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Press Release

DNB Financial Corporation Reports Third Quarter 2016 Results

Company Release - 10/20/2016 8:30 AM ET

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

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Source: DNB Financial Corp