Fidelity D & D Bancorp, Inc. Reports Second Quarter 2015 Financial Results

DUNMORE, Pa., July 29, 2015 /PRNewswire/ -- Fidelity D & D Bancorp, Inc. (OTC Bulletin Board: FDBC), parent company of The Fidelity Deposit and Discount Bank, announced net income for the quarter ended June 30, 2015 of $1.8 million, a $0.2 million, or 9%, increase compared to the same 2014 quarter.  Earnings improvement resulted from planned growth which expanded net interest income by 7%. Additional operating expense was incurred primarily from a penalty fee on the early payoff of long-term debt, which was offset by the reduction in provision for loan losses and recognized credit for income taxes, compared to the previous year's second quarter.  The Company attributed its successful growth and net interest income improvement to its relationship management strategy with a $53 million growth in quarterly average earning assets.  This growth was funded by a $49 million increase in average deposit balances plus a $5 million average balance expansion of shareholder's equity, compared to the prior year second quarter.  The return on average assets (ROA) was 1.01% for the second quarter of 2015 and 2014.  Earnings per share on a diluted basis were $0.73 and $0.67 for the three months ended June 30, 2015 and 2014, respectively.

"Fidelity's second quarter results are reflective of the continued strategic focus on long-term sustainable growth," stated Daniel J. Santaniello, President and Chief Executive Officer.  "Over the last year, we increased loans, deposits, and capital, and our balance sheet remains solid.  Credit quality remains strong as we continue to outperform our peers.  These positive financial results enabled us to increase our dividend in the second quarter from $0.25 to $0.27 per share, or 8%.  Going forward, Fidelity Bank is well positioned and I remain confident in our Fidelity Banker's ability to bring value to our clients and community."

Net income for the six months ended June 30, 2015 was $3.4 million, an increase of $0.3 million, or 9%, compared to net income of $3.1 million for the six months ended June 30, 2014.  The year-to-date period earnings improvement occurred from producing 6% more net interest income with lower provision for loan losses and were offset by other expenses increase, primarily the long-term debt pre-payment fee.  Realizing an Internal Revenue Service (IRS) audit adjustment credit for income taxes procured the net income improvement compared to the prior year-to-date period.  ROA was 0.96% for the six months ended June 30, 2015 and 2014.  Earnings per share on a diluted basis were $1.37 and $1.28 for the six months ended June 30, 2015 and 2014, respectively.

The Company's assets increased $42.1 million, or 6%, to total $718.6 million at June 30, 2015 from $676.5 million at December 31, 2014.  The first half of 2015 growth resulted primarily from adding $22.2 million in net loans and $23.9 million in securities.  This earning asset growth was supported by deploying $20.3 million more in short-term borrowings plus the $19.9 million deposit growth and $1.5 million increase of shareholder's equity.

Net interest income was $5.8 million for the quarter ended June 30, 2015, up $0.4 million, or 7%, compared to $5.4 million for the quarter ended June 30, 2014.  This resulted from larger average earning assets, albeit lower earning yield, and less debt, all which was funded with checking deposit growth.  This growth activity pressured net interest spread down 3 basis points and brought net interest margin down to 3.72% for the second quarter of 2015 compared to 3.79% for same 2014 quarter.

Net interest income increased $0.7 million, or 6%, to $11.4 million for the six months ended June 30, 2015 from $10.7 million recorded during the same period of 2014.  Net interest margin was 3.68% during the first half of 2015 compared to 3.79% during the first half of 2014, a decline of 11 basis points.  This decline resulted from growth in the average earning assets base, stemming from average loan balance growth of $37.2 million and $12.3 million added to average investments, which lowered yield on interest-earning assets by 17 basis points, while the rate on interest-bearing liabilities declined by 10 basis points from the removed long-term debt.

The provision for loan losses was halved at $150 thousand for the second quarter ending June 30, 2015 compared to $300 thousand provided for the same 2014 quarter.  Provision for loan losses was $300 thousand for the six months ending June 30, 2015, compared to $600 thousand for the same 2014 period.  The allowance for loan losses was 1.71% of total loans at June 30, 2015, down from 1.82% at June 30, 2014 with a reduction in non-accrual loans to total loans from 0.82% at June 30, 2014 to 0.79% at June 30, 2015.

Total other income recorded for the quarters ended June 30, 2015 and 2014 was $1.8 million.  Increase in other income components was primarily due to the $114 thousand more total gains recognized from the sale of loans with $25 thousand more each from fiduciary activities and other revenue.  These were off-set by the $83 thousand fewer loan service charges, $43 thousand less financial services fees and $19 thousand fewer deposit service charges collected.

Total other income for the six months ended June 30, 2015 and 2014 was $3.6 million.  The revenue increases in the comparative period resulted primarily from $215 thousand more gains from the sale of loans, $78 thousand added fiduciary fees and $50 thousand more other revenue, plus the nonrecurring $66 thousand loss on disposed assets realized during 2014.  These items were off-set by the $283 thousand fewer gains realized from the sale on investment securities, $55 thousand less financial services fees, $27 thousand lower deposit service charges collected and $24 thousand fewer loan service charges for the six months ended June 30, 2015 when compared to the same 2014 period.

Total other operating expenses were $5.7 million, $1.0 million more compared to $4.7 million for the quarters ending June 30, 2015 and 2014, respectively.  The other operating expenses increase was primarily attributable to the $570 thousand long-term debt pre-payment penalty incurred in June 2015, $156 thousand more professional fees recognized, $155 thousand added salary and benefit expenses and $65 thousand mortgage loan reacquisition costs incurred, when compared to the same 2014 quarter.

Total other operating expenses were $10.8 million, $1.3 million increase compared to $9.5 million for the six months ending June 30, 2015 and 2014, respectively.  The current period included the $570 thousand long-term debt pre-payment penalty, $332 thousand additional salary and benefit expenses, $176 thousand more professional fees, $76 thousand mortgage loan reacquisition costs, $58 thousand more other real estate owned costs and $44 thousand added advertising and marketing expenses, when compared to the same 2014 period.

During the second quarter of 2015, the Company concluded an audit by the IRS on the tax loss from the sale of trust preferred securities realized in its 2013 Federal Corporate Income Tax Return and carried back to the 2011 and 2012 tax returns requesting refunds of previously paid Federal Income Tax.  During this audit, management discovered additional tax basis that was incorrectly tracked and inadvertently omitted from the basis reported on the 2013 tax return. Management successfully substantiated this additional tax basis and thus the larger tax loss.  An IRS audit adjustment agreed, corrected the total loss and carried back the additional loss to the 2012 tax return.  The audit adjustment resulted in recording a $438 thousand credit for income taxes during the second quarter of 2015.  This coupled with a lower effective tax rate for the second quarter of 2015 from the additional expenses reducing the level of pre-tax income, resulted in a credit for income taxes of $50 thousand, or a $607 thousand reduction in income taxes compared to a provision for income taxes of $557 thousand for the quarters ending June 30, 2015 and 2014, respectively.

Fidelity D & D Bancorp, Inc. serves Lackawanna and Luzerne Counties through The Fidelity Deposit and Discount Bank's 11 community banking office locations, including wealth management assistance through providing fiduciary activities with the Bank's full trust powers; as well as offering a full array of asset management services.  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 may 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 deterioration 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 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations promulgated there under;
• impacts of the new 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 banking 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 resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates;
• acquisitions and integration of acquired businesses;
• the failure of assumptions underlying the establishment of reserves for loan and lease losses and estimations of values of collateral and various financial assets and liabilities;
• volatility in the securities markets;
• acts of war or terrorism; and
• disruption of credit and equity markets;
• 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.

SOURCE Fidelity D & D Bancorp, Inc.

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