Fidelity D & D Bancorp(FDBC) - 2019 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Unaudited statements show asset growth to $1.01 billion and a net income increase to $8.86 million for the nine-month period Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $1,011,424 | $981,102 | | Loans and leases, net | $739,278 | $718,317 | | Total Deposits | $852,322 | $770,183 | | Short-term borrowings | $24,355 | $76,366 | | Total Shareholders' Equity | $104,789 | $93,557 | Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net Interest Income | $23,704 | $22,493 | | Provision for Loan Losses | $830 | $1,125 | | Net Income | $8,862 | $8,159 | | Diluted EPS | $2.32 | $2.15 | - Total comprehensive income for the nine months ended September 30, 2019, was $13.39 million, a significant increase from $4.23 million in the same period of 2018, driven by a $4.53 million unrealized gain on available-for-sale securities[12] Notes to Consolidated Financial Statements Notes detail the adoption of a new lease standard, deferral of CECL, and improved loan portfolio credit quality - The Company adopted the new lease standard (ASU 2016-02) on January 1, 2019, resulting in the addition of a $4.1 million right-of-use asset and a $4.6 million lease liability to the consolidated balance sheet[31] - The Company has deferred the adoption of the new credit loss standard, CECL (ASU 2016-13), to fiscal years beginning after December 31, 2022, as it qualifies as a smaller reporting company[31] Allowance for Loan Losses Activity (Nine Months Ended Sep 30, 2019, in thousands) | Category | Amount | | :--- | :--- | | Beginning Balance (Dec 31, 2018) | $9,747 | | Net Charge-offs | ($1,136) | | Provision for Loan Losses | $830 | | Ending Balance (Sep 30, 2019) | $9,441 | Loan Quality Indicators (in thousands) | Indicator | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Non-accrual loans | $3,858 | $4,298 | | Impaired loans | $4,822 | $6,128 | | Troubled Debt Restructurings (TDRs) | $1,745 | $3,527 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income rose 9% to $8.9 million, driven by higher interest income and strong deposit growth funding asset expansion - For the nine months ended Sep 30, 2019, net income increased by $0.7 million (9%) to $8.9 million compared to the prior year, driven by higher net interest income and non-interest income, coupled with a lower provision for loan losses[116] - Total assets increased by $30.3 million (3%) to $1.0 billion since year-end 2018, funded by an $82.1 million increase in deposits which was used to fund loan growth and pay down borrowings by $68.7 million[135] Key Performance Ratios | Ratio | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Return on Average Assets (ROA) | 1.21% | 1.21% | | Return on Average Equity (ROE) | 11.96% | 12.34% | | Efficiency Ratio (non-GAAP) | 62.34% | 61.91% | Comparison of Financial Condition Total assets grew 3% to $1.01 billion, funded by strong deposit growth which also allowed for reduced borrowings Loan Portfolio Composition Change (in thousands) | Loan Category | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Commercial & Industrial | $122,129 | $126,884 | ($4,755) | | Commercial Real Estate | $234,759 | $226,368 | $8,391 | | Residential | $178,801 | $161,700 | $17,101 | | Consumer | $213,030 | $213,112 | ($82) | | Total Gross Loans | $749,642 | $729,092 | $20,550 | Deposit Composition Change (in thousands) | Deposit Category | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Non-interest bearing | $203,816 | $194,731 | $9,085 | | Interest-bearing checking | $251,119 | $224,185 | $26,934 | | Money market | $173,041 | $116,010 | $57,031 | | Savings and clubs | $105,578 | $118,971 | ($13,393) | | Certificates of deposit | $118,768 | $116,286 | $2,482 | | Total Deposits | $852,322 | $770,183 | $82,139 | - Non-performing assets decreased by $0.8 million to $5.5 million, improving the ratio of non-performing assets to total assets to 0.55% from 0.64% at year-end 2018[163] Quantitative and Qualitative Disclosure about Market Risk The company is asset sensitive, managing interest rate risk with robust capital and a strong liquidity position Simulated Impact of Interest Rate Changes (Earnings at Risk) | Rate Scenario | % Change in Net Interest Income | % Change in Net Income | | :--- | :--- | :--- | | +200 basis points | +4.9% | +12.3% | | -200 basis points | -5.2% | -12.7% | - The Company's one-year cumulative interest rate sensitivity gap was positive (asset sensitive) at $45.0 million, or 4.4% of total assets, as of September 30, 2019[188] - The Company maintains a strong liquidity position with total available funding sources of $681.4 million, representing 67% of total assets as of September 30, 2019[194] - All of the Company's and the Bank's capital ratios exceeded the requirements to be considered 'well capitalized' under regulatory guidelines as of September 30, 2019[198] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Based on an evaluation as of the end of the reporting period, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective[201] - There were no changes in the Company's internal controls over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[201] Part II. Other Information Legal Proceedings Pending litigation from ordinary business is not expected to have a material adverse effect on financial condition - No legal proceedings are pending that, if determined adversely, would have a material adverse effect on the Company's financial condition or operations[203] Risk Factors No material changes have been identified to the risk factors previously disclosed in the 2018 Form 10-K - Management does not believe there have been any material changes to the risk factors disclosed in the 2018 Form 10-K[203] Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds to report for the period[203] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate and compensation documents - The report includes standard exhibits such as organizational documents, compensatory plans, and CEO/CFO certifications under Sarbanes-Oxley[203][205]