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FIDELITY D & D BANCORP INC

FDBC
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Business Summary

Fidelity D & D Bancorp, Inc. operates as a bank holding company whose wholly-owned state chartered commercial bank subsidiary, The Fidelity Deposit and Discount Bank, has offered a full range of traditional banking services since commencing operations in 1903. The Company's primary market area comprises the Borough of Dunmore and surrounding communities within Lackawanna and Luzerne counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania. The banking business is highly competitive, and the Company competes with local community banks, regional banks, national banks, credit unions, insurance companies, money market funds, mutual funds, small loan companies, and other financial services companies. The Company has been able to compete effectively by emphasizing customer service enhanced by local decision making. As of June 30, 2025, the Company had 17.30% of Lackawanna County's total deposit market share ranking 3rd in total deposits, 7.24% of Luzerne County's total deposit market share ranking 8th in total deposits, and 7.21% of Northampton County's total deposit market share ranking 6th in total deposits .

The Company's primary competitors include local community banks, regional banks, national banks, credit unions, insurance companies, money market funds, mutual funds, small loan companies, and other financial services companies. The Company has been able to compete effectively with other financial institutions by emphasizing customer service enhanced by local decision making, which enables the Company to establish long-term customer relationships and build customer loyalty by providing products and services designed to address their specific needs. As of June 30, 2025, the Company held 17.30% of Lackawanna County's total deposit market share ranking 3rd in total deposits, 7.24% of Luzerne County's total deposit market share ranking 8th in total deposits, and 7.21% of Northampton County's total deposit market share ranking 6th in total deposits .

The Company generates revenue primarily through net interest income, which is the difference between interest earned on loans, securities, and other interest-earning assets, and interest paid on deposits, borrowings, and other interest-bearing liabilities. The Company also generates non-interest income from service charges on deposit accounts, interchange fees, trust and asset management service fees, increases in the cash surrender value of bank owned life insurance, and net gains or losses from sales of loans and securities. The Company's primary customer segments are consumers, businesses, and public entities within the communities surrounding its 21 branch offices. The Company has a personal and corporate trust department and also provides alternative financial and insurance products with asset management services.

The Company's loan portfolio is comprised principally of residential real estate, consumer, commercial, and commercial real estate loans. As of December 31, 2025, gross loans and leases totaled $1,912,605,000 , with the commercial real estate portfolio representing 43% of total loans, the commercial and industrial portfolio representing 18%, the residential portfolio representing 28%, and the consumer portfolio representing 11% . The investment securities portfolio totaled $523,946,000 as of December 31, 2025, consisting of held-to-maturity securities of $227,339,000 and available-for-sale debt securities of $296,607,000 . The Company also generates fee income from trust fiduciary activities, financial services, and interchange fees. Total non-interest income for the year ended December 31, 2025 was $20,559,000 , which included service charges on deposit accounts, interchange fees, trust and asset management service fees, and gains from sales of loans.

The Company's deposit products consist of transaction accounts including savings, clubs, interest-bearing checking, money market, and non-interest bearing checking, as well as short- and long-term time deposits or certificates of deposit. As of December 31, 2025, total deposits were $2,467,353,000 , comprised of interest-bearing checking of $674,412,000 , savings and clubs of $188,449,000 , money market of $698,935,000 , certificates of deposit of $352,976,000 , and non-interest bearing deposits of $552,581,000 . The Company also offers wealth management services through a wealth management office in Minersville, PA under a short-term lease agreement.

During 2025, the Company sold thirty-nine available-for-sale securities with the intention of replacing the holdings with better yielding bonds, recognizing a loss of $1,190,000 as the amortized cost was $45,700,000 compared to the sales proceeds of $44,500,000 . The Company sold a commercial loan with a principal balance of $1,300,000 and recognized a net gain of $500,000 . The Company purchased the Scranton Electric Building for a future corporate headquarters in Scranton, PA, with expected completion ready in the second quarter of 2026. As of December 31, 2025, the Company incurred $21,800,000 in costs for the corporate headquarters building. The Company had 5 secured borrowing agreements with third parties with a carrying value of $5,995,000 as of December 31, 2025. The Company had no FHLB advances as of December 31, 2025 and 2024. The Company had the ability to borrow $145,000,000 from the Federal Reserve borrower-in-custody program, full availability of $150,000,000 in overnight borrowings with the FHLB open-repo line of credit, and $30,000,000 from lines of credit with correspondent banks as of December 31, 2025.

The Company generated net income of $28,198,000 in 2025, or $4.89 earnings per share ($4.86 diluted earnings per share) , an increase of $7,404,000 , or 36%, from $20,794,000 , or $3.63 earnings per share ($3.60 diluted earnings per share) in 2024. Net interest income was $72,671,000 for the year ended December 31, 2025 compared to $61,865,000 for the year ended December 31, 2024. Total non-interest income was $20,559,000 for 2025 compared to $19,013,000 for 2024. Non-interest expenses increased to $58,817,000 for 2025 from $55,541,000 for 2024. Return on average assets (ROA) was 1.05% and return on average shareholders' equity (ROE) was 12.88% for 2025, compared to 0.83% and 10.58% for 2024.

Business Outlook

The Company currently expects to operate in a moderately declining interest rate environment throughout 2026. Management is primarily reliant on the Federal Open Market Committee's statements and forecast. Consensus economic forecasts are expecting one to two declines of 25 basis points throughout fiscal year 2026. For 2026, the Company maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific higher yielding assets, being proactive with loan pricing, and managing deposit costs to maintain a reasonable spread. Expected loan growth is anticipated to be funded by deposit growth and net interest margin is expected to improve compared to 2025.

The Company expects to pursue disciplined balance sheet growth to enhance financial performance, with plans to grow the commercial and industrial lending portfolio and increase low-cost deposits to improve net interest margin and enhance revenue performance. The Company intends to continuously expand its market area, giving opportunity for profitable growth. During 2026, the Company will continue to execute its relationship development strategy to maintain and grow core deposits. The Company expects to see improvement in net interest margin primarily due to the expected growth in the loan and deposit portfolios, coupled with the repricing of deposit rates in the decreasing rate environment.

The Company expects to see improvement in net interest margin primarily due to the expected growth in the loan and deposit portfolios, coupled with the repricing of deposit rates in the decreasing rate environment. The Company's focus remains on enhancing margin by reallocating cash flow to focus growth on specific higher yielding assets, being proactive with loan pricing, and managing deposit costs to maintain a reasonable spread. The efficiency ratio decreased from 66.19% at December 31, 2024 to 60.30% at December 31, 2025 primarily due to the increase in net interest income in 2025.

The Company's technology platforms continue to evolve and require periodic upgrades, and the Company continues to devote financial resources and personnel necessary to maintain and improve the information technology systems and platforms for optimal operational efficiency, customer convenience, and compliance with applicable laws, regulations, and regulatory guidance within a secure environment. The costs of software and software subscriptions continue to rise and may require further investment and expenditures by the Company. Upon occupancy of the corporate headquarters, the Company does not expect any significant impact to net income, as costs for operating the new headquarters are expected to be offset by the closure of other owned and leased properties near downtown Scranton, and the expenses will also be offset by historical tax credit benefits.

The Company can issue stock to participants in the Dividend Reinvestment Plan (DRP) and Employee Stock Purchase Plan (ESPP) plans to help maintain a healthy capital position. The DRP and ESPP plans have been a consistent source of capital from the Company's loyal employees and shareholders. The Company's dividend payout ratio was 33.70% for the year ended December 31, 2025. The Company expects to continue to pay regular quarterly cash dividends in the future; however, future dividends are dependent upon earnings, financial condition, capital strength, and other factors of the Company. The remaining building costs for the corporate headquarters could range from $7,000,000 to $9,000,000 , with estimated furniture and office equipment costs at $2,000,000 and technology equipment and infrastructure at $600,000 .

Economic uncertainty continues due to fluctuating interest rates and global risks such as war, terrorism, and geopolitical instability. Uncertainty surrounding the timing of rate decreases and the effect on the interest rate margin is the Company's greatest interest rate risk. The Company is aware it may continue to experience pressure to maintain higher rates on interest-bearing deposits due to the competitive nature of deposits in its market area. Management monitors uninsured deposits which represented approximately 39% of total deposits as of December 31, 2025, primarily within non-personal accounts . The Company expects that remaining ARPA balances of approximately $16,400,000 will be depleted by year end 2026.

The Company's profitability is significantly affected by general economic and competitive conditions, changes in market interest rates, government policies, and actions of regulatory authorities. The local economy has been volatile in recent years and generally lags the national market trends. The national unemployment rate rose to 4.4% at December 31, 2025 compared to 4.1% at the end of 2024. The unemployment rates in the Company's local statistical markets, Scranton-Wilkes-Barre-Hazleton and Allentown-Bethlehem-Easton, increased to 4.3% and 3.9% , respectively, from 3.8% and 3.4% at the end of 2024.

Risk Factors

The Company's business is subject to interest rate risk, as changes in the interest rate environment may reduce profits, with net interest income being largely dependent upon the difference between interest earned on loans and securities and interest paid on deposits and borrowings. The Company is subject to lending risk, particularly in commercial, commercial real estate, and real estate construction loans, which are generally viewed as having more risk of default than residential real estate or consumer loans and typically have larger balances, meaning deterioration of one or a few of these loans could cause a significant increase in non-performing loans. The Company's allowance for credit losses may be insufficient, as the determination of the appropriate level inherently involves a high degree of subjectivity and requires significant estimates of current credit risks and future trends that may undergo material changes. The Company's profitability depends significantly on economic conditions in the Commonwealth of Pennsylvania and the specific local markets in which it conducts business, primarily Lackawanna and Luzerne Counties in Northeastern Pennsylvania and Northampton County in Eastern Pennsylvania, as a significant decline in general economic conditions could impact the ability of customers to repay loans and the value of collateral. The Company is subject to commercial real estate volatility, as the commercial real estate market nationally, regionally, and locally has recently been subject to increased levels of volatility, particularly in the commercial office sector, which may affect the credit status, profitability, and collectability of existing and future commercial real estate office sector loans.

Management Priorities

Management's message emphasizes that the Company generated $28,198,000 in net income in 2025, or $4.89 earnings per share ($4.86 diluted earnings per share) , an increase of $7,404,000 , or 36%, from $20,794,000 , or $3.63 earnings per share ($3.60 diluted earnings per share) in 2024. Management highlights that net interest income performance has increased primarily due to interest income growth driven by average balance increase in the loan and lease portfolio along with improving yields on new originations. The key strategic priorities emphasized for the period ahead include focusing on enhancing margin by reallocating cash flow to focus growth on specific higher yielding assets, being proactive with loan pricing, and managing deposit costs to maintain a reasonable spread. Management also emphasizes the trusted financial advisor model by utilizing the team approach of experienced bankers that are fully engaged and dedicated towards maintaining and growing profitable relationships. Management states that for 2026, the Company maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. Management also notes that expected loan growth is anticipated to be funded by deposit growth and net interest margin is expected to improve compared to 2025.

View Source Annual Report on SEC.gov ↗

References

  1. [1] Item 1, Business
  2. [2] Item 1, Business
  3. [3] Item 7, MD&A — Loans and leases
  4. [4] Item 7, MD&A — Allocation of allowance for credit losses
  5. [5] Item 7, MD&A — Investment Securities
  6. [6] Item 7, MD&A — Investment Securities
  7. [7] Item 7, MD&A — Investment Securities
  8. [8] Item 7, MD&A — Other income
  9. [9] Item 7, MD&A — Deposits
  10. [10] Item 7, MD&A — Deposits
  11. [11] Item 7, MD&A — Deposits
  12. [12] Item 7, MD&A — Deposits
  13. [13] Item 7, MD&A — Deposits
  14. [14] Item 7, MD&A — Deposits
  15. [15] Item 7, MD&A — Investment Securities
  16. [16] Item 7, MD&A — Investment Securities
  17. [17] Item 7, MD&A — Investment Securities
  18. [18] Item 7, MD&A — Loans held-for-sale
  19. [19] Item 7, MD&A — Loans held-for-sale
  20. [20] Item 7, MD&A — Premises and equipment
  21. [21] Item 7, MD&A — Secured borrowings
  22. [22] Item 7, MD&A — Short-term borrowings
  23. [23] Item 7, MD&A — Short-term borrowings
  24. [24] Item 7, MD&A — Short-term borrowings
  25. [25] Item 7, MD&A — Executive Summary
  26. [26] Item 7, MD&A — Executive Summary
  27. [27] Item 7, MD&A — Executive Summary
  28. [28] Item 7, MD&A — Executive Summary
  29. [29] Item 7, MD&A — Executive Summary
  30. [30] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  31. [31] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  32. [32] Item 7, MD&A — Other income
  33. [33] Item 7, MD&A — Other income
  34. [34] Item 7, MD&A — Other operating expenses
  35. [35] Item 7, MD&A — Other operating expenses
  36. [36] Item 7, MD&A — Overview
  37. [37] Item 7, MD&A — Overview
  38. [38] Item 7, MD&A — Overview
  39. [39] Item 7, MD&A — Overview
  40. [40] Item 7, MD&A — Non-GAAP Financial Measures
  41. [41] Item 7, MD&A — Non-GAAP Financial Measures
  42. [42] Item 7, MD&A — Capital Resources
  43. [43] Item 7, MD&A — Premises and equipment
  44. [44] Item 7, MD&A — Premises and equipment
  45. [45] Item 7, MD&A — Premises and equipment
  46. [46] Item 7, MD&A — Premises and equipment
  47. [47] Item 7, MD&A — Future Outlook
  48. [48] Item 7, MD&A — Liquidity
  49. [49] Item 1, Business
  50. [50] Item 1, Business
  51. [51] Item 1, Business
  52. [52] Item 1, Business
  53. [53] Item 1, Business
  54. [54] Item 1, Business
  55. [55] Item 7, MD&A — Executive Summary
  56. [56] Item 7, MD&A — Executive Summary
  57. [57] Item 7, MD&A — Executive Summary
  58. [58] Item 7, MD&A — Executive Summary
  59. [59] Item 7, MD&A — Executive Summary
  60. [60] Item 7, MD&A — Non-GAAP Financial Measures
  61. [61] Item 7, MD&A — Non-GAAP Financial Measures
  62. [62] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  63. [63] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  64. [64] Item 7, MD&A — Overview
  65. [65] Item 7, MD&A — Overview
  66. [66] Item 7, MD&A — Overview
  67. [67] Item 7, MD&A — Overview
  68. [68] Item 7, MD&A — Provision for credit losses
  69. [69] Item 7, MD&A — Provision for credit losses
  70. [70] Item 7, MD&A — Provision for credit losses
  71. [71] Item 7, MD&A — Provision for credit losses
  72. [72] Item 7, MD&A — Other income
  73. [73] Item 7, MD&A — Other income
  74. [74] Item 7, MD&A — Other operating expenses
  75. [75] Item 7, MD&A — Other operating expenses
  76. [76] Item 7, MD&A — Non-GAAP Financial Measures
  77. [77] Item 7, MD&A — Non-GAAP Financial Measures
  78. [78] Item 7, MD&A — Provision for income taxes
  79. [79] Item 7, MD&A — Provision for income taxes
  80. [80] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  81. [81] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  82. [82] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  83. [83] Item 7, MD&A — Net interest income and interest sensitive assets / liabilities
  84. [84] Item 7, MD&A — Non-GAAP Financial Measures
  85. [85] Item 7, MD&A — Non-GAAP Financial Measures
  86. [86] Item 7, MD&A — Overview
  87. [87] Item 7, MD&A — Overview
  88. [88] Item 7, MD&A — Overview
  89. [89] Item 7, MD&A — Overview
  90. [90] Item 7, MD&A — Non-GAAP Financial Measures
  91. [91] Item 7, MD&A — Non-GAAP Financial Measures
  92. [92] Item 7, MD&A — Financial Condition
  93. [93] Item 7, MD&A — Financial Condition
  94. [94] Item 7, MD&A — Capital Resources
  95. [95] Item 7, MD&A — Capital Resources
  96. [96] Item 7, MD&A — Executive Summary
  97. [97] Item 7, MD&A — Executive Summary
  98. [98] Item 7, MD&A — Non-GAAP Financial Measures
  99. [99] Item 7, MD&A — Non-GAAP Financial Measures
  100. [100] Item 7, MD&A — Investment Securities
  101. [101] Item 7, MD&A — Allowance for credit losses
  102. [102] Item 7, MD&A — Allowance for credit losses
  103. [103] Item 7, MD&A — Allowance for credit losses
  104. [104] Item 7, MD&A — Allowance for credit losses

Analysis on 6/21/2026