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Fidelity D & D Bancorp, Inc. Reports First Quarter 2018 Financial Results

DUNMORE, Pa., April 25, 2018 (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 March 31, 2018 of $2.5 million, or $0.67 diluted earnings per share, compared to $2.0 million, or $0.53 diluted earnings per share, for the quarter ended March 31, 2017.  The $0.5 million, or 28%, improvement resulted primarily from $0.6 million higher net interest income combined with $0.2 million more non-interest income and a $0.2 million reduction in the provision for income taxes, partially offset by $0.4 million higher operating expenses.  The Company experienced $56.2 million, or 7%, growth in average interest-earning assets funded by $76.8 million growth in average deposits and $5.7 million growth in average shareholders’ equity after the $18.1 million paydown in average borrowings.  This balance sheet growth lifted income before income taxes by $0.4 million, or 14%.  Return on average assets (ROA) and return on average equity (ROE) were 1.17% and 11.75%, respectively, for the first quarter of 2018 and 0.99% and 9.85%, respectively, for the first quarter of 2017.

“Fidelity Bank’s strong first quarter financial results set the stage for a successful 2018.” stated Daniel J. Santaniello, President and Chief Executive Officer.  “The continued growth in earnings, capital, core deposit, and net interest margin are the highlights of the first quarter.  Fidelity Bank is well positioned as we continue to invest in our strategic priorities to increase market share, deepen client relationships, and leverage technology to create long-term shareholder value.”

On August 15, 2017, the Company declared a three-for-two stock split effected in the form of a 50% stock dividend on its common stock outstanding to shareholders of record as of September 18, 2017 and distributed the shares on September 28, 2017.  All share and per share information included in this earnings release for all periods has been retroactively adjusted to reflect this stock split.

First Quarter Operating Results Overview

Net interest income was $7.3 million for the first quarter of 2018, a $0.6 million, or 9%, increase over the $6.7 million earned for the first quarter of 2017.  The net interest income growth resulted from a $56.2 million increase in the average balance of interest-earning assets and a four basis point higher fully tax-equivalent (FTE) yield earned thereon which increased interest income by $0.8 million.  The loan portfolio had the biggest impact producing $0.5 million more interest income.  Yields on average quarterly balances of $321.8 million in floating loans at March 31, 2018 benefited from 75 basis points in short-term rate increases by the Federal Reserve since the first quarter of 2017, and mitigated the effect of lower yields earned on indirect consumer loans which experienced the most growth in the loan portfolio.  The investment portfolio benefited from the Company investing in $27.5 million more, on average, mortgage backed 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 $0.2 million as the average balance of interest-bearing deposits increased $56.1 million and the rates paid on these deposits increased 11 basis points.  The Company’s lower tax rate in 2018 due to the Tax Cuts and Jobs Act decreased the FTE yields on nontaxable interest-earning assets and had the effect of reducing FTE net interest rate spread and margin by seven basis points and eight basis points, respectively.  As a result of the negative impact of the FTE adjustment from the lower tax rate, net interest spread was 3.52% for the first quarter of 2018, or six basis points lower than the 3.58% recorded for the same 2017 quarter.  Over the same time period, the Company’s FTE net interest margin decreased by four basis points to 3.68% from 3.72%.

The provision for loan losses was $300 thousand for the first quarter of 2018, a $25 thousand decrease compared to $325 thousand for the first quarter of 2017.  The decrease in the provision aligned with a slowing rate of loan growth during the first quarter of 2018 versus 2017.  The allowance for loan losses was 1.47% of total loans at March 31, 2018 compared with 1.54% at March 31, 2017.  The decrease was attributable to stronger asset quality.

Total other income was $2.3 million for the first quarter of 2018 and $2.1 million for the first quarter of 2017.  The $0.2 million, or 8%, increase in other income was primarily due to $0.2 million in additional trust fees from accounts assumed at the end of the first quarter of 2017 and a $68 thousand estate fee recognized during the first quarter of 2018.  Higher interchange fees of $69 thousand, earnings on bank-owned life insurance of $45 thousand and financial service fees of $31 thousand were offset by $98 thousand fewer gains on loan sales, $48 thousand less service charges on loans and $64 thousand in unrealized losses recognized on the fair value change of equity securities.

Other expenses increased $0.4 million, or 7%, for the first quarter of 2018 to $6.2 million from $5.8 million for the same 2017 quarter.  The increase was primarily due to $0.3 million higher salaries and benefits expenses from $0.2 million in added salaries, $0.1 million more incentive compensation expense and $0.1 million in additional expenses related to a post-retirement benefit plan.  Data processing and communications expense also increased approximately $0.1 million.

The provision for income taxes decreased $0.2 million from $0.7 million for the first quarter of 2017 to $0.5 million for the first quarter of 2018.  The decrease was due to the Company's lower corporate tax rate in 2018.

Consolidated Balance Sheet & Asset Quality Overview

The Company’s total assets increased $33.8 million, or 4%, to $897.4 million at March 31, 2018 from $863.6 million at December 31, 2017.  This asset growth resulted primarily from $20.5 million more in cash and cash equivalents, an $8.4 million increase in securities and $2.3 million net growth in the loan portfolio.  Asset growth was mostly funded by a $45.1 million increase in deposits less $12.4 million used to pay down borrowings.  During the first quarter, deposits typically grow due to the seasonal timing of public tax deposits.  During the first quarter of 2018, the Company experienced deposit growth due to this seasonal activity and also due to a new large business relationship.  The Company continued to 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 construction underway on the Back Mountain branch and the filing for regulatory approval to add a branch location in Mountain Top, PA.

Total non-performing assets were $7.1 million, or 0.79% of total assets, at March 31, 2018 compared to $6.3 million, or 0.73% of total assets, at December 31, 2017.  This $0.8 million increase in non-performing assets was due primarily to the modification of two loans to one customer in a troubled debt restructuring and the addition of several properties to foreclosed assets held-for-sale during the first quarter of 2018.  Despite the increase in non-performing assets, net charge-offs to average total loans decreased to 0.05% at March 31, 2018 compared to 0.26% at December 31, 2017 and 0.09% at March 31, 2017. 

Shareholders’ equity increased $0.1 million, or less than 1%, to $87.5 million at March 31, 2018 from $87.4 million at December 31, 2017.  Net income growth of $2.5 million was partially offset by a $2.0 million, after tax, reduction in net unrealized gains from the investment portfolio.  An additional $0.5 million recorded from the issuance of common stock under the Company’s stock plans and stock based compensation expense from these plans, was offset by $0.9 million in cash dividends paid to shareholders.  The Company remains well capitalized and is positioned for continued growth with total shareholders’ equity at 9.75% of total assets at March 31, 2018.  Book value per share was $23.32 at March 31, 2018 compared to $23.40 at December 31, 2017.

Fidelity D & D Bancorp, Inc. has built a strong history as trusted financial advisors to the customers served by The Fidelity Deposit and Discount Bank, and is proud to be an active member of the community of Northeastern Pennsylvania.  The Company serves Lackawanna and Luzerne Counties through The Fidelity Deposit and Discount Bank’s 10 community banking office locations providing personal and business banking products and services, including wealth management assistance 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.

Contacts:

Daniel J. Santaniello Salvatore R. DeFrancesco, Jr.
President and Chief Executive Officer Treasurer and Chief Financial Officer
570-504-8035 570-504-8000


         
FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands)
         
         
At Period End: March 31, 2018
  December 31, 2017  
Assets        
Cash and cash equivalents $  36,305   $  15,825  
Investment securities    165,768      157,385  
Federal Home Loan Bank stock    2,320      2,832  
Loans and leases    642,705      640,141  
Allowance for loan losses    (9,408 )    (9,193 )
Premises and equipment, net    16,350      16,576  
Life insurance cash surrender value    20,168      20,017  
Other assets    23,209      20,054  
         
Total assets $  897,417   $  863,637  
         
Liabilities        
Non-interest-bearing deposits $  206,729   $  178,631  
Interest-bearing deposits    568,562      551,515  
Total deposits    775,291      730,146  
Short-term borrowings    8,642      18,502  
FHLB advances    18,704      21,204  
Other liabilities    7,278      6,402  
Total liabilities    809,915      776,254  
         
Shareholders' equity    87,502      87,383  
         
Total liabilities and shareholders' equity $  897,417   $  863,637  
         
         
Average Year-To-Date Balances: March 31, 2018
  December 31, 2017  
Assets        
Cash and cash equivalents $  24,412   $  15,644  
Investment securities    166,374      154,738  
Loans and leases, net    631,821      621,440  
Premises and equipment, net    16,507      16,961  
Other assets    40,685      35,564  
         
Total assets $  879,799   $  844,347  
         
Liabilities        
Non-interest-bearing deposits $  185,090   $  169,075  
Interest-bearing deposits    565,655      536,123  
Total deposits    750,745      705,198  
Short-term borrowings    15,885      28,673  
FHLB advances    19,204      19,778  
Other liabilities    6,729      6,379  
Total liabilities    792,563      760,028  
         
Shareholders' equity    87,236      84,319  
         
Total liabilities and shareholders' equity $  879,799   $  844,347  
             


                     
FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Statements of Income
(dollars in thousands)
                     
                     
    Three Months Ended        
    Mar. 31, 2018     Mar. 31, 2017              
Interest income                    
Loans and leases $  6,911    $  6,370              
Securities and other    1,232      996              
                     
Total interest income    8,143      7,366              
                     
Interest expense                    
Deposits    804      586              
Borrowings and debt    80      102              
                     
Total interest expense    884      688              
                     
Net interest income    7,259      6,678              
                     
Provision for loan losses    (300 )    (325 )            
Other income    2,283      2,105              
Other expenses    (6,208 )    (5,797 )            
                     
Income before income taxes    3,034      2,661              
                     
Provision for income taxes    (506 )    (681 )            
Net income $  2,528    $  1,980              
                     
                     
                     
  Three Months Ended
    Mar. 31, 2018   Dec. 31, 2017   Sep. 30, 2017   Jun. 30, 2017   Mar. 31, 2017
Interest income                    
Loans and leases $  6,911    $  6,850    $  6,892    $  6,783    $  6,370  
Securities and other    1,232      1,066      1,036      1,071      996  
                     
Total interest income    8,143      7,916      7,928      7,854      7,366  
                     
Interest expense                    
Deposits    804      779      742      643      586  
Borrowings and debt    80      87      140      144      102  
                     
Total interest expense    884      866      882      787      688  
                     
Net interest income    7,259      7,050      7,046      7,067      6,678  
                     
Provision for loan losses    (300 )    (525 )    (375 )    (225 )    (325 )
Other income    2,283      1,883      2,248      2,131      2,105  
Other expenses    (6,208 )    (6,953 )    (6,035 )    (6,051 )    (5,797 )
                     
Income before income taxes    3,034      1,455      2,884      2,922      2,661  
                     
Provision for income taxes    (506 )    872      (658 )    (739 )    (681 )
Net income $  2,528    $  2,327    $  2,226    $  2,183    $  1,980  
                     


                     
FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands)
                     
                     
At Period End:   Mar. 31, 2018   Dec. 31, 2017   Sep. 30, 2017   Jun. 30, 2017   Mar. 31, 2017
Assets                    
Cash and cash equivalents $  36,305   $  15,825   $  41,881   $  14,877   $  29,116  
Investment securities    165,768      157,385      151,995      153,405      154,223  
Federal Home Loan Bank stock    2,320      2,832      2,543      4,028      2,467  
Loans and leases    642,705      640,141      636,096      637,710      623,130  
Allowance for loan losses    (9,408 )    (9,193 )    (9,356 )    (9,406 )    (9,548 )
Premises and equipment, net    16,350      16,576      16,899      16,833      17,026  
Life insurance cash surrender value    20,168      20,017      19,857      19,699      19,542  
Other assets    23,209      20,054      18,351      18,322      16,730  
                     
Total assets $  897,417   $  863,637   $  878,266   $  855,468   $  852,686  
                     
Liabilities                    
Non-interest-bearing deposits $  206,729   $  178,631   $  185,858   $  174,909   $  190,482  
Interest-bearing deposits    568,562      551,515      562,719      532,526      543,444  
Total deposits    775,291      730,146      748,577      707,435      733,926  
Short-term borrowings    8,642      18,502      12,920      34,455      14,699  
FHLB advances    18,704      21,204      23,704      23,704      17,000  
Other liabilities    7,278      6,402      6,781      5,738      4,868  
Total liabilities    809,915      776,254      791,982      771,332      770,493  
                     
Shareholders' equity    87,502      87,383      86,284      84,136      82,193  
                     
Total liabilities and shareholders' equity $  897,417   $  863,637   $  878,266   $  855,468   $  852,686  
                     
                     
Average Quarterly Balances:   Mar. 31, 2018   Dec. 31, 2017   Sep. 30, 2017   Jun. 30, 2017   Mar. 31, 2017
Assets                    
Cash and cash equivalents $  24,412   $  19,623   $  15,152   $  13,221   $  14,529  
Investment securities    166,374      155,943      154,867      158,443      149,627  
Loans and leases, net    631,821      629,489      631,938      620,850      603,078  
Premises and equipment, net    16,507      16,802      16,977      16,946      17,124  
Other assets    40,685      37,997      37,969      36,447      29,725  
                     
Total assets $  879,799   $  859,854   $  856,903   $  845,907   $  814,083  
                     
Liabilities                    
Non-interest-bearing deposits $  185,090   $  174,282   $  173,627   $  163,869   $  164,340  
Interest-bearing deposits    565,655      556,354      542,271      535,697      509,588  
Total deposits    750,745      730,636      715,898      699,566      673,928  
Short-term borrowings    15,885      12,984      25,086      37,410      39,545  
FHLB advances    19,204      21,801      23,704      19,873      13,600  
Other liabilities    6,729      7,442      6,942      5,603      5,501  
Total liabilities    792,563      772,863      771,630      762,452      732,574  
                     
Shareholders' equity    87,236      86,991      85,273      83,455      81,509  
                     
Total liabilities and shareholders' equity $  879,799   $  859,854   $  856,903   $  845,907   $  814,083  
                               


                     
FIDELITY D & D BANCORP, INC.
Selected Financial Ratios and Other Data
                     
    Three Months Ended
    Mar. 31, 2018   Dec. 31, 2017   Sep. 30, 2017   Jun. 30, 2017   Mar. 31, 2017
Selected returns and financial ratios                    
Basic earnings per share $  0.67   $  0.63   $  0.60   $  0.58   $  0.54  
Diluted earnings per share $  0.67   $  0.61   $  0.60   $  0.58   $  0.54  
Dividends per share $  0.24   $  0.26   $  0.21   $  0.21   $  0.20  
Yield on interest-earning assets (FTE)   4.12 %   4.08 %   4.11 %   4.16 %   4.08 %
Cost of interest-bearing liabilities   0.60 %   0.58 %   0.59 %   0.53 %   0.50 %
Net interest spread (FTE)   3.52 %   3.50 %   3.52 %   3.63 %   3.58 %
Net interest margin (FTE)   3.68 %   3.65 %   3.67 %   3.76 %   3.72 %
Return on average assets   1.17 %   1.07 %   1.03 %   1.04 %   0.99 %
Return on average equity   11.75 %   10.61 %   10.36 %   10.49 %   9.85 %
Efficiency ratio (FTE)   63.95 %   75.13 %   62.73 %   63.55 %   63.76 %
Expense ratio   1.81 %   2.34 %   1.75 %   1.86 %   1.84 %
Expense ratio   1.81 %   1.80 %            
                     
Other financial data   At period end:
(dollars in thousands except per share data)   Mar. 31, 2018   Dec. 31, 2017   Sep. 30, 2017   Jun. 30, 2017   Mar. 31, 2017
Interest income adjustment to FTE $  165   $  322   $  325   $  325   $  309  
Book value per share $  23.32   $  23.40   $  23.13   $  22.70   $  22.18  
Equity to assets   9.75 %   10.12 %   9.82 %   9.84 %   9.64 %
Allowance for loan losses to:                    
Total loans   1.47 %   1.44 %   1.47 %   1.48 %   1.54 %
Non-accrual loans   3.24x     2.67x     2.42x     1.44x     1.22x  
Non-accrual loans to total loans   0.45 %   0.54 %   0.61 %   1.02 %   1.26 %
Non-performing assets to total assets   0.79 %   0.73 %   0.76 %   1.11 %   1.28 %
Net charge-offs to average total loans   0.05 %   0.26 %   0.20 %   0.16 %   0.09 %
                     
Capital Adequacy Ratios                    
Total risk-based capital ratio   15.19 %   14.90 %   14.75 %   14.50 %   14.48 %
Common equity tier 1 risk-based capital ratio   13.93 %   13.65 %   13.50 %   13.25 %   13.22 %
Tier 1 risk-based capital ratio   13.93 %   13.65 %   13.50 %   13.25 %   13.22 %
Leverage ratio   9.98 %   9.91 %   9.80 %   9.68 %   9.87 %
                     

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