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DNB Financial Corporation Reports Third Quarter 2017 Results

DOWNINGTOWN, Pa., Oct. 24, 2017 (GLOBE NEWSWIRE) -- DNB Financial Corporation (Nasdaq: DNBF), today reported net income of $2.4 million, or $0.56 per diluted share, for the quarter ending September 30, 2017, compared with $1,000, or less than a penny per share, for the same quarter, last year. Earnings for the three month period ending September 30, 2016 included merger-related expenses of $1.5 million. For the nine months ending September 30, 2017, net income was $7.1 million, or $1.66 per diluted share, compared with $2.7 million, or $0.93 per diluted share, for the same period, last year.

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 October 1, 2016, the Company completed its acquisition of Philadelphia-based East River Bank ("East River") and its results of operations are included in the consolidated results for the periods ended December 31, 2016, March 31, 2017, June 30, 2017, and September 30, 2017, but are not included in the results of operations for any other periods.

William J. Hieb, President and CEO, commented, “Our third quarter results serve as an important milestone in the successful execution of DNB’s long term strategies. We continue to invest in the future by making critical hires and enhancing our technology to ensure the superior service our customers expect.” Mr. Hieb added, “Although the lending environment remains highly competitive, we are pleased to report that asset quality remained strong with net charge-offs amounting to just two basis points of total average loans.”

Highlights

  • The net interest margin was 3.72% for the quarter ending September 30, 2017 compared with 3.59% for the June 2017 quarter. The net interest margin, when excluding purchase accounting adjustments, was 3.42% and 3.39% for the same quarters, respectively.

  • Asset quality remained strong as net charge-offs were only 0.02% of total average loans for the quarter ending September 30, 2017. Non-performing loans were 0.87% of total loans at September 30, 2017.

  • On a sequential quarter basis, noninterest-bearing deposits increased $16.9 million over the three months ending September 30, 2017, and were 22.8% of total deposits. Total core deposits, however, slipped 3.3% (not annualized) and were 79.5% of total deposits as of September 30, 2017.

  • Wealth management assets under care increased 15.0% (not annualized) to $246.3 million as of September 30, 2017 from $214.2 million as of December 31, 2016. Wealth management fees represented 32.3% of total non-interest income.

  • The Company paid a quarterly cash dividend of $0.07 per share on September 20, 2017.

Income Statement Summary

Reported net income of $2.4 million for the third quarter of 2017 generated a return on average assets (“ROAA”) and return on average tangible common equity (“ROTCE”) of 0.90% and 11.2%, respectively.

Net interest income for the three months ending September 30, 2017 was $9.5 million, which represented a $4.0 million increase from the three months ending September 30, 2016. The year-over-year increase was primarily due to a $320.2 million, or 64.2%, rise in total average loans and 66 basis point increase in the reported net interest margin to 3.72% for the quarter ending September 30, 2017. The main driver for the increase in both volume and rate was the East River acquisition. Interest income for the third quarter of 2017 included $409,000 of purchase accounting adjustments recognized due to the pay-off of certain loans acquired from East River. For the third quarter of 2017, the weighted average yield on total interest-earning assets was 4.30%, which included purchase accounting adjustments. The net interest margin was 3.42% for the third quarter of 2017 compared with 3.39% for the second quarter of 2017 when excluding purchase accounting marks.

Total interest expense was $1.5 million for the three months ending September 30, 2017, compared with $1.4 million for the second quarter of 2017, and $760,000 for the third quarter of 2016. The year-over-year increase was primarily due to a higher amount of interest-bearing liabilities, largely due to the East River acquisition. The weighted average rate paid for interest-bearing liabilities was 0.61% and 0.56% for the quarters ending September 30, 2017 and June 30, 2017, respectively.

The provision for credit losses was $375,000 for the most recent quarter compared with $585,000 for the three months ended June 30, 2017 and $100,000 for the third quarter of 2016. As of September 30, 2017, the allowance for credit losses was $5.6 million and represented 0.68% of total loans. Loans acquired in connection with the purchase of East River were recorded at fair value based on an initial estimate of expected cash flows, including a reduction for estimated credit losses, and without carryover of the respective portfolio's historical allowance for credit losses. At September 30, 2017, the allowance for credit losses as a percentage of originated loans, which represents all loans other than those acquired, was 1.0%.

Total non-interest income for the third quarter of 2017 was $1.3 million, compared with $1.4 million for the same quarter, last year. Non-interest income was 11.8% of total revenue for the quarter ending September 30, 2017. There were no gains from the sale of securities realized in the third quarter of 2017, compared with $197,000 for the quarter ending September 30, 2016. Wealth management fees were $411,161 for the third quarter of 2017, compared with $393,372 for the third quarter of 2016. Wealth management fees represented 32.3% of total fee income.

Non-interest expense was $7.0 million for the third quarter of 2017, compared with $6.9 million for the second quarter of 2017, and $6.7 million for the quarter ending March 31, 2017. Merger-related costs were $1.5 million for the quarter ending September 30, 2016. Excluding merger-related costs, year-over-year increases were largely due to additional expenses related to staff, offices and equipment.

Balance Sheet Summary

As of September 30, 2017, total assets were $1.1 billion. On a sequential quarter basis, total assets were relatively stable across all major categories. Total deposits decreased $21.7 million, or 2.4% (not annualized), on a sequential quarter basis primarily due to a planned decrease in municipal balances as part of our liquidity management strategy. As of September 30, 2017, total shareholders’ equity was $101.9 million, compared with $94.8 million as of December 31, 2016. Tangible book value per share was $20.15 as of September 30, 2017, compared with $18.56 as of December 31, 2016.

On a sequential quarter basis, total loans increased $3.2 million, or 0.40% (not annualized), to $819.8 million as of September 30, 2017 and were 76.9% of total assets. The Company’s commercial real estate and commercial and industrial lending portfolios increased $7.6 million, or 1.7% and $2.3 million or 1.9% respectively (not annualized). Residential mortgage loans grew $1.6 million, or 1.9%, and commercial construction loans declined $7.7 million or 8.4%. All other loan categories experienced slight declines. Loan originations have been challenging as the Company continues to operate in a highly competitive market, while maintaining prudent underwriting standards.

On a sequential quarter basis, total core deposits decreased $23.4 million, or 3.3% (not annualized), and were 79.5% of total deposits as of September 30, 2017. As of the same date, non-interest-bearing deposits, which increased $16.9 million in the third quarter, were 22.8% of total deposits. The decline in core deposits in the third quarter of 2017 was primarily attributable to a decrease in money market and NOW accounts, which was partially offset by the aforementioned rise in demand accounts. Time deposits decreased $10.4 million, which was part of the Company’s asset/liability strategy. Brokered deposits, which the Company does not include as core, increased $12.0 million and were $41.8 million, or 4.8% of total deposits as of September 30, 2017. As of the same date, the loan-to-deposit ratio was 94.1%.

Capital ratios continue to exceed all regulatory standards for well-capitalized institutions. As of September 30, 2017, the tier 1 leverage ratio was 9.22%, the tier 1 risk-based capital was 11.88%, the common equity tier 1 risk-based capital ratio was 10.78% and the total risk based capital ratio was 13.79%. As of the same date, the tangible common equity-to-tangible assets ratio was 8.18%. Intangible assets and goodwill totaled $16.1 million as of September 30, 2017.

Asset Quality Summary

Asset quality remained strong as net charge-offs decreased to 0.02% of total average loans for the quarter ending September 30, 2017, from 0.36% for the quarter ending June 30, 2017, and 0.03% for the quarter ending September 30, 2016. Total non-performing assets, including loans and other real estate property, were $12.0 million as of September 30, 2017, compared with $12.2 million as of June 30, 2017, and $11.3 million as of December 31, 2016. The ratio of non-performing loans to total loans was 0.87% as of September 30, 2017, versus 1.04% as of December 31, 2016.

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. Simulation model results show moderate liability sensitivity to rising rates in 100, 200, 300 and 400 basis point shock scenarios. Rate changes ramped in over 24 months also show moderate liability sensitivity.

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 conducts its 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,
2017 2016 2017 2016
EARNINGS:
Interest income$10,989 $6,277 $32,144 $18,562
Interest expense 1,483 760 4,127 2,118
Net interest income 9,506 5,517 28,017 16,444
Provision for credit losses 375 100 1,285 630
Non-interest income 1,236 1,142 3,762 3,435
Gain from insurance proceeds - 30 80 1,180
Gain on sale of investment securities - 197 25 431
Gain on sale of SBA loans 35 - 132 39
Loss on sale / write-down of OREO and ORA 7 160 121 164
Due diligence & merger expense - 1,498 77 1,961
Non-interest expense 6,983 5,046 20,621 15,169
Income before income taxes 3,412 82 9,912 3,605
Income tax expense 1,001 81 2,774 939
Net income$2,411 $1 $7,138 $2,666
Net income per common share, diluted$0.56 $- $1.66 $0.93
Net income before taxes includes accretion of purchase accounting fair value marks of $754,000 and $1.8 million for the three and nine month periods ended September 30, 2017, respectively.


DNB Financial Corporation
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)

Quarterly
2017
2017
2017
2016
2016
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
Earnings and Per Share Data
Net income$2,411 $2,286 $2,441 $2,313 $1
Basic earnings per common share$0.57 $0.54 $0.57 $0.55 $-
Diluted earnings per common share$0.56 $0.53 $0.57 $0.55 $-
Dividends per common share$0.07 $0.07 $0.07 $0.07 $0.07
Book value per common share$23.90 $23.35 $22.88 $22.36 $20.76
Tangible book value per common share$20.15 $19.59 $19.11 $18.56 $20.73
Average common shares outstanding 4,262 4,258 4,247 4,203 2,853
Average diluted common shares outstanding 4,296 4,292 4,274 4,230 2,886
Performance Ratios
Return on average assets 0.90% 0.84% 0.92% 0.84% 0.00%
Return on average equity 9.42% 9.23% 10.28% 9.78% 0.01%
Return on average tangible equity 11.18% 11.00% 12.34% 12.04% 0.01%
Net interest margin 3.72% 3.59% 3.67% 3.63% 3.06%
Efficiency ratio 63.45% 63.80% 63.14% 62.47% 94.43%
Wtd average yield on earning assets 4.30% 4.12% 4.16% 4.10% 3.47%
Asset Quality Ratios
Net charge-offs to average loans 0.02% 0.36% 0.14% 0.01% 0.03%
Non-performing loans/Total loans 0.87% 0.84% 0.94% 1.04% 1.36%
Non-performing assets/Total assets 1.13% 1.13% 1.16% 1.05% 1.28%
Allowance for credit loss/Total loans 0.68% 0.65% 0.66% 0.66% 1.04%
Allowance for credit loss/Non-performing loans 78.68% 76.76% 70.56% 63.20% 76.28%
Capital Ratios
Total equity/Total assets 9.56% 9.19% 8.93% 8.86% 7.69%
Tangible equity/Tangible assets 8.18% 7.83% 7.57% 7.46% 7.68%
Tier 1 leverage ratio 9.22% 8.80% 8.75% 8.42% 9.06%
Common equity tier 1 risk-based capital ratio 10.78% 10.24% 9.71% 9.59% 10.50%
Tier 1 risk based capital ratio 11.88% 11.32% 10.75% 10.65% 12.06%
Total risk based capital ratio 13.79% 13.15% 12.56% 12.48% 14.72%
Wealth Management Assets under care*$246,294 $232,707 $224,490 $214,170 $210,800
*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,
2017 2017 2017 2016 2016
EARNINGS:
Interest income$ 10,989 $ 10,661 $ 10,494 $ 10,617 $ 6,277
Interest expense 1,483 1,382 1,262 1,206 760
Net interest income 9,506 9,279 9,232 9,411 5,517
Provision for credit losses 375 585 325 100 100
Non-interest income 1,236 1,300 1,226 1,279 1,142
Gain from insurance proceeds - - 80 - 30
Gain on sale of investment securities - 25 - - 197
Gain on sale of SBA loans 35 97 - - -
Loss (gain) on sale / write-down of OREO and ORA 7 115 (1) 480 160
Due diligence & merger expense - 26 51 280 1,498
Non-interest expense 6,983 6,943 6,695 6,587 5,046
Income before income taxes 3,412 3,032 3,468 3,243 82
Income tax expense 1,001 746 1,027 930 81
Net income$ 2,411 $ 2,286 $ 2,441 $ 2,313 $ 1
Net income per common share, diluted$ 0.56 $ 0.53 $ 0.57 $ 0.55 $ -
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands)
Sept 30, June 30, Mar 31, Dec 31, Sept 30,
2017 2017 2017 2016 2016
FINANCIAL POSITION:
Cash and cash equivalents$19,490 $36,189 $44,068 $22,103 $30,442
Investment securities 175,148 177,149 178,422 182,206 195,477
Loans held for sale 350 - 200 - -
Loans and leases 819,753 816,525 816,363 817,529 509,475
Allowance for credit losses (5,594) (5,267) (5,418) (5,373) (5,303)
Net loans and leases 814,159 811,258 810,945 812,156 504,172
Premises and equipment, net 8,898 9,099 9,203 9,243 9,033
Goodwill 15,525 15,525 15,525 15,590 -
Other assets 32,113 32,240 31,576 29,387 31,148
Total assets$1,065,683 $1,081,460 $1,089,939 $1,070,685 $770,272
Demand$198,399 $181,529 $176,199 $173,467 $146,731
NOW 195,455 209,355 218,133 224,219 169,400
Money market 217,870 240,434 221,356 184,783 160,312
Savings 81,030 84,820 84,700 86,176 73,867
Core deposits 692,754 716,138 700,388 668,645 550,310
Time deposits 136,759 147,110 177,335 187,256 71,920
Brokered deposits 41,815 29,811 28,045 29,286 23,313
Total deposits 871,328 893,059 905,768 885,187 645,543
FHLB advances 51,047 49,869 50,972 55,332 20,000
Repurchase agreements 15,383 15,700 11,474 11,889 19,483
Subordinated debt 9,750 9,750 9,750 9,750 9,750
Other borrowings 9,658 9,672 9,685 9,697 9,710
Other liabilities 6,633 4,005 5,002 3,990 6,569
Stockholders' equity 101,884 99,405 97,288 94,840 59,217
Total liabilities and stockholders' equity$1,065,683 $1,081,460 $1,089,939 $1,070,685 $770,272


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,
2017 2017 2017 2016 2016
FINANCIAL POSITION:
Cash and cash equivalents$ 20,673 $ 46,629 $ 27,406 $ 37,239 $ 25,208
Investment securities 182,930 182,124 185,676 192,359 217,593
Loans held for sale 49 10 41 137 87
Loans and leases 818,800 817,148 815,028 815,470 498,627
Allowance for credit losses (5,388) (5,557) (5,432) (5,512) (5,344)
Net loans and leases 813,412 811,591 809,596 809,958 493,283
Premises and equipment, net 9,032 9,188 9,267 9,218 8,844
Goodwill 15,525 15,525 15,589 15,590 -
Other assets 24,839 24,785 24,046 22,457 19,829
Total assets$ 1,066,460 $ 1,089,852 $ 1,071,621 $ 1,086,958 $ 764,844
Demand$ 188,804 $ 183,329 $ 172,984 $ 181,415 $ 137,437
NOW 199,311 209,433 218,357 224,101 176,704
Money market 223,448 232,662 197,615 177,885 156,412
Savings 82,971 84,946 85,348 87,096 74,652
Core deposits 694,534 710,370 674,304 670,497 545,205
Time deposits 142,846 166,459 180,819 186,287 72,324
Brokered deposits 35,474 26,709 28,326 27,406 23,307
Total deposits 872,854 903,538 883,449 884,190 640,836
FHLB advances 50,827 50,634 55,420 64,846 20,000
Repurchase agreements 16,070 12,551 12,858 18,972 18,381
Subordinated debt 9,750 9,750 9,750 9,750 9,750
Other borrowings 9,996 9,684 9,748 9,799 10,383
Other liabilities 5,433 4,353 4,070 5,592 5,367
Stockholders' equity 101,530 99,342 96,326 93,809 60,127
Total liabilities and stockholders' equity$ 1,066,460 $ 1,089,852 $ 1,071,621 $ 1,086,958 $ 764,844

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

Source:DNB Financial Corp