Fidelity D & D Bancorp, Inc. Third Quarter 2009 Financial Results

DUNMORE, Pa., Oct. 29 /PRNewswire-FirstCall/ -- Fidelity D & D Bancorp, Inc. (OTC:FDBC) (BULLETIN BOARD: FDBC) , parent company of The Fidelity Deposit and Discount Bank, announced net loss for the quarter ended September 30, 2009 of $3,211,000 compared to net income of $741,000 for the same quarter of 2008. The net loss resulted from increased provision for loan losses, recognition of additional other-than-temporary impairment investment losses, write-downs of foreclosed other real estate properties and higher other operating expenses including increased FDIC insurance premiums and collection expenses related to non-performing loans plus recognizing incurred consulting costs. Loss per share for the quarter was $1.55 compared to earnings per share of $0.35 for the same prior year period. Net loss for the nine months ended September 30, 2009 was $1,473,000 compared to net income of $3,034,000 for the same 2008 year-to-date period. Loss per share was $0.71 for the nine months ended September 30, 2009 and earnings per share was $1.46 for the same 2008 period. Provision for loan losses, other-than-temporary impairment, less overdraft deposit service charges, higher FDIC insurance assessments, increased collections, professional, and other real estate expenses, all partially offset by mortgage banking gains, were the drivers producing a net loss for the first nine months of 2009 compared to 2008. The considerable amount of impairment charges did not have a significant impact on the Bank's available liquidity or regulatory capital ratios, which exceed the current "well capitalized" regulatory requirements with a Total Risk Based Capital Ratio of 11.2% as of September 30, 2009. The Bank's Tier I Capital Ratio is 10.0% and Leverage Ratio is 9.5%. "These are challenging economic times and our third quarter performance is a reflection of the pressures on the financial sector," stated Patrick J. Dempsey, Chairman of the Board. "Yet given our commitment to fundamental quality banking practices, our net interest income from core banking activities - growth in deposits and sound lending in the marketplace - has increased. We are well capitalized by regulatory requirements. We have seen good core earnings from this commitment and growth in these areas has been strong in 2009." "It is clear that the nation's economic recession continues to work its way through regional economies and particularly the local banking industry," Mr. Dempsey stated, "and we have an experienced management team in place that is aggressively adjusting certain business practices to be more efficient and cost effective, while continuing to maintain a focus on the highest level of customer service and build strong long-term relationships." Net interest income was $4,421,000 for the quarter ended September 30, 2009 compared to the $4,879,000 recorded during the same quarter of 2008. The cost reduction from lowering rates on interest-bearing liabilities lagged behind the effect the current interest rate environment had on earning-asset yields. Ten million dollars in long-term debt costing 6.12% was paid-off early in September 2009 which included a prepayment penalty of $505,000. As a result, net interest income declined $458,000, or 9%, for the third quarter of 2009. This earnings decline, in relation to the $15,104,000 reduction in average earning assets, reduced net interest margin to 3.43% for the third quarter of 2009, compared to 3.62% for same 2008 period. Net interest income decreased to $13,986,000 for the nine months ended September 30, 2009 from $14,369,000 recorded during the same year-to-date period of 2008. Comparing these periods, average earning assets during 2009 declined by $15,236,000. As a result, net interest margin was 3.62% during the first nine months of 2009 compared to 3.57% during the same 2008 period. The provision for loan loss of $3,125,000 was required during the third quarter of 2009 due to a proactive internal review of large commercial credits, weakening economic conditions and declining real estate values. In currently reviewing our loans for specific performance, delinquency and collateral sufficiency, management concluded that there were several loans in the commercial loan portfolio that lacked, or may in the near-term lack, the ability to pay in accordance with contractual terms. The internal credit ratings of these loans were therefore downgraded. An increased provision was necessary primarily due to these internally classified credit downgrades and also provide for a continued weakening economy. The provision for loan loss was $130,000 for the third quarter of 2008. The provision for loan loss was $3,850,000 for the nine months ending September 30, 2009, as compared to a $255,000 requirement for the same 2008 nine-month period. The allowance for loan losses was 1.57% of total loans at September 30, 2009, up from 0.98% at September 30, 2008. Total other income recorded for the quarter ended September 30, 2009 was a $1,293,000 loss compared with income of $844,000 for the same quarter in 2008. The decrease in noninterest income was primarily due to the $2,432,000 other-than-temporary impairment on five pooled trust preferred securities in the quarter ended September 30, 2009. The impairment charge recognized represents the expected credit loss on these trust preferred securities. In the event further interest deferrals and defaults take place within the trust preferred portfolio, additional other-than-temporary impairment credit losses could be recognized through future earnings. Excluding the impairment charges, other noninterest income was $1,139,000 for the quarter ended September 30, 2009. Total other income for the nine months ended September 30, 2009 was $1,479,000, compared to $3,406,000 for the same period in 2008. A total of $2,758,000 non-cash other-than-temporary impairment was taken against other income for the nine months ended September 30, 2009 compared to $403,000 during the same 2008 period. In addition, mortgage banking services produced $742,000 of additional gains that more than offset the $259,000 lower deposit service charges collected, $106,000 more of net mortgage servicing amortization and $78,000 write-downs of foreclosed assets during the nine months ended September 30, 2009 compared to the same 2008 period. Total other operating expenses increased $436,000, or 9%, from $4,673,000 to $5,109,000 for the quarters ending September 30, 2008 and 2009, respectively. The other operating expenses primarily increased from recognizing $162,000 of incurred consulting costs, $159,000 additional collection costs, and $142,000 more in FDIC premiums plus $61,000 added premises and equipment expenses partially offset by $125,000 less advertising costs. Total other operating expenses increased $1,000,000, or 7%, from $13,510,000 for the nine months ending September 30, 2008 to $14,510,000 for 2009. The operating expense increase resulted from $525,000 of additional FDIC premiums and assessment charges, a $265,000 increase in professional services, $227,000 more collection and ORE expenses and $300,000 in added occupancy expenses. The Company's assets contracted $9,720,000 to total $565,999,000 at September 30, 2009 from $575,719,000 at December 31, 2008, caused primarily by the mortgage sale proceeds utilized to pay off debt and improved liquidity and interest rate risk positions. Fidelity D & D Bancorp, Inc. serves Lackawanna and Luzerne Counties through The Fidelity Deposit and Discount Bank's 11 community banking office locations. The Bank's deposits are insured by the Federal Deposit Insurance Corporation up to the full extent permitted by law. For more information please visit our investor relations web site located through http://www.bankatfidelity.com/. 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; -- governmental monetary and fiscal policies, as well as legislative and regulatory changes; -- 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 Mid Penn's 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; -- 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; -- volatilities in the securities markets; -- deteriorating economic conditions -- acts of war or terrorism; and -- disruption of credit and equity markets. FIDELITY D & D BANCORP, INC. Unaudited Condensed Consolidated Balance Sheets ----------------------------------------------- At Period End: Sep. 30, 2009 Jun. 30, 2009 Mar. 31, 2009 -------------- ------------- ------------- ------------- Assets Total cash and cash equivalents $17,632,181 $15,569,573 $20,800,732 Investment securities 83,142,117 77,319,094 78,949,503 Federal Home Loan Bank Stock 4,781,100 4,781,100 4,781,100 Loans and leases 428,439,731 427,432,128 426,269,981 Allowance for loan losses (6,724,857) (5,215,736) (5,097,641) Premises and equipment, net 15,514,474 15,544,799 15,871,074 Life insurance cash surrender value 9,038,561 8,962,081 8,886,844 Other assets 14,176,127 16,061,169 16,323,980 ---------- ---------- ---------- Total assets $565,999,434 $560,454,208 $566,785,573 ============ ============ ============ Liabilities Non-interest-bearing deposits $73,990,068 $69,503,187 $69,296,833 Interest-bearing deposits 403,268,503 384,370,177 394,857,294 ----------- ----------- ----------- Total deposits 477,258,571 453,873,364 464,154,127 Short-term borrowings 5,238,457 8,880,343 10,741,814 Long-term debt 32,000,000 42,000,000 42,000,000 Other liabilities 3,338,059 6,577,952 4,427,884 --------- --------- --------- Total liabilities 517,835,087 511,331,659 521,323,825 Shareholders' equity 48,164,347 49,122,549 45,461,748 ---------- ---------- ---------- Total liabilities and shareholders' equity $565,999,434 $560,454,208 $566,785,573 ============ ============ ============ Average Quarterly Balances: Sep. 30, 2009 Jun. 30, 2009 Mar. 31, 2009 --------------------------- ------------- ------------- ------------- Assets Total cash and cash equivalents $16,582,979 $22,538,111 $12,902,871 Investment securities 85,599,872 78,537,567 86,550,978 Loans and leases, net 425,582,260 422,830,387 433,903,852 Premises and equipment, net 15,503,416 15,751,986 16,048,369 Other assets 22,723,241 23,783,296 22,889,530 ---------- ---------- ---------- Total assets $565,991,768 $563,441,347 $572,295,600 ============ ============ ============ Liabilities Non-interest-bearing deposits $70,412,455 $68,908,889 $68,083,243 Interest-bearing deposits 391,990,603 389,822,588 380,508,523 ----------- ----------- ----------- Total deposits 462,403,058 458,731,477 448,591,766 Short-term borrowings and long-term debt 50,011,878 52,414,957 72,666,503 Other liabilities 4,102,285 4,372,934 3,366,585 --------- --------- --------- Total liabilities 516,517,221 515,519,368 524,624,854 Shareholders' equity 49,474,547 47,921,979 47,670,746 ---------- ---------- ---------- Total liabilities and shareholders' equity $565,991,768 $563,441,347 $572,295,600 ============ ============ ============ At Period End: Dec. 31, 2008 Sep. 30, 2008 -------------- ------------- ------------- Assets Total cash and cash equivalents $12,771,147 $13,375,299 Investment securities 84,187,579 87,179,549 Federal Home Loan Bank Stock 4,781,100 4,770,700 Loans and leases 441,036,694 431,293,559 Allowance for loan losses (4,745,234) (4,205,566) Premises and equipment, net 16,056,362 16,018,219 Life insurance cash surrender value 8,807,784 8,728,568 Other assets 12,823,565 12,383,084 ---------- ---------- Total assets $575,718,997 $569,543,412 ============ ============ Liabilities Non-interest-bearing deposits $71,442,651 $69,619,234 Interest-bearing deposits 361,869,281 365,812,303 ----------- ----------- Total deposits 433,311,932 435,431,537 Short-term borrowings 38,129,704 17,086,314 Long-term debt 52,000,000 62,071,661 Other liabilities 3,316,710 4,335,911 --------- --------- Total liabilities 526,758,346 518,925,423 Shareholders' equity 48,960,651 50,617,989 ---------- ---------- Total liabilities and shareholders' equity $575,718,997 $569,543,412 ============ ============ Average Quarterly Balances: Dec. 31, 2008 Sep. 30, 2008 --------------------------- ------------- ------------- Assets Total cash and cash equivalents $11,389,500 $11,483,829 Investment securities 90,153,057 117,713,728 Loans and leases, net 434,511,745 421,771,678 Premises and equipment, net 15,948,591 13,315,976 Other assets 21,628,663 19,744,364 ---------- ---------- Total assets $573,631,556 $584,029,575 ============ ============ Liabilities Non-interest-bearing deposits $69,665,796 $69,069,124 Interest-bearing deposits 366,709,783 360,426,504 ----------- ----------- Total deposits 436,375,579 429,495,628 Short-term borrowings and long-term debt 83,447,025 97,685,420 Other liabilities 4,093,554 4,466,079 --------- --------- Total liabilities 523,916,158 531,647,127 Shareholders' equity 49,715,398 52,382,448 ---------- ---------- Total liabilities and shareholders' equity $573,631,556 $584,029,575 ============ ============ FIDELITY D & D BANCORP, INC. Unaudited Condensed Consolidated Statements of Income Three Months Ended Nine Months Ended ------------------ ----------------- Sep. 30, 2009 Sep. 30, 2008 Sep. 30, 2009 Sep. 30, 2008 ------------- ------------- ------------- ------------- Interest income Loans and leases $6,546,053 $6,905,422 $19,691,927 $20,653,142 Securities and other 907,433 1,514,018 3,044,485 5,124,196 ------- --------- --------- --------- Total interest income 7,453,486 8,419,440 22,736,412 25,777,338 Interest expense Deposits 1,949,402 2,598,805 6,279,307 8,663,941 Borrowings and debt 1,083,252 941,488 2,470,884 2,744,250 --------- ------- --------- --------- Total interest expense 3,032,654 3,540,293 8,750,191 11,408,191 --------- --------- --------- ---------- Net interest income 4,420,832 4,879,147 13,986,221 14,369,147 Provision for loan losses 3,125,000 130,000 3,850,000 255,000 Other (loss) income (1,292,556) 844,443 1,479,075 3,405,654 Other expenses 5,109,295 4,672,654 14,510,071 13,509,943 (Credit) provision for income taxes (1,895,339) 179,821 (1,421,306) 975,850 ---------- ------- ---------- ------- Net (loss) income $(3,210,680) $741,115 $(1,473,469) $3,034,008 =========== ======== =========== ========== Three Months Ended ------------------ Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2009 2009 2009 2008 2008 --------- --------- -------- -------- --------- Interest income Loans and leases $6,546,053 $6,470,352 $6,675,522 $6,911,146 $6,905,422 Securities and other 907,433 985,161 1,151,891 1,272,950 1,514,018 ------- ------- --------- --------- --------- Total interest income 7,453,486 7,455,513 7,827,413 8,184,096 8,419,440 Interest expense Deposits 1,949,402 2,138,133 2,191,772 2,454,253 2,598,805 Borrowings and debt 1,083,252 576,811 810,821 821,689 941,488 --------- ------- ------- ------- ------- Total interest expense 3,032,654 2,714,944 3,002,593 3,275,942 3,540,293 --------- --------- --------- --------- --------- Net interest income 4,420,832 4,740,569 4,824,820 4,908,154 4,879,147 Provision for loan losses 3,125,000 300,000 425,000 685,000 130,000 Other (loss) income (1,292,556) 1,458,269 1,313,362 1,172,647 844,443 Other expenses 5,109,295 4,738,834 4,661,942 4,700,740 4,672,654 (Credit) provision for income taxes (1,895,339) 247,851 226,182 93,121 179,821 ---------- ------- ------- ------ ------- Net (loss) income $(3,210,680) $912,153 $825,058 $601,940 $741,115 =========== ======== ======== ======== ======== FIDELITY D & D BANCORP, INC. Selected Financial Ratios and Other Data ---------------------------------------- Three Months Ended ------------------ Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2009 2009 2009 2008 2008 --------- -------- -------- -------- -------- Selected returns and financial ratios -------------------- Diluted (loss) earnings per share $(1.55) $0.44 $0.40 $0.30 $0.35 Dividends per share $0.25 $0.25 $0.25 $0.25 $0.25 Yield on interest- earning assets (FTE) 5.67% 5.74% 5.97% 6.13% 6.17% Cost of interest- bearing liabilities 2.72% 2.46% 2.69% 2.90% 3.07% Net interest spread 2.95% 3.28% 3.28% 3.23% 3.10% Net interest margin 3.43% 3.70% 3.73% 3.72% 3.62% Return on average assets -2.25% 0.65% 0.58% 0.42% 0.50% Return on average equity -25.75% 7.63% 7.02% 4.82% 5.63% Efficiency ratio 77.39% 70.16% 70.33% 73.33% 74.84% Expense ratio 2.67% 2.16% 2.15% 2.35% 2.35% Nine Months Ended ----------------- Sep. 30, Sep. 30, 2009 2008 --------- -------- Diluted (loss) earnings per share $(0.71) $1.46 Dividends per share $0.75 $0.75 Yield on interest- earning assets (FTE) 5.79% 6.32% Cost of interest- bearing liabilities 2.62% 3.31% Net interest spread 3.17% 3.01% Net interest margin 3.62% 3.57% Return on average assets -0.35% 0.69% Return on average equity -4.07% 7.42% Efficiency ratio 72.43% 72.86% Expense ratio 2.32% 2.21% Other data ---------- --------- -------- -------- -------- -------- Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, 2009 2009 2009 2008 2008 --------- -------- -------- -------- -------- Book value per share $23.01 $23.59 $21.94 $2,008.00 $24.55 Equity to assets 8.51% 8.76% 8.02% 8.50% 8.89% Allowance for loan losses to: Total loans 1.57% 1.22% 1.20% 1.08% 0.98% Non-accrual loans 0.85x 0.70x 0.70x 1.36x 1.35x Non-accrual loans to net loans 1.87% 1.75% 1.72% 0.80% 0.73% Non-performing assets to total assets 1.81% 1.57% 1.56% 0.96% 0.90% DATASOURCE: Fidelity D & D Bancorp, Inc. CONTACT: Patrick J. Dempsey, Chairman of the Board, +1-570-342-8281; Salvatore R. DeFrancesco, Jr., Treasurer and Chief Financial Officer, +1-570-504-8000, both of Fidelity D & D Bancorp, Inc. Web Site: http://www.bankatfidelity.com/