DNBF DNB Financial Corporation

DNB Financial Corporation (Nasdaq:DNBF), today reported net income available to common stockholders of $1.3 million, or $0.45 per diluted share, for the quarter ending September 30, 2015, compared with $1.2 million, or $0.43 per diluted share, for the same quarter, last year. Net income available for common shareholders for the first nine months of 2015 was $3.7 million, or $1.31 per diluted share, compared with $3.3 million or $1.16 per diluted share, in the prior year period. DNB Financial Corporation (the “Company”) is the parent of DNB First, National Association, one of the first nationally-chartered community banks to serve the greater Philadelphia region.

Third Quarter Highlights

• Wealth management assets under care increased 14.6% from September 30, 2014. Asset generation and growth remain impressive despite lower equity market valuations over the third quarter.
• Total loans increased 4.7% on a year-over-year basis, although they were flat on a sequential quarter basis. 
• Asset quality remained excellent.  As of September 30, 2015, non-performing loans were only 0.90% of total loans compared with 0.98% as of June 30, 2015.
• Core deposits contracted, but increased 4.4% over the past 12 months and were 85.5% of total deposits as of September 30, 2015.
• The company paid a quarterly cash dividend of $0.07 on September 21, 2015.

William S. Latoff, Chairman and CEO, commented: “We were pleased to see our quarterly earnings increase and believe our results represent solid progress in an uncertain and challenging environment.  Quality loan growth was achieved over the past year and we remain committed to maintaining our prudent pricing and credit discipline.  We are also encouraged that our net interest margin continued to stabilize.  Despite the equity market downturn during the third quarter, we continue to generate new wealth management assets, through initiatives to expand banking relationships.”

Income Statement Summary

The Company’s performance resulted in a return on average assets of 0.68% for the third quarter and first nine months of 2015. The return on average equity was 8.71% and 8.52% for the same periods, respectively.

Total interest income for the three months ending September 30, 2015 was $6.2 million, which represented a $256,000, or 4.3% increase compared with the three months ending September 30, 2014, and a $30,000, or 0.5% (not annualized), increase from $6.1 million for the three months ending June 30, 2015.  Total interest expense rose to $711,000 for the third quarter of 2015, compared with $544,000 for the third quarter of 2014, and $678,000 for the three months ending June 30, 2015.  The year-over-year increase was primarily due to the issuance of $9.8 million of subordinated debt at the end of the first quarter of 2015.  The weighted average cost of funds remained at a historically low level. 

The net interest margin for the third quarter of 2015 was 3.13%, compared with 3.33% for the third quarter of 2014 and 3.11% for the second quarter of 2015.  On a consecutive quarter basis, the Company's net interest margin was relatively stable in 2015, despite continuing pressure due to the low-interest rate environment and intense pricing competition for quality lending business. 

Total non-interest income for the third quarter of 2015 was $1.0 million, which was essentially unchanged from the same quarter in 2014. On a sequential quarter basis, total non-interest income declined $301,000, or 22.5% (not annualized). The primary reason for the decrease was an $185,000 gain on Small Business Administration (SBA) loan sales, which occurred in the previous quarter and a $105,000 decrease in income from the Company’s wealth management business.  Wealth management fees were $317,000 for the quarter ending September 30, 2015, which represented nearly one-third of total fee income.  Assets under management were $184.5 million as of September 30, 2015, but were negatively impacted by declines in asset values due to market conditions, which more than offset new asset generation.

Non-interest expense was $4.6 million for the third quarter of 2015, which represented an increase of only 1.6% from that of the corresponding quarter last year, reflecting management’s emphasis on controlling expenses.  Annual increases in salary and employee benefit costs were largely offset by declines in occupancy expense, and professional and consulting fees.

The effective tax rate for the quarter ending September 30, 2015 was 22.1%, compared with 25.8% for the corresponding quarter in 2014.  The primary reason for the lower effective tax rate was an increase in tax exempt loans to local municipalities and tax exempt municipal investment securities.

Balance Sheet Summary

As of September 30, 2015, total assets were $741.9 million compared with $755.9 million as of June 30, 2015, and $695.4 million as of September 30, 2014.  Total assets contracted $14.0 million, or 1.9% (not annualized), on a sequential quarter basis due to an $8.5 million decrease in cash and cash equivalents along with smaller declines of both total loans and investment securities.  Total assets, however, increased $46.5 million, or 6.7% on a year-over-year basis primarily due to strong loan growth, which was accompanied by a smaller increase in investment securities.  Solid annual loan growth reflected the company’s commercial banking initiatives and attractive market areas.  Likewise, total deposits increased 3.2% since September 30, 2014, despite a $17.9 million decrease on a sequential quarter basis. 

Total loans grew $21.0 million or 4.7% to $470.4 million as of September 30, 2015, from $449.4 million as of September 30, 2014.  On a sequential quarter basis, total loans decreased slightly (less than 1%) from $472.3 million as of June 30, 2015.  As of September 30, 2015, total loans were 63.4% of total assets compared with 64.6% as of September 30, 2014.  Loan growth has been moderate; and the Company remains challenged to grow commercial-oriented in a competitive market, while maintaining its conservative underwriting standards.

On a sequential quarter basis, total core deposits declined $30.9 million, or 5.6% (not annualized), but represented 85.5% of total deposits as of September 30, 2015.  The decrease in core deposits was primarily due to a $20.1 million decrease in NOW accounts. The decline is mainly attributed to the delay in approving the State of Pennsylvania's annual budget, which includes distributions to many of DNB's municipal clients, who have temporarily drawn down their accounts to fund normal operating costs. Time deposits, however, increased $13.0 million. Total deposits were $608.5 million as of September 30, 2015, compared with $626.4 million as of June 30, 2015 and $589.4 million at September 30, 2014.

Capital ratios continue to exceed regulatory standards for well-capitalized institutions.  At September 30, 2015, the Tier 1 leverage ratio was 9.23%, Tier 1 risk-based capital was 12.74%, common equity Tier 1 risk based capital was 10.46% and total risk based capital was 15.46%.  As of the same date, the total shareholder equity-to-total assets ratio was 7.87% and the tangible common equity-to-tangible assets ratio was 7.42%.  Tangible book value per share was $19.57 as of September 30, 2015, compared with $18.96 as of June 30, 2015, and $18.26 as of December 31, 2014.

Asset Quality Summary

Asset quality remained strong.  Net charge-offs decreased slightly to 0.41% of total average loans for the quarter ending September 30, 2015, compared with 0.43% for the quarter ending June 30, 2015. The net charge-offs for the three months ended September 30, 2015, were primarily due to four credits, two of which were previously reserved, for which new market and financial information became available during the quarter. Total non-performing assets, including loans and other real estate property, were $6.5 million as of September 30, 2015, compared with $6.6 million as of June 30, 2015, and $6.9 million as of September 30, 2014.  The ratio of non-performing assets to total assets was 0.87% and non-performing loans were 0.90% of total loans as of September 30, 2015.  As of the same date, the allowance for loan losses to total loans ratio was 1.01%.

Interest Rate Risk Management

DNB's strategy has been to seek shorter duration over yield in its lending and investing activities and lengthen duration over rate in its financing activities to minimize interest rate risk.  The Company also strives to offer products and services that develop strong relationships to retain core deposits. The Bank has an Asset Liability Management Committee that actively monitors and manages the bank's interest rate exposure using simulation models and gap analysis. The Committee's primary objective is to minimize the adverse impact of changes in interest rates on net interest income, while maximizing earnings.

DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association, is a community bank headquartered in Downingtown, Pennsylvania with 12 locations. DNB First, which was founded in 1860, provides a broad array of consumer and business banking products, and offers brokerage and insurance services through DNB Investments & Insurance, and investment management services through DNB Investment Management & Trust. DNB Financial Corporation's shares are traded on Nasdaq's Capital Market under the symbol: DNBF.  We invite our customers and shareholders to visit our website at https://www.dnbfirst.com. DNB's Investor Relations site can be found at http://investors.dnbfirst.com/.

DNB Financial Corporation (the "Corporation"), may from time to time make written or oral "forward-looking statements," including statements contained in the Corporation's filings with the Securities and Exchange Commission including this press release and in its reports to stockholders and in other communications by the Corporation, which are made in good faith by the Corporation pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

These forward-looking statements include statements with respect to the Corporation's beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Corporation's control). The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Corporation's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Corporation conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the recent downgrade, and any future downgrades, in the credit rating of the U.S. Government and federal agencies; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Corporation and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the willingness of users to substitute competitors' products and services for the Corporation's products and services; the success of the Corporation in gaining regulatory approval of its products and services, when required; the impact of changes in laws and regulations applicable to financial institutions (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms, including the rules of participation for the Small Business Lending Fund (SBLF), a U.S. Treasury Department program; and the success of the Corporation at managing the risks involved in the foregoing.

The Corporation cautions that the foregoing list of important factors is not exclusive. Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this press release, even if subsequently made available by the Corporation on its website or otherwise. The Corporation does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Corporation to reflect events or circumstances occurring after the date of this press release.

For a complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K, as supplemented by our quarterly or other reports subsequently filed with the SEC.

FINANCIAL TABLES FOLLOW

 

DNB Financial Corporation
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
		2015				2014				2015				2014
EARNINGS:
Interest income	$	6,161			$	5,905			$	18,288			$	17,584
Interest expense		711				544				1,995				1,750
Net interest income		5,450				5,361				16,293				15,834
Provision for credit losses		100				300				815				930
Non-interest income		1,027				1,041				3,220				3,037
Gain on sale of investment securities		10				86				74				423
Gain on sale of SBA loans		0				0				416				0
Loss on sale / write-down of OREO and ORA		154				0				154				7
Non-interest expense		4,605				4,532				14,153				13,893
Income before income taxes		1,628				1,656				4,881				4,464
Income tax expense		359				427				1,125				1,111
Net income		1,269				1,229				3,756				3,353
Preferred stock dividends and accretion of discount		8				33				42				103
Net income available to common stockholders	$	1,261			$	1,196			$	3,714			$	3,250
Net income per common share, diluted	$	0.45			$	0.43			$	1.31			$	1.16
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
	September 30,				December 31,				September 30,
		2015				2014				2014
FINANCIAL POSITION:
Cash and cash equivalents	$	18,959			$	12,504			$	23,891
Investment securities		227,363				231,656				198,086
Loans held for sale		0				617				0
Loans		470,396				455,603				449,407
Allowance for credit losses		(4,729	)			(4,906	)			(4,887	)
Net loans		465,667				450,697				444,520
Premises and equipment, net		6,630				7,668				7,825
Other assets		23,272				20,188				21,098
Total assets	$	741,891			$	723,330			$	695,420
Deposits	$	608,458			$	605,083			$	589,366
FHLB advances		20,000				20,000				10,000
Repurchase agreements		30,501				19,221				19,330
Other borrowings		9,754				9,784				514
Subordinated debt		9,750				0				9,279
Other liabilities		5,060				5,334				4,568
Stockholders' equity		58,368				63,908				62,363
Total liabilities and stockholders' equity	$	741,891			$	723,330			$	695,420

 

DNB Financial Corporation
Selected Financial Data (Unaudited)
(In thousands, except per share data)
	Quarterly
		2015				2015				2015				2014				2014
	3rd Qtr				2nd Qtr				1st Qtr				4th Qtr				3rd Qtr
Earnings and Per Share Data
Net income available to common stockholders	$	1,261			$	1,227			$	1,226			$	1,419			$	1,196
Basic earnings per common share	$	0.45			$	0.44			$	0.44			$	0.51			$	0.43
Diluted earnings per common share	$	0.45			$	0.43			$	0.43			$	0.50			$	0.43
Dividends per common share	$	0.07			$	0.07			$	0.07			$	0.07			$	0.07
Book value per common share	$	19.64			$	19.04			$	18.91			$	18.32			$	17.81
Tangible book value per common share	$	19.57			$	18.96			$	18.83			$	18.26			$	17.74
Average common shares outstanding		2,807				2,802				2,786				2,776				2,769
Average diluted common shares outstanding		2,852				2,848				2,833				2,822				2,817
Performance Ratios
Return on average assets		0.68	%			0.66	%			0.69	%			0.82	%			0.72	%
Return on average equity		8.71	%			8.75	%			8.13	%			9.04	%			7.82	%
Return on average tangible equity		8.75	%			8.79	%			8.15	%			9.06	%			7.84	%
Net interest margin		3.13	%			3.11	%			3.14	%			3.25	%			3.33	%
Efficiency ratio		68.09	%			67.29	%			69.87	%			70.45	%			68.76	%
Wtd average yield on earning assets		3.52	%			3.48	%			3.48	%			3.57	%			3.65	%
Asset Quality Ratios
Net charge-offs to average loans		0.41	%			0.43	%			0.01	%			0.16	%			0.27	%
Non-performing loans/Total loans		0.90	%			0.98	%			1.47	%			1.50	%			1.34	%
Non-performing assets/Total assets		0.87	%			0.88	%			1.03	%			1.07	%			1.00	%
Allowance for credit loss/Total loans		1.01	%			1.08	%			1.12	%			1.08	%			1.09	%
Allowance for credit loss/Non-performing loans		111.32	%			110.29	%			76.24	%			71.59	%			81.01	%
Capital Ratios
Total equity/Total assets		7.87	%			7.49	%			7.51	%			8.84	%			8.97	%
Tangible equity/Tangible assets		7.85	%			7.48	%			7.49	%			8.82	%			8.95	%
Tangible common equity/Tangible assets		7.42	%			7.05	%			7.06	%			7.02	%			7.08	%
Tier 1 leverage ratio		9.23	%			9.02	%			8.98	%			10.55	%			10.75	%
Common equity tier 1 risk-based capital ratio		10.46	%			10.17	%			10.28	%		n/a				n/a
Tier 1 risk-based capital ratio		12.74	%			12.43	%			12.63	%			14.90	%			14.84	%
Total risk-based capital ratio		15.46	%			15.21	%			15.51	%			15.92	%			15.86	%
Wealth Management
Assets under care*	$	184,535			$	189,411			$	178,339			$	163,807			$	161,068
*Wealth Management assets under care includes assets under management, administration, supervision and brokerage.

DNB Financial Corporation
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)
	Three Months Ended
	Sept 30,				June 30,				Mar 31,				Dec 31,				Sept 30,
		2015				2015				2014				2014				2014
EARNINGS:
Interest income	$	6,161			$	6,131			$	5,996			$	6,012			$	5,905
Interest expense		711				678				606				561				544
Net interest income		5,450				5,453				5,390				5,451				5,361
Provision for credit losses		100				415				300				200				300
Non-interest income		1,027				1,142				1,051				1,063				1,041
Gain on sale of investment securities		10				11				53				435				86
Gain (loss) on sale of SBA loans		0				185				231				0				0
Loss on sale / write-down of OREO and ORA		154				0				0				0				0
Non-interest expense		4,605				4,724				4,824				4,732				4,532
Income before income taxes		1,628				1,652				1,601				2,017				1,656
Income tax expense		359				417				349				566				427
Net income		1,269				1,235				1,252				1,451				1,229
Preferred stock dividends and accretion of discount		8				8				26				32				33
Net income available to common stockholders	$	1,261			$	1,227			$	1,226			$	1,419			$	1,196
Net income per common share, diluted	$	0.45			$	0.43			$	0.43			$	0.50			$	0.43
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
	Sept 30,				June 30,				Mar 31,				Dec 31,				Sept 30,
		2015				2015				2015				2014				2014
FINANCIAL POSITION:
Cash and cash equivalents	$	18,959			$	27,493			$	28,335			$	12,504			$	23,891
Investment securities		227,363				231,712				232,958				231,656				198,086
Loans held for sale		0				0				0				617				0
Loans and leases		470,396				472,335				464,100				455,603				449,407
Allowance for credit losses		(4,729	)			(5,108	)			(5,190	)			(4,906	)			(4,887	)
Net loans and leases		465,667				467,227				458,910				450,697				444,520
Premises and equipment, net		6,630				6,629				7,490				7,668				7,825
Other assets		23,272				22,882				20,747				20,188				21,098
Total assets	$	741,891			$	755,943			$	748,440			$	723,330			$	695,420
Demand Deposits	$	120,018			$	122,642			$	113,419			$	102,107			$	116,758
NOW		189,502				209,606				215,799				205,816				173,168
Money markets		139,213				145,283				144,648				143,483				143,771
Savings		71,316				73,461				70,363				66,634				64,550
Core Deposits		520,049				550,992				544,229				518,040				498,247
Time deposits		69,744				56,729				72,784				76,805				80,898
Brokered deposits		18,665				18,655				10,248				10,238				10,221
Total Deposits		608,458				626,376				627,261				605,083				589,366
FHLB advances		20,000				20,000				20,000				20,000				10,000
Repurchase agreements		30,501				28,211				20,316				19,221				19,330
Subordinated debt		9,750				9,750				0				0				0
Other borrowings		9,754				9,764				19,524				9,784				9,793
Other liabilities		5,060				5,218				5,166				5,334				4,568
Stockholders' equity		58,368				56,624				56,173				63,908				62,363
Total liabilities and stockholders' equity	$	741,891			$	755,943			$	748,440			$	723,330			$	695,420

DNB Financial Corporation
Condensed Consolidated Statements of Financial Condition - Quarterly Average Balances (Unaudited)
(Dollars in thousands)
	Sept 30,				June 30,				Mar 30,				Dec 31,				Sept 30,
		2015				2015				2015				2014				2014
FINANCIAL POSITION:
Cash and cash equivalents	$	19,820			$	26,909			$	18,037			$	24,709			$	19,670
Investment securities		230,402				239,364				237,697				209,700				198,289
Loans held for sale		74				96				66				61				253
Loans and leases		469,896				459,464				460,585				450,040				439,560
Allowance for credit losses		(5,182	)			(5,280	)			(5,000	)			(4,983	)			(4,974	)
Net loans and leases		464,714				454,184				455,585				445,057				434,586
Premises and equipment, net		6,587				7,461				7,607				7,797				7,933
Other assets		20,021				17,339				17,006				17,199				16,794
Total assets	$	741,618			$	745,353			$	735,998			$	704,523			$	677,525
Demand Deposits	$	118,282			$	114,458			$	108,452			$	108,736			$	111,088
NOW		197,802				210,677				211,875				184,505				173,810
Money markets		144,115				144,927				143,976				144,649				135,199
Savings		71,740				71,762				68,238				65,812				64,413
Core Deposits		531,939				541,824				532,541				503,702				484,510
Time deposits		56,702				70,079				74,618				79,233				76,354
Brokered deposits		18,658				11,543				10,241				10,224				9,784
Total Deposits		607,299				623,446				617,400				593,159				570,648
FHLB advances		20,000				20,000				20,000				13,913				10,000
Repurchase agreements		31,732				20,614				17,812				19,354				20,374
Subordinated Debt		9,750				9,750				2,925				0				0
Other borrowings		10,000				9,791				10,214				9,915				9,905
Other liabilities		5,073				5,156				5,161				4,499				4,248
Stockholders' equity		57,764				56,596				62,486				63,683				62,350
Total liabilities and stockholders' equity	$	741,618			$	745,353			$	735,998			$	704,523			$	677,525

For further information, please contact: 
Gerald F. Sopp CFO/Executive Vice-President
484.359.3138
gsopp@dnbfirst.com