OREANDA-NEWS. Fidelity D & D Bancorp, Inc., (OTCBB:FDBC), parent company of The Fidelity Deposit and Discount Bank, announced net income for the quarter ended June 30, 2016 of $1.9 million, an improvement of over $0.1 million, or 8%, compared to $1.8 million for the same 2015 quarter.  Earnings improvement resulted from higher revenue coupled with lower expenses.  The Company increased interest-earning assets from the continued focus on its relationship management strategy.  Operating expenses were lower due mostly to a prepayment penalty paid for the early payoff of long-term debt in the second quarter of 2015.  Income tax expense increased in 2016 when compared with 2015 as a result of an Internal Revenue Service (IRS) audit adjustment which reduced income tax expense in 2015.  The adjustment fully mitigated the effect of the increased operating expenses on net income for the second quarter of 2015.  Earnings per share on a diluted basis was $0.79 and $0.73 for the quarters ended June 30, 2016 and 2015, respectively.

“During the 2nd quarter, the Fidelity Bankers continued to deliver solid 2016 financial performance,” stated Daniel J. Santaniello, President and Chief Executive Officer.  “We produced greater fee income, increased loans and deposits, and announced an increase in dividends paid to shareholders.  As the interest rate environment continues to weigh on the bank’s performance, the Fidelity Bankers remain focused on the execution of the strategic plan that continues to build long-term shareholder value.”

Net income increased $0.3 million, or 8%, from $3.3 million for the six months ended June 30, 2015 to $3.6 million for the six months ended June 30, 2016.  The year-to-date improvement stemmed from earning higher revenue with slightly lower operating expenses.  Earnings per share on a diluted basis was $1.48 and $1.37 for the six months ended June 30, 2016 and 2015, respectively.

The Company’s assets increased $27.1 million, or 4%, to $756.5 million at June 30, 2016 from $729.4 million at December 31, 2015.  The growth during the first half of 2016 was due mostly to a $5.1 million net increase in the loan portfolio, $4.5 million increase in securities and $15.6 million increase in cash balances.  This growth was funded by a $42.6 million increase in deposits and a $4.0 million increase in stockholders’ equity.

Net interest income was $6.1 million for the second quarter of 2016 compared to $5.8 million for the second quarter of 2015.  The $0.3 million, or 5%, increase resulted from higher average earning assets and lower debt.  Although the high-costing long-term debt was replaced with lower cost deposits resulting in lowering the rate paid on liabilities, the decrease wasn’t enough to offset the lower yield on interest-earning assets which reduced net interest spread by four basis points reducing net interest margin to 3.66% for the second quarter of 2016 compared to 3.72% for the same 2015 quarter.

Net interest income increased $0.9 million, or 8%, to $12.3 million for the six months ended June 30, 2016, from $11.4 million reported during the first half of 2015.  Net interest margin was 3.68% for both the six months ended June 30, 2016 and 2015.  Net interest income was higher for the six months ended June 30, 2016 compared with the same period in 2015 with a ten basis point savings on rates of interest-bearing liabilities exceeding the nine basis point decline in yield on interest earning assets.  Additional revenue from a $36.6 million and $11.6 million higher average balance in the loan and investment portfolios, respectively, added $0.7 million to interest income.  Lower interest costs of $0.2 million occurred primarily from a $14.7 million lower debt level and the repricing of deposit rates.  These savings more than offset the added interest expense from the $47.3 million growth of interest-bearing deposits.  Cost of funds further declined 8 basis points from these interest savings plus the $12.6 million growth in average non-interest bearing deposits. 

The provision for loan losses was $125 thousand higher for the second quarter of 2016, funding loan growth and additional non-performing loans, compared to the second quarter of 2015.  Provision for loan losses was $0.4 million for the six months ended June 30, 2016 compared to $0.3 million for the same 2015 period.  The allowance for loan losses was $9.2 million, or 1.64% of total loans at June 30, 2016 compared to $9.3 million, or 1.71% of total loans at June 30, 2015.

Total other income recorded for the second quarter of 2016 was $2.1 million compared to $1.8 million for the second quarter of 2015.  The increase in other income was primarily due to $0.1 million growth in deposit fees, $0.1 million more fees from financial services and $69 thousand higher loan service charges.

Total other income recorded for the six months ended June 30, 2016 was $3.8 million, an increase of $0.2 million from the $3.6 million recorded for the six months ended June 30, 2015.  Other income increased from $0.2 million more deposit service charges, $0.1 million in additional interchange fees and $71 thousand more loan service charges that offset $0.1 million fewer gains on loan sales when compared to the first half of 2015.

Other operating expenses decreased $0.4 million, or 7%, for the second quarter of 2016 compared to the second quarter of 2015.  The decrease was primarily due to a $0.6 million prepayment fee paid to the FHLB during the second quarter of 2015 for a long-term debt payoff, along with a $0.1 million decrease in losses on mortgage reacquisition costs, $0.1 million decrease in advertising and marketing expenses and $0.1 million decrease in professional services.  These decreases were partially offset by $0.3 million in additional salaries and employee benefits expense and $0.2 million in higher data processing expense.

Total other operating expenses remained stable at $10.8 million for the six months ended June 30, 2016 and 2015, respectively.  Increases within this category included a $0.5 million increase in salaries and employee benefits expense and a $0.3 million increase in data processing expense.  These increases were offset by a $0.6 million FHLB prepayment fee, which was paid in the second quarter of 2015 for the early payoff of long-term debt which did not recur in 2016.  Also offsetting the increases was a $0.2 million decrease in advertising and marketing expenses for the first six months of 2016 when compared to the same period of 2015 due to expenses from two branch grand openings in 2015.

In the quarter and year-to-date comparisons ending June 30, 2016, provision for income taxes increased by $0.7 million and $0.8 million, respectively.  The increase primarily resulted from the IRS audit adjustment reducing income tax expense during the second quarter of 2015 plus a higher level of taxable income in 2016. 

FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands)
           
At Period End:     June 30, 2016       December 31, 2015   
Assets                
Total cash and cash equivalents   $  27,853     $ 12,277  
Investment securities      129,760       125,232  
Federal Home Loan Bank Stock      1,140       2,120  
Loans and leases      562,758       557,630  
Allowance for loan losses      (9,207 )     (9,527 )
Premises and equipment, net      16,455       16,723  
Life insurance cash surrender value      11,257       11,082  
Other assets      16,460       13,821  
           
Total assets   $  756,476     $ 729,358  
           
Liabilities          
Non-interest-bearing deposits   $  157,776     $ 142,774  
Interest-bearing deposits      505,524       477,901  
Total deposits      663,300       620,675  
Short-term borrowings      7,258       28,204  
Other liabilities      5,522       4,128  
  Total liabilities      676,080       653,007  
           
  Shareholders' equity      80,396       76,351  
           
  Total liabilities and shareholders' equity   $  756,476     $ 729,358  
           
           
Average Year-To-Date Balances:     June 30, 2016        December 31, 2015   
Assets                
Total cash and cash equivalents   $  28,856     $ 22,248  
Investment securities      128,712       122,549  
Loans and leases, net      550,623       525,571  
Premises and equipment, net      16,543       15,954  
Other assets      25,861       26,520  
           
Total assets   $  750,595     $ 712,842  
           
Liabilities          
Non-interest-bearing deposits   $  146,796     $ 138,389  
Interest-bearing deposits      507,806       475,853  
Total deposits      654,602       614,242  
Short-term borrowings and long-term debt      13,154       19,886  
Other liabilities      4,554       4,306  
Total liabilities      672,310       638,434  
           
Shareholders' equity      78,285       74,408  
           
Total liabilities and shareholders' equity   $  750,595     $ 712,842  
           
FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Statements of Income
(dollars in thousands)
                         
        Three Months Ended   Six Months Ended    
           Jun. 30, 2016           Jun. 30, 2015           Jun. 30, 2016           Jun. 30, 2015       
Interest income                                              
Loans and leases   $      5,989     $   5,813     $    11,995     $   11,451      
Securities and other          726         625          1,456         1,291      
                         
Total interest income          6,715         6,438          13,451         12,742      
                         
Interest expense                        
Deposits          567         508          1,147         1,065      
Borrowings and debt          7         139          25         279      
                         
Total interest expense          574         647          1,172         1,344      
                         
Net interest income          6,141         5,791          12,279         11,398      
                         
Provision for loan losses          (275 )       (150 )        (425 )       (300 )    
Other income          2,100         1,833          3,787         3,583      
Other expenses          (5,369 )       (5,744 )        (10,757 )       (10,831 )    
Provision for income taxes          (669 )       50          (1,255 )       (497 )    
Net income   $      1,928     $   1,780     $    3,629     $   3,353      
                         
                         
                         
    Three Months Ended
          Jun. 30, 2016           Mar. 31, 2016           Dec. 31, 2015           Sep. 30, 2015         Jun. 30, 2015   
Interest income                                                  
Loans and leases   $      5,989     $   6,006     $   5,979     $   5,934   $   5,813  
Securities and other          726         730         681         678       625  
                         
Total interest income          6,715         6,736         6,660         6,612       6,438  
                         
Interest expense                        
Deposits          567         580         597         574       508  
Borrowings and debt          7         18         8         6       139  
                         
Total interest expense          574         598         605         580       647  
                         
Net interest income          6,141         6,138         6,055         6,032       5,791  
                         
Provision for loan losses          (275 )       (150 )       (575 )       (200 )     (150 )
Other income          2,100         1,687         1,927         2,023       1,833  
Other expenses          (5,369 )       (5,388 )       (4,952 )       (5,239 )     (5,744 )
Provision for income taxes          (669 )       (586 )       (634 )       (687 )     50  
Net income   $      1,928     $   1,701     $   1,821     $   1,929   $   1,780  
                         
FIDELITY D & D BANCORP, INC.
Unaudited Condensed Consolidated Balance Sheets
(dollars in thousands)
                       
At Period End:     Jun. 30, 2016
       Mar. 31, 2016
       Dec. 31, 2015
       Sep. 30, 2015
       Jun. 30, 2015
  
Assets                                                  
Total cash and cash equivalents   $    27,853     $   41,091     $   12,277     $   25,690     $   21,737  
Investment securities        129,760         128,673         125,232         126,782         121,812  
Federal Home Loan Bank Stock        1,140         1,420         2,120         1,085         1,988  
Loans and leases        562,758         557,293         557,630         543,497         540,787  
Allowance for loan losses        (9,207 )       (9,384 )       (9,527 )       (9,149 )       (9,259 )
Premises and equipment, net        16,455         16,519         16,723         16,875         17,034  
Life insurance cash surrender value        11,257         11,169         11,082         10,995         10,909  
Other assets        16,460         16,601         13,821         13,433         13,547  
                       
Total assets   $    756,476     $   763,382     $   729,358     $   729,208     $   718,555  
                       
Liabilities                      
Non-interest-bearing deposits   $    157,776     $   157,358     $   142,774     $   150,714     $   137,682  
Interest-bearing deposits        505,524         510,553         477,901         492,289         469,204  
Total deposits        663,300         667,911         620,675         643,003         606,886  
Short-term borrowings        7,258         12,765         28,204         6,743         34,263  
Other liabilities        5,522         4,397         4,128         3,829         3,707  
Total liabilities        676,080         685,073         653,007         653,575         644,856  
                       
Shareholders' equity        80,396         78,309         76,351         75,633         73,699  
                       
Total liabilities and shareholders' equity   $    756,476     $   763,382     $   729,358     $   729,208     $   718,555  
                       
                       
Average Quarterly Balances:     Jun. 30, 2016
       Mar. 31, 2016
       Dec. 31, 2015
       Sep. 30, 2015
       Jun. 30, 2015
  
Assets                      
Total cash and cash equivalents   $    28,753     $   28,960     $   17,612     $   20,486     $   12,947  
Investment securities        129,604         127,820         127,509         126,238         126,625  
Loans and leases, net        553,212         548,034         541,144         532,646         520,857  
Premises and equipment, net        16,445         16,641         16,843         17,009         15,002  
Other assets        26,347         25,374         24,409         24,769         28,110  
                       
Total assets   $    754,361     $   746,829     $   727,517     $   721,148     $   703,541  
                       
Liabilities                      
Non-interest-bearing deposits   $    148,703     $   144,890     $   141,198     $   143,794     $   136,079  
Interest-bearing deposits        512,695         502,917         493,383         488,608         457,111  
Total deposits        661,398         647,807         634,581         632,402         593,190  
Short-term borrowings and long-term debt        9,162         17,145         12,003         9,820         32,187  
Other liabilities        4,713         4,396         4,766         4,327         4,310  
Total liabilities        675,273         669,348         651,350         646,549         629,687  
                       
Shareholders' equity        79,088         77,481         76,167         74,599         73,854  
                       
Total liabilities and shareholders' equity   $    754,361     $   746,829     $   727,517     $   721,148     $   703,541  
                       
FIDELITY D & D BANCORP, INC.
Selected Financial Ratios and Other Data
                       
      Three Months Ended
      Jun. 30, 2016
         Mar. 31, 2016
       Dec. 31, 2015
       Sep. 30, 2015
       Jun. 30, 2015
  
Selected returns and financial ratios                                                    
Basic earnings per share   $    0.79       $   0.69     $   0.74     $   0.79     $   0.73  
Diluted earnings per share   $    0.79       $   0.69     $   0.74     $   0.79     $   0.73  
Dividends per share   $    0.29       $   0.27     $   0.37     $   0.27     $   0.27  
Yield on interest-earning assets (FTE)       3.99 %         4.04 %       4.05 %       4.06 %       4.12 %
Cost of interest-bearing liabilities       0.44 %         0.46 %       0.48 %       0.46 %       0.53 %
Net interest spread       3.55 %         3.58 %       3.57 %       3.60 %       3.59 %
Net interest margin       3.66 %         3.70 %       3.69 %       3.72 %       3.72 %
Return on average assets       1.03 %         0.92 %       0.99 %       1.06 %       1.01 %
Return on average equity       9.80 %         8.83 %       9.48 %       10.26 %       9.67 %
Efficiency ratio       63.09 %         66.49 %       61.15 %       63.98 %       65.84 %
Expense ratio       1.75 %         1.99 %       1.68 %       1.77 %       1.92 %
                       
      Six Months Ended            
      Jun. 30, 2016
         Jun. 30, 2015
                
Basic earnings per share   $    1.48       $   1.38                
Diluted earnings per share   $    1.48       $   1.37                
Dividends per share   $    0.56       $   0.52                
Yield on interest-earning assets (FTE)       4.01 %         4.10 %              
Cost of interest-bearing liabilities       0.45 %         0.55 %              
Net interest spread       3.56 %         3.55 %              
Net interest margin       3.68 %         3.68 %              
Return on average assets       0.97 %         0.96 %              
Return on average equity       9.32 %         9.21 %              
Efficiency ratio       64.75 %         66.33 %              
Expense ratio       1.87 %         1.92 %              
                       
Other financial data     Three Months Ended
      Jun. 30, 2016
         Mar. 31, 2016
       Dec. 31, 2015
       Sep. 30, 2015
      Jun. 30, 2015
  
Book value per share   $    32.76       $   31.92     $   31.25     $   31.00     $   30.21  
Equity to assets       10.63 %         10.26 %       10.47 %       10.37 %       10.26 %
Allowance for loan losses to:                      
Total loans       1.64 %         1.69 %       1.71 %       1.69 %       1.71 %
Non-accrual loans       1.56 x         1.13 x       1.06 x       2.09 x       2.18 x
Non-accrual loans to total loans       1.05 %         1.49 %       1.61 %       0.80 %       0.79 %
Non-performing assets to total assets       1.37 %         1.77 %       1.76 %       1.11 %       1.13 %