.73 diluted earnings per share, for the quarter ended June 30, 2018.  The $0.2 million, or 8%, growth in net income resulted primarily from $0.3 million higher net interest income combined with a $0.1 million increase in non-interest income and $0.2 million lower provision for loan losses, partially offset by a $0.3 million increase in operating expenses.  The Company experienced a $58.1 million, or 7%, increase in average interest-earning assets funded by a $33.0 million increase in average deposits, $20.2 million more in average borrowings and a $10.9 million increase in average shareholders’ equity for the second quarter of 2019 compared to the same 2018 period.  Return on average assets (ROA) and return on average equity (ROE) were 1.25% and 12.16%, respectively, for the second quarter of 2019 and 1.24% and 12.60%, respectively, for the second quarter of 2018.

“Fidelity Bank had a successful second quarter, with growth in net interest income and non-interest income, producing strong financial results,” stated Daniel J. Santaniello, President and Chief Executive Officer.  “For the second consecutive year, Forbes Magazine named Fidelity Bank “America’s Best-In-State Banks for 2019” in Pennsylvania, based on various criteria including trustworthiness, digital services, financial advice, branch services and general satisfaction. The Fidelity Bankers’ execution of the customer-centric approach continues to drive organic revenue growth and produce strong financial results that allow for meaningful investments in digital technology and expansion within the marketplace.”

Net income increased $0.5 million, or 10%, for the six months ended June 30, 2019 to $5.8 million from $5.3 million for the same 2018 period.  The year-to-date increase was primarily driven by higher total revenue from a $0.9 million, or 6%, increase in net interest income and $0.3 million more non-interest income.  The increase in net interest income was the result of $69.1 million growth in average interest-earning assets and higher yields earned thereon.  This total revenue growth more than offset the $0.8 million in additional non-interest expenses.  Earnings per share on a diluted basis were $1.52 and $1.40 for the six months ended June 30, 2019 and 2018, respectively.

Consolidated Second Quarter Operating Results Overview

Net interest income was $7.8 million for the second quarter of 2019, a $0.3 million, or 4%, increase over the $7.5 million earned for the second quarter of 2018.  The net interest income growth resulted from a $58.1 million larger average balance of interest-earning assets that generated a 23 basis point higher fully-taxable equivalent (FTE) yield which increased interest income by $1.1 million.  The loan portfolio had the biggest impact, producing a $1.0 million increase in FTE interest income with all portfolios contributing to the increase.  Yields on floating rate loans at June 30, 2019 benefited from 50 basis points in short-term rate increases by the Federal Reserve since the second quarter of 2018.  The investment portfolio benefited from the Company investing $16.3 million more, on average, in mortgage backed securities and municipal securities which caused interest income on investments to increase $0.2 million.  Partially offsetting the increase in net interest income from higher interest income, interest expense increased $0.8 million.  The average balance of interest-bearing deposits increased $36.6 million and the rates paid on these deposits increased 35 basis points resulting in $0.6 million in additional interest expense.  The Company also utilized $20.2 million in additional average borrowings at a higher cost over deposit rates, which contributed another $0.3 million to interest expense.  The cost of interest-bearing liabilities was 1.13% for the second quarter of 2019, an increase of 46 basis points over the 0.67% paid for the second quarter of 2018.  The Company’s FTE net interest spread was 3.23% for the second quarter of 2019, or 23 basis points lower than the 3.46% recorded for the same 2018 quarter.  The decrease was due to the rates paid on interest-bearing liabilities increasing faster than the yields earned on interest-earning assets.  The cost of funds increased 37 basis points despite a 46 basis point higher rate paid on interest-bearing liabilities.  The Company’s FTE net interest margin decreased by only eleven basis points to 3.54% for the three months ended June 30, 2019 from 3.65% for the same 2018 period.

The provision for loan losses was $255 thousand for the second quarter of 2019, a $170 thousand decrease compared to $425 thousand for the second quarter of 2018.  The decrease in the provision for loan losses from the prior year was due primarily to a deceleration in the Company’s loan growth along with improved asset quality when compared to the second quarter of 2018. 

Total other income increased $0.1 million to $2.5 million for the second quarter of 2019 compared to $2.4 million for the second quarter of 2018.  Service charges on loans increased $0.1 million.  Trust fees were $51 thousand higher during the second quarter of 2019 compared to the same 2018 quarter.  These increases were partially offset by $107 thousand in gains recognized on the sale of equity securities during the second quarter of 2018 compared to no gains recognized on the sale of securities during the second quarter of 2019.  

Other expenses increased $0.3 million, or 4%, for the second quarter of 2019 to $6.4 million from $6.1 million for the same 2018 quarter.  The increase was primarily due to $0.2 million in higher salaries and employee benefits, $0.1 million more data processing and communication expense, $0.1 million higher loan collection expenses, $0.1 million in additional premises and equipment expense due to a new branch which opened in December of 2018 and $0.1 million in additional advertising and marketing expenses. These increases were partially offset by $0.3 million less professional service expenses.

The provision for income taxes increased $0.1 million to $0.6 million for the second quarter of 2019 and compared to $0.5 million for the second quarter of 2018.  Higher income before income taxes was partially offset by increases in tax exempt income resulting in more taxable income for the quarter ended June 30, 2019.

Consolidated Year-To-Date Operating Results Overview

Net interest income was $15.7 million for the six months ended June 30, 2019 compared to $14.8 million for the six months ended June 30, 2018.  The $0.9 million, or 6%, improvement was the result of earnings from a larger average balance of higher-yielding interest-earning assets which more than offset the increased interest expense from higher rates paid on interest-bearing liabilities.  The loan portfolio caused the largest impact, producing $2.2 million more in interest income, of which $0.4 million was the result of higher average loan balances and $1.8 million stemmed from higher yields earned on loans.  The investment portfolio contributed $0.4 million in additional earnings, primarily from a higher yield on mortgage-backed securities.  On the liability side, interest expense increased by $1.7 million primarily due to higher rates paid on $34.8 million more interest-bearing deposits.  A larger average balance of borrowings at higher rates also contributed $0.6 million in additional interest expense.  FTE net interest spread was 3.28% for the first half of 2019, or 19 basis points lower than the 3.47% recorded for the first half of 2018.  The rates paid on interest-bearing liabilities rose faster than the yields earned on interest-earning assets, which reduced the FTE net interest rate spread.  Over the same time period, the Company’s FTE net interest margin decreased by six basis points to 3.58% from 3.64%.

For the six months ended June 30, 2019, the provision for loan losses was $0.5 million compared to $0.7 million for the same 2018 period.  The $0.2 million reduction in the provision was due to deceleration in the Company’s loan growth during the first half of 2019 along with improved asset quality.

Total other income for the six months ended June 30, 2019 was $4.9 million, an increase of $0.3 million, or 6%, from $4.6 million for the six months ended June 30, 2018.  The increase in other income was comprised of the following: $0.2 million in loan service charges, $0.1 million in interchange fees and $0.1 million in financial service fees. These increases were partially offset by $0.1 million lower trust income. 

Other expenses increased to $13.2 million, for the six months ended June 30, 2019, an increase of $0.8 million, or 7%, from $12.4 million for the six months ended June 30, 2018.  The largest driver of this increase was a $0.5 million increase in salaries and employee benefits expense.  In addition, there was $0.2 million in additional premises and equipment expenses, a $0.2 million increase in data processing expense, $0.1 million more loan collection expenses and $0.1 million higher advertising and marketing expenses.  These increases were partially offset by a $0.3 million lower professional service expenses.

Consolidated Balance Sheet & Asset Quality Overview

The Company’s total assets increased $15.9 million, or 2%, to $997.0 million at June 30, 2019 from $981.1 million at December 31, 2018.  This asset growth resulted primarily from a $7.1 million increase in the investment portfolio.  Deposit growth of $69.4 million was used to pay down $64.0 million in borrowings.    The Company will focus on increasing assets using its relationship management strategy to grow loans and deposits and achieve profitable returns.  The Company has begun its Luzerne County expansion plans with the opening of the Back Mountain branch in December 2018 and is constructing the Mountain Top branch that is set to open in the third quarter of 2019.

Total non-performing assets were $6.2 million, or 0.62% of total assets, at June 30, 2019.  Non-performing assets decreased $0.1 million from December 31, 2018, as a $0.5 million decrease in troubled debt restructured loans and a $0.1 million decrease in non-performing loans was partially offset by a $0.5 million increase in other real estate owned.  Net charge-offs to average total loans increased to 0.21% at June 30, 2019 compared to 0.13% at December 31, 2018.

During the first half of 2019, the Company purchased an additional $2.0 million of bank-owned life insurance for tax-free income to mitigate added employee benefit costs.  On January 1, 2019, the Company recognized right-of-use assets and lease liabilities for leases classified as operating leases to transition to ASU 2016-02, Leases (Topic 842).  The Company elected to apply the provisions of the new lease standard prospectively as of the effective date, without adjusting comparative periods.  At June 30, 2019, the right-of-use assets and operating lease liabilities amounted to $4.1 million and $4.5 million, respectively.

Shareholders’ equity increased $7.9 million, or 8%, to $101.4 million at June 30, 2019 from $93.5 million at December 31, 2018.  Net income of $5.8 million was supplemented by a $3.4 million, after tax, improvement in net unrealized gains from the investment portfolio.  An additional $0.7 million recorded from the issuance of common stock under the Company’s stock plans and stock-based compensation, was offset by $2.0 million in cash dividends paid to shareholders.  The Company remains well capitalized and is positioned for continued growth with total shareholders’ equity at 10.17% of total assets at June 30, 2019.  Book value per share was $26.82 at June 30, 2019 compared to $24.89 at December 31, 2018.

Fidelity D & D Bancorp, Inc. has built a strong history as trusted financial advisors to the clients served by The Fidelity Deposit and Discount Bank and is proud to be an active member of the community of Northeastern Pennsylvania.  Part of the Bank’s mission is to be a good corporate partner within its market areas by providing over 1,600 hours of volunteer time to non-profit organizations yearly.  The Company serves multiple office locations throughout Lackawanna and Luzerne Counties providing personal and business banking products and services, including wealth management planning through fiduciary activities with the Bank’s full trust powers; as well as offering a full array of asset management services.  The Bank provides 24 hour, 7 day a week service to customers through branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 800-388-4380.  The Bank's deposits are insured by the Federal Deposit Insurance Corporation up to the full extent permitted by law.

Forward-looking statements

Certain of the matters discussed in this press release constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.

The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

• the effects of economic conditions on current customers, specifically the effect of the economy on loan customers’ ability to repay loans;
• the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
• the impact of new or changes in existing laws and regulations, including the Tax Cuts and Jobs Act and Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations promulgated there under;
• impacts of the capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules;
• governmental monetary and fiscal policies, as well as legislative and regulatory changes;
• effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions;
• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
• the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;
• the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;
• technological changes;
• the interruption or breach in security of our information systems and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses;
• acquisitions and integration of acquired businesses;
• the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;
• volatilities in the securities markets;
• acts of war or terrorism;
• disruption of credit and equity markets; and
• the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this release.  The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this release.

For more information please visit our investor relations web site located through www.bankatfidelity.com.

FIDELITY D & D BANCORP, INC.
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FIDELITY D & D BANCORP, INC.
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FIDELITY D & D BANCORP, INC.
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FIDELITY D & D BANCORP, INC.
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* Interest income was FTE adjusted, using the corporate federal tax rate of 21% for 2019 and 2018, to recognize the income from tax-exempt interest-earning assets as if the interest was taxable.