By a News Reporter-Staff News Editor at Real Estate Weekly News -- Fidelity D & D Bancorp, Inc. (OTC Bulletin Board: FDBC), parent company of The Fidelity Deposit and Discount Bank, announced a 45% net income increase for the year ended December 31, 2013, with net income of $7.1 million, or $3.03 per share, compared to net income for the year ended December 31, 2012 of $4.9 million, or $2.14 per share. This increase resulted primarily from recognizing a $2.9 million net gain ($1.9 million after tax, or $0.80 per share) on the sale of the Company's entire pooled trust preferred security portfolio, completed in late December. The additional pretax increase in operating income was accomplished through $0.7 million lower provision for loan losses required and $0.2 million more net interest income, partially offset by the $0.3 million other real estate owned write-downs plus $0.2 million increases recorded within other expenses. Asset quality issues were further addressed through resolutions occurring throughout the loan portfolio and the liquidation of the pooled trust preferred security portfolio, with total non-performing assets down to 1.4% of total assets at December 31, 2013.
"Fidelity achieved record net income for 2013," stated Daniel J. Santaniello, President and Chief Executive Officer. "In 2013, through our customer-centric approach, we grew our base of consumer and business customers, while achieving higher capital ratios. The Company's strong balance sheet positions us to continue to deliver value to our key stakeholders as the regulatory and economic climate evolves."
Net income for the quarter ended December 31, 2013 was $2.7 million compared to $0.9 million for the same quarter of 2012. The earnings per share for the quarter were $1.15 compared to $0.40 for the same prior year period. The quarter increase resulted from the mentioned $2.9 million gain on the pooled trust preferred security portfolio sale. Net interest income improved $0.1 million and provision for loan losses was down by $0.3 million, offset by the $0.2 million decrease in other income and $0.3 increase in other expenses from the other real estate owned write-downs during the fourth quarter of 2013 over the same 2012 period.
The Company's assets totaled $623.8 million at December 31, 2013, growth of $22.3 million, or 4%, from $601.5 million at December 31, 2012. Asset growth occurred from the $44.6 million, or 11%, increase in loans partially funded by $9.6 million and $3.2 million reductions in loans held-for-sale and investment securities, respectively, plus utilizing $8.6 million of cash balances. Total deposits increased $15.0 million, or 3%, and shareholders' equity grew $7.1 million, or 12%. The Bank's regulatory capital ratios for the period ending December 31, 2013 were Total Risk Based Capital Ratio of 15.1%, Tier I Capital Ratio of 13.9% and Leverage Ratio of 10.3%.
Net interest income was $20.9 million for the year ended December 31, 2013, a 1% increase, or $245 thousand above the $20.6 million earned in 2012 achieved from efforts to mitigate margin pressure, by actively growing the loan portfolio and reducing non-performing assets, when operating during volatile economic conditions and uncertainties while interest rates remained at low levels. As a result, net interest margin was maintained at 3.80% for 2013 and 2012.
Net interest income was $5.3 million for the quarter ended December 31, 2013, compared to the $5.2 million recorded during the same quarter of 2012. The cost reductions on lower interest-bearing liabilities have leveled out that no longer offset the persistent effect low rates had on reducing earning-asset yields. This 10 basis point reduction in spread was overcome by the non-interest bearing deposit growth achieved plus, more so, the larger loan portfolio to improve net interest income. As a result, net interest margin declined to 3.76% for the fourth quarter 2013, compared to 3.86% for same 2012 period.
The provision for loan losses was $2.6 million for the 2013 year, compared to $3.3 million required in 2012. The efforts taken that resolved asset quality by addressing the migration of commercial credits to non-performing status, including reaching a resolution on several rated as substandard, and reducing non-accrual loans, necessitated the lower requirement to provision for loan losses by $700 thousand.
The provision for loan losses was $950 thousand for the fourth quarter of 2013 compared to the $1.3 million required for the fourth quarter of 2012. Replenishing the allowance for loan losses from activity taken during the fourth quarter of 2013 required a lower level of provision for loan losses, stemming from less non-performing loans, when compared to the fourth quarter of 2012.
Workout efforts were successful to improve asset quality as the ratio of non-performing assets to total assets at December 31, 2013 was 1.44%, a 150 basis point decrease from 2.94% at December 31, 2012. The ratio of non-accrual loans to total loans at December 31, 2013 decreased 155 basis-points to 1.18%. Net charge-offs were $2.6 million in 2013 and $2.4 million in 2012. The allowance for loan losses was 1.86% of total loans at December 31, 2013 down from 2.02% at December 31, 2012.
Total other income for the year ended December 31, 2013 was $10.5 million, compared to $7.8 million for the 2012 year. This increase resulted primarily from recognizing a $2.9 million net gain on the sale of the entire pooled trust preferred security portfolio. The additional growth of $131 thousand more interchange transaction fees, $76 thousand additional deposit service charges and $59 thousand from higher financial service and trust activities plus $39 thousand of more net servicing fees, was more than offset by the $363 thousand fewer in gains on sold loans and $124 thousand less fees collected on loans.
Total other income recorded for the quarter ended December 31, 2013 was a $4.5 million compared with $1.9 million for the same quarter in 2012. Again, this increase resulted primarily from recognizing a $2.9 million net gain on the sale of the entire pooled trust preferred security portfolio. The $241 thousand fewer in gains on sold loans, occurring from the reduction in mortgage banking activity, pushed other income down during the fourth quarter of 2013 compared to the same 2012 quarter.
Total other operating expenses increased by $538 thousand, or 3%, to $19.1 million for the year ending December 31, 2013, compared to $18.6 million for the 2012 year. The reductions in occupancy and equipment expenses of $103 thousand, loan collection costs of $95 thousand and FDIC assessment of $41 thousand partially offset the increases of $290 thousand in other real estate costs, $259 thousand in additional salary and benefit expenses, $186 thousand of automated transaction processing expenses and $44 thousand more in advertising and marketing expenses throughout 2013.
Total other operating expenses increased $347 thousand, or 7%, to $5.0 million from $4.6 million for the quarters ending December 31, 2013 and 2012, respectively. The other operating expenses primarily increased from $292 thousand additional other real estate costs recognized during the fourth quarter of 2013.
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.
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