DNB Financial Corporation Reports Third Quarter 2016 Results

DOWNINGTON, Pa., Oct. 20, 2016 (GLOBE NEWSWIRE) -- DNB Financial Corporation (Nasdaq:DNBF), today reported net income available to common stockholders in accordance with generally accepted accounting principles (“GAAP”) of $1,000, or less than a penny per diluted share, for the quarter ending September 30, 2016, compared with $1.3 million, or $0.44 per diluted share, for the same quarter, last year. For the nine months ending September 30, 2016, net income available to common shareholders was $2.7 million, or $0.93 per diluted share, compared with $3.7 million, or $1.31 per diluted share for the corresponding prior year period.

DNB Financial Corporation (the “Company” or “DNB”) is the parent of DNB First, National Association, one of the first nationally-chartered community banks to serve the greater Philadelphia region.

On a core basis, the Company reported net income available to common stockholders of $1.2 million, or $0.42 per diluted share, for the quarter ending September 30, 2016 compared with $1.3 million, or $0.44 per diluted share, for the corresponding prior year period. Core earnings, which is a non-GAAP measure of net income, excludes merger-related expenses of $1.5 million, gains from insurance proceeds of $30,000, and an associated income tax adjustment of $259,000 for the three months ending September 30, 2016. Core earnings were $3.7 million, or $1.29 per diluted share, for the nine months ending September 30, 2016, compared with $3.7 million, or $1.31 per diluted share, for the same period, last year. Please see the Reconciliation of Non-GAAP Financial Measures on page 6 of the release. Non-GAAP financial measures include references to the terms “core” or “operating”.

William J. Hieb, President and CEO, commented, "Third quarter results represent good operating trends, which reflect our steadfast commitment to disciplined banking. We are particularly pleased with our solid loan and core deposit growth, continued stable credit quality, and wealth management business. On October 1, 2016, we successfully completed the acquisition of East River Bank and we are excited about the opportunities this combination provides us to grow our customer relationships in southeastern Pennsylvania.”

Highlights

  • Total loans increased 8.3% on a year-over-year basis and 3.0% (not annualized) on a sequential quarter basis. Total growth for the third quarter of 2016 was primarily due to stronger demand for commercial real estate loans and consumer loans.
  • Core deposits increased 5.8% and 1.0% (not annualized) on a year-over-year basis and sequential quarter basis, respectively. As of September 30, 2016, core deposits were 85.3% of total deposits.
  • Asset quality remained stable. Net loan charge-offs were only 0.03% (annualized) of total average loans for the third quarter of 2016, and non-performing loans were 1.36% of total loans at quarter-end.
  • Wealth management assets under care increased 10.1% (not annualized) to $210.8 million as of September 30, 2016, from $191.5 million as of December 31, 2015.
  • On October 1, 2016, the Company completed its acquisition of Philadelphia-based East River Bank. The combination of the two companies will have total assets, loans, and deposits of approximately $1.1 billion, $764 million, and $841 million, respectively, with 15 offices in Chester, Delaware and Philadelphia counties.
  • The Company paid a quarterly cash dividend of $0.07 on September 20, 2016.

Income Statement Summary

Based on core earnings of $1.2 million, the Company’s performance for the quarter ending September 30, 2016 generated a return on average assets (“ROAA”) and return on average tangible common equity (“ROTCE”) of 0.63% and 7.98%, respectively. The core ROAA and ROTCE were 0.68% and 8.75%, respectively, for the same quarter, last year. Please see the “Reconciliation of Non-GAAP Financial Measures” on page 6 of the release.

Total interest income for the three months ending September 30, 2016 was $6.3 million, which represented a $97,000 increase from the quarter ending June 30, 2016, and a $116,000 increase for the three months ending September 30, 2015. The year-over-year increase was primarily due to a 6.1% rise in total average loans, which offset a seven basis point decline in the net interest margin. On a sequential quarter basis, total average loans increased $10.2 million, or 2.1% (not annualized). The weighted average yield on total interest-earning assets was 3.47% for the quarter ending September 30, 2016, compared with 3.46% for the previous quarter.

Total interest expense increased $52,000 to $760,000 for the third quarter of 2016 from $708,000 for the second quarter of 2016. The sequential quarter increase was primarily due to a two basis point rise in the weighted average cost of interest-bearing liabilities to 0.43%. The increase was the result of a $13.6 million increase in the average Money Market account balances due to a special interest rate promotion during the quarter, offset in part by a $15.6 million decrease in average NOW account balances. Total interest expense also went up $49,000, compared with the three months ending September 30, 2015. The year-over-year increase was primarily due to a higher amount of interest-bearing liabilities as the weighted average cost of funds was 0.42%, for the same quarter, last year.

On both a year-over-year and sequential quarter basis, the net interest margin remained relatively stable despite continuing pressure from ultra-low interest rates and the flattening yield curve. The net interest margin was 3.06% for the third quarter of 2016, compared with 3.13% for the same quarter, last year. On a sequential quarter basis, the net interest margin slipped only two basis points from 3.08% for the three months ending June 30, 2016.

The loan loss provision was $100,000 for both the most recent quarter and the three months ended September 30, 2015. Net loan charge-offs were only $44,000, or 0.03% (annualized) of total average loans, for the September 30, 2016 quarter. As of September 30, 2016, the Company’s allowance for credit losses was $5.3 million and represented 1.04% of total loans.

Total non-interest income for the third quarter of 2016 was $1.4 million, compared with $1.4 million for the prior quarter and $1.0 million for the quarter ended September 30, 2015. Total non-interest income for the third quarter of 2016 included a $30,000 gain from the insurance proceeds associated with the fire at our West Chester location. Wealth management fees were $393,000 for the third quarter of 2016 compared with $440,000 for the second quarter of 2016, and $317,000 for the quarter ending September 30, 2015. Wealth management fees represented approximately one-third of total fee income. Gains from the sale of investment securities were $197,000 for the three months ending September 30, 2016, compared with $203,000 for the quarter ending June 30, 2016, and $10,000 for the quarter ended September 30, 2015.

Non-interest expense was $6.7 million for the third quarter of 2016, compared with $5.2 million for the second quarter of 2016, and $4.8 million for the quarter ending September 30, 2015. Non-interest expense for the quarter ending September 30, 2016 included merger-related costs of $1.5 million associated with East River Bank. Excluding these items, non-interest expense was $5.2 million for the quarter ending September 30, 2016. On a sequential quarter basis, salary and employee benefits expense increased $124,000, or 4.6% (not annualized), primarily due to new hires and incentives. Occupancy and equipment increased $136,000, or 16.8% (not annualized), largely due to the West Chester branch office being reopened following a fire, which occurred in the second quarter of 2015. Rent and depreciation expense had been suspended since that time. Please see the Reconciliation of Non-GAAP Financial Measures on page 6 of the release.

Balance Sheet Summary

As of September 30, 2016, total assets were $770.3 million compared with $748.8 million as of December 31, 2015. On a sequential quarter basis, total assets increased $6.1 million, or 0.80% (not annualized), as loan growth was offset by a decrease in investment securities. Total deposits increased $3.7 million, or 0.58% (not annualized), on a sequential quarter basis. As of September 30, 2016, total shareholders’ equity was $59.2 million, compared with $55.5 million as of December 31, 2015. Tangible book value per share was $20.73 as of September 30, 2016 compared with $19.58 as of December 31, 2015.

On a sequential quarter basis, total loans increased $15.1 million, or 3.0% (not annualized), to $509.5 million as of September 30, 2016. As of the same date, total loans were 66.1% of total assets. The loan growth occurred primarily in the commercial real estate and consumer loan categories. The Company remains disciplined and intends to maintain conservative underwriting standards while growing commercial-oriented loans in a competitive market.

On a sequential quarter basis, total core deposits increased $5.5 million to $550.3 million and were 85.2% of total deposits as of September 30, 2016. Total deposits were $645.5 million as of September 30, 2016, compared with $606.3 million as of December 31, 2015.

Capital ratios continue to exceed regulatory standards for well capitalized institutions. As of September 30, 2016, the common equity tier 1 ratio was 10.50%, the tier 1 leverage ratio was 9.1%, the tier 1 risk-based capital ratio was 12.1%, and the total risk-based capital ratio was 14.7%. As of the same date, the tangible equity-to-tangible assets ratio was 7.7%.

Asset Quality Summary

Asset quality remained solid as net charge-offs were only 0.03% of total average loans for the quarter ending September 30, 2016, compared with 0.10% for the quarter ending June 30, 2016, and 0.41% for the quarter ending September 30, 2015. Total non-performing assets, including loans and other real estate property, were $9.9 million as of September 30, 2016, compared with $10.5 million as of June 30, 2016 and $7.7 million as of December 31, 2015. The ratio of non-performing loans to total loans was 1.36% as of September 30, 2016, compared with 1.54% as of June 30, 2016. As of September 30, 2016, the allowance for credit losses to total loans ratio was 1.04%.

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. To date, model results indicate that interest rate risk remains moderate and within policy guidelines.

General Information

DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association, is a community bank headquartered in Downingtown, Pennsylvania with 15 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/.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations or predictions of future financial or business performance, conditions relating to DNB and East River Bank (“East River”) or other effects of the merger of DNB and East River. These forward-looking statements include statements with respect to DNB’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 DNB’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.

In addition to factors previously disclosed in the reports filed by DNB with the Securities and Exchange Commission (the “SEC”) and those identified elsewhere in this document, the following factors, among others, could cause actual results to differ materially from forward looking statements or historical performance: difficulties and delays in integrating the East River business or fully realizing anticipated cost savings and other benefits of the merger; business disruptions following the merger; the strength of the United States economy in general and the strength of the local economies in which DNB and East River conduct their 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 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 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 DNB’s products and services; the success of DNB 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; additional acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms; and the success of DNB at managing the risks involved in the foregoing. Annualized, pro forma, projected and estimated numbers presented herein are presented for illustrative purpose only, are not forecasts and may not reflect actual results.

DNB 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 DNB on its website or otherwise. DNB 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 DNB 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 SEC, 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,
2016 2015 2016 2015
EARNINGS:
Interest income$ 6,277 $ 6,161 $ 18,562 $ 18,288
Interest expense 760 711 2,118 1,995
Net interest income 5,517 5,450 16,444 16,293
Provision for credit losses 100 100 630 815
Non-interest income 1,142 1,027 3,435 3,220
Gain from insurance proceeds 30 - 1,180 -
Gain on sale of investment securities 197 10 431 74
Gain (loss) on sale of SBA loans - - 39 416
Loss on sale / writedown of OREO and ORA 160 154 164 154
Due diligence & merger expense 1,498 - 1,961 -
Non-interest expense 5,046 4,605 15,169 14,153
Income before income taxes 82 1,628 3,605 4,881
Income tax expense 81 359 939 1,125
Net income 1 1,269 2,666 3,756
Preferred stock dividends - 8 - 42
Net income available to common stockholders$ 1 $ 1,261 $ 2,666 $ 3,714
Net income per common share, diluted$ 0.00 $ 0.44 $ 0.93 $ 1.31
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
GAAP net income$ 1 $ 1,261 $ 2,666 $ 3,714
Gains from insurance proceeds (30) - (1,180) -
Salary expense related to restricted stock and SERP - - 446 -
Due diligence & merger expense 1,498 - 1,961 -
Income tax adjustment (259) - (177) -
Non-GAAP net income (Core earnings)$ 1,210 $ 1,261 $ 3,716 $ 3,714
Earnings per common share:
Basic$ 0.42 $ 0.45 $ 1.31 $1.33
Diluted$ 0.42 $ 0.44 $ 1.29 $ 1.31
Weighted average common shares outstanding:
Basic 2,853 2,807 2,845 2,798
Diluted 2,886 2,852 2,879 2,844


DNB Financial Corporation
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)
Quarterly
2016 2016 2016 2015 2015
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Earnings and Per Share Data
Net income available to common stockholders$ 1 $ 1,109 $ 1,556 $ 1,374 $ 1,261
Basic earnings per common share$ 0.00 $ 0.39 $ 0.55 $ 0.49 $ 0.45
Diluted earnings per common share$ 0.00 $ 0.39 $ 0.54 $ 0.48 $ 0.44
Dividends per common share$ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.07
Book value per common share$ 20.76 $ 20.90 $ 20.45 $ 19.65 $ 19.64
Tangible book value per common share$ 20.73 $ 20.88 $ 20.38 $ 19.58 $ 19.57
Average common shares outstanding 2,853 2,849 2,833 2,812 2,807
Average diluted common shares outstanding 2,886 2,883 2,869 2,857 2,852
Performance Ratios
Return on average assets 0.00% 0.59% 0.84% 0.74% 0.68%
Return on average equity 0.01% 7.56% 10.94% 9.32% 8.71%
Return on average tangible equity 0.01% 7.57% 10.98% 9.35% 8.75%
Net interest margin 3.06% 3.08% 3.15% 3.14% 3.13%
Efficiency ratio 94.43% 74.38% 78.66% 68.27% 68.09%
Wtd average yield on earning assets 3.47% 3.46% 3.51% 3.53% 3.52%
Asset Quality Ratios
Net charge-offs (recoveries) to average loans 0.03% 0.10% 0.08% 0.07% 0.41%
Non-performing loans/Total loans 1.36% 1.54% 1.06% 1.06% 0.90%
Non-performing assets/Total assets 1.28% 1.38% 1.02% 1.02% 0.87%
Allowance for credit loss/Total loans 1.04% 1.06% 1.06% 1.02% 1.01%
Allowance for credit loss/Non-performing loans 76.28% 69.12% 99.64% 96.91% 111.32%
Capital Ratios
Total equity/Total assets 7.69% 7.79% 7.64% 7.41% 7.87%
Tangible equity/Tangible assets 7.68% 7.78% 7.61% 7.40% 7.42%
Tier 1 leverage ratio 9.06% 9.11% 9.16% 8.94% 9.23%
Common equity tier 1 risk-based capital ratio 10.50% 10.82% 10.71% 10.44% 10.46%
Tier 1 risk-based capital ratio 12.06% 12.43% 12.34% 12.08% 12.74%
Total risk-based capital ratio 14.72% 15.16% 15.07% 14.78% 15.46%
Wealth Management
Assets under care*$ 210,800 $ 200,586 $ 199,296 $ 191,529 $ 184,535
*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,
2016 2016 2016 2015 2015
EARNINGS:
Interest income$ 6,277 $ 6,180 $ 6,105 $ 6,190 $ 6,161
Interest expense 760 708 650 717 711
Net interest income 5,517 5,472 5,455 5,473 5,450
Provision for loan losses 100 200 330 290 100
Non-interest income 1,142 1,184 1,109 1,107 1,027
Gain from insurance proceeds 30 - 1,150 120 -
Gain on sale of investment securities 197 203 31 4 10
Gain on sale of SBA loans - - 39 68 -
(Gain) loss on sale / write-down of OREO and ORA 160 4 - (20) 154
Due diligence & merger expense 1,498 275 188 - -
Non-interest expense 5,046 4,893 5,230 4,742 4,605
Income before income taxes 82 1,487 2,036 1,760 1,628
Income tax expense 81 378 480 378 359
Net income 1 1,109 1,556 1,382 1,269
Preferred stock dividends - - - 8 8
Net income available to common stockholders$ 1 $ 1,109 $ 1,556 $ 1,374 $ 1,261
Net income per common share, diluted$ 0.00 $ 0.39 $ 0.54 $ 0.48 $ 0.44
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
Sept 30, June 30, Mar 31, Dec 31, Sept 30,
2016 2016 2016 2015 2015
FINANCIAL POSITION:
Cash and cash equivalents$ 30,442 $ 20,146 $ 38,740 $ 21,119 $ 18,959
Investment securities 195,477 223,140 207,023 220,208 227,363
Loans held for sale - - 359 - -
Loans and leases 509,475 494,417 489,366 481,758 470,396
Allowance for credit losses (5,303) (5,247) (5,172) (4,935) (4,729)
Net loans and leases 504,172 489,170 484,194 476,823 465,667
Premises and equipment, net 9,033 8,557 7,817 6,806 6,630
Other assets 31,148 23,159 23,307 23,862 23,272
Total assets$ 770,272 $ 764,172 $ 761,440 $ 748,818 $ 741,891
Demand Deposits$ 146,731 $ 135,212 $ 131,951 $ 125,581 $ 120,018
NOW 169,400 185,279 201,566 185,973 189,502
Money markets 160,312 149,108 138,241 137,555 139,213
Savings 73,867 75,236 75,535 72,660 71,316
Core Deposits 550,310 544,835 547,293 521,769 520,049
Time deposits 71,920 73,560 71,264 66,018 69,744
Brokered deposits 23,313 23,449 18,498 18,488 18,665
Total Deposits 645,543 641,844 637,055 606,275 608,458
FHLB advances 20,000 20,000 20,000 30,000 20,000
Repurchase agreements 19,483 17,748 21,661 32,416 30,501
Subordinated Debt 9,750 9,750 9,750 9,750 9,750
Other borrowings 9,710 9,721 9,733 9,743 9,754
Other liabilities 6,569 5,572 5,061 5,146 5,060
Stockholders' equity 59,217 59,537 58,180 55,488 58,368
Total liabilities and stockholders' equity$ 770,272 $ 764,172 $ 761,440 $ 748,818 $ 741,891


DNB Financial Corporation
Condensed Consolidated Statements of Financial Condition - Quarterly Average Balances (Unaudited)
(Dollars in thousands)
Sept 30, June 30, Mar 31, Dec 31, Sept 30,
2016 2016 2016 2015 2015
FINANCIAL POSITION:
Cash and cash equivalents$ 25,208 $ 36,113 $ 23,080 $ 19,532 $ 19,820
Investment securities 217,593 213,235 215,565 227,936 230,402
Loans held for sale 87 147 28 61 74
Loans and leases 498,627 488,396 483,125 473,643 469,896
Allowance for credit losses (5,344) (5,265) (5,025) (4,831) (5,182)
Net loans and leases 493,283 483,131 478,100 468,812 464,714
Premises and equipment, net 8,844 8,332 7,222 6,609 6,587
Other assets 19,829 19,222 19,678 19,415 20,021
Total assets$ 764,844 $ 760,180 $ 743,673 $ 742,365 $ 741,618
Demand Deposits$ 137,437 $ 131,134 $ 120,391 $ 122,235 $ 118,282
NOW 176,704 192,339 193,548 183,129 197,802
Money markets 156,412 142,768 137,121 140,136 144,115
Savings 74,652 75,254 74,653 71,637 71,740
Core Deposits 545,205 541,495 525,713 517,137 531,939
Time deposits 72,324 75,541 70,927 68,731 56,702
Brokered deposits 23,307 20,754 18,491 18,638 18,658
Total Deposits 640,836 637,790 615,131 604,506 607,299
FHLB advances 20,000 20,003 23,111 22,391 20,000
Repurchase agreements 18,381 19,103 23,040 31,914 31,732
Subordinated Debt 9,750 9,750 9,750 9,750 9,750
Other borrowings 10,383 9,728 10,783 9,875 10,000
Other liabilities 5,367 4,939 4,818 5,070 5,073
Stockholders' equity 60,127 58,867 57,040 58,859 57,764
Total liabilities and stockholders' equity$ 764,844 $ 760,180 $ 743,673 $ 742,365 $ 741,618

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

Source:DNB Financial Corp