Fidelity D & D Bancorp(FDBC) - 2022 Q3 - Quarterly Report

Part I. Financial Information This part contains the company's unaudited financial statements, management's analysis, and market risk disclosures Item 1. Financial Statements The unaudited consolidated financial statements detail the company's financial position and performance as of September 30, 2022 Consolidated Financial Statements (Unaudited) The statements show total assets of $2.44 billion and a significant increase in net income to $22.9 million Balance Sheet Highlights | Indicator | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Total Assets | $2,435,768 | $2,419,104 | | Loans and leases, net | $1,506,163 | $1,417,504 | | Available-for-sale securities | $413,413 | $738,980 | | Liabilities & Equity | | | | Total Deposits | $2,253,233 | $2,169,865 | | Total Liabilities | $2,289,281 | $2,207,375 | | Total Shareholders' Equity | $146,487 | $211,729 | Income Statement Highlights | Indicator | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $18,510 | $17,174 | $53,947 | $43,950 | | Provision for Loan Losses | $525 | $450 | $1,575 | $1,550 | | Net Income | $7,689 | $4,859 | $22,875 | $16,222 | | Diluted EPS | $1.36 | $0.85 | $4.03 | $3.09 | Cash Flow Highlights | Cash Flow Activity (Nine Months Ended) | September 30, 2022 (in thousands) | September 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $40,280 | $13,897 | | Net cash used in investing activities | ($76,894) | ($241,204) | | Net cash provided by financing activities | $73,779 | $325,347 | | Net increase in cash and cash equivalents | $37,165 | $98,040 | Notes to Consolidated Financial Statements (Unaudited) The notes detail key accounting policies, the impact of interest rates, and the 2021 Landmark Bancorp acquisition - The company is preparing for the adoption of the Current Expected Credit Losses (CECL) methodology on January 1, 2023, and is running parallel models to understand its impact[46] - During Q2 2022, the company transferred investment securities with a book value of $245.5 million from available-for-sale (AFS) to held-to-maturity (HTM) to mitigate the impact of rising interest rates on equity[60] - On July 1, 2021, the company completed its acquisition of Landmark Bancorp, Inc, with total assets acquired valued at $375.5 million and goodwill of $12.6 million recorded[163][164] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, highlighting increased net income driven by higher net interest income Executive Summary The company reports strong earnings growth, though tangible book value per share declined due to unrealized losses Key Performance Indicators | Period | Net Income (in millions) | Diluted EPS | | :--- | :--- | :--- | | Nine Months Ended Sep 30, 2022 | $22.9 | $4.03 | | Nine Months Ended Sep 30, 2021 | $16.2 | $3.09 | - Tangible common book value per share (a non-GAAP measure) decreased to $22.24 as of September 30, 2022, from $32.57 at the end of 2021, primarily due to unrealized losses on available-for-sale securities[224] Results of Operations Net income growth was driven by a 23% increase in net interest income, offsetting lower non-interest income - Net interest income for the nine months ended September 30, 2022, increased by $10.0 million (23%) to $53.9 million, driven by a $401.9 million increase in average interest-earning assets[239] - Non-interest income for the first nine months of 2022 decreased by $1.4 million (10%), primarily due to a $2.3 million reduction in gains on loan sales[260] - Non-interest expenses for the first nine months of 2022 increased by $1.0 million (3%), mainly driven by a $2.9 million increase in salaries and employee benefits[262] Financial Condition Total assets remained stable at $2.4 billion, with loan growth funded by increased deposits - Gross loans and leases increased by $90.2 million (6%) to $1.5 billion during the first nine months of 2022, with growth concentrated in the residential and consumer portfolios[286][287] - Total deposits grew by $83.4 million (4%) to $2.3 billion, led by increases in money market and non-interest-bearing checking accounts[355] - The carrying value of investment securities decreased by $103.2 million (14%), primarily due to an $81.6 million decline in the unrealized gain/loss position in the AFS portfolio[272] - Non-performing assets decreased by $1.9 million (30%) to $4.5 million, representing a healthy 0.19% of total assets at September 30, 2022[334] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company manages interest rate risk through simulation models and maintains a strong liquidity and capital position - The interest rate risk model indicates that a 200 basis point increase in rates would result in a 4.2% decrease in net interest income over 12 months[382][383] - As of September 30, 2022, the company maintained a one-year cumulative gap of negative $86.4 million, indicating a liability-sensitive position[373] - The company maintains a strong liquidity position with approximately $1.7 billion in available funding sources, representing 68% of total assets[391] Capital Adequacy Ratios | Capital Ratios (Consolidated) | September 30, 2022 | Well-Capitalized Minimum (with buffer) | | :--- | :--- | :--- | | Total Risk-Based Capital | 14.3% | 10.5% | | Tier 1 Common Equity | 13.3% | 7.0% | | Tier 1 Capital | 13.3% | 8.5% | | Leverage Ratio | 8.5% | 4.0% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022 - Based on an evaluation as of the end of the reporting period, the President and CEO and CFO concluded that the Company's disclosure controls and procedures are effective[401] Part II. Other Information This part covers legal proceedings, risk factors, stock repurchases, and filed exhibits Item 1. Legal Proceedings The company is not involved in any material legal proceedings outside the ordinary course of business - No legal proceedings are pending that would materially and adversely affect the company's financial condition or operations[404] Item 1A. Risk Factors No material changes to the risk factors disclosed in the 2021 Form 10-K have occurred - There have been no material changes to the risk factors disclosed in the 2021 Form 10-K[405] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company executed a stock repurchase plan, buying back 21,545 shares during the third quarter of 2022 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | June 2022 | 10,294 | $37.60 | | July 2022 | 19,508 | $39.27 | | August 2022 | 2,037 | $39.00 | | Total | 31,839 | $38.71 | - The company announced a stock repurchase plan on May 18, 2022, to purchase up to 3% of its outstanding common stock, terminating on the earlier of $5 million in purchases or August 9, 2023[406] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and interactive data files