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Press Release

DNB Financial Corporation Reports Fourth Quarter and Full-Year 2016 Results

Company Release - 1/24/2017 10:24 AM ET

DOWNINGTOWN, Pa., Jan. 24, 2017 (GLOBE NEWSWIRE) -- DNB Financial Corporation (Nasdaq:DNBF), today reported net income available to common stockholders in accordance with generally accepted accounting principles (“GAAP”) of $2.3 million, or $0.55 per diluted share, for the quarter ending December 31, 2016, compared with $1.4 million, or $0.48 per diluted share for the same quarter, in 2015.  For the year ending December 31, 2016, net income available to common shareholders was $5.0 million, or $1.55 per share, compared with $5.1 million, or $1.79 per 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 October 1, 2016, the Company completed its acquisition of Philadelphia-based East River Bank ("East River"), which added approximately $311 million in loans, and $226 million in deposits.  The system integration and rebranding was successfully completed on November 4, 2016. 

On a core basis, the Company reported net income available to common stockholders of $2.0 million, or $0.48 per diluted share, for the quarter ending December 31, 2016, compared with $1.3 million, or $0.45 per share, for the corresponding prior year quarter.  Core earnings, which is a non-GAAP measure of net income, excludes merger-related expenses of $280,000, purchase accounting adjustments of $761,000, amortization of intangible assets of $27,000, and an associated income tax adjustment of $165,000 for the three months ending December 31, 2016.  Core earnings were $5.5 million, or $1.70 per diluted share, for the year ending December 31, 2016, compared with $4.9 million, or $1.74 per diluted share, for the same period, in 2015.  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, “2016 was another year of strong operating performance highlighted by the successful acquisition and integration of East River Bank in the fourth quarter.  Core earnings remained solid throughout the year and we are particularly pleased with our strong credit quality and continued growth of our wealth management business.” 

Highlights

  • Primarily due to the acquisition of East River, total loans increased $335.8 million, or 70.0%, on a year-over-year basis and $308.1 million or 60.4% (not annualized) on a sequential quarter basis. 
     
  • The net interest margin increased to 3.63% for the quarter ending December 31, 2016, compared with 3.14% for the year-earlier quarter and 3.06% for the quarter ending September 30, 2016.  The improvement was primarily due to the acquisition of East River Bank.
     
  • Core deposits grew $146.8 million or 28.1% on a year over year basis and $118.3 million or 21.5% (not annualized) on a sequential quarter basis. The increase was mainly due to core deposits acquired in the East River acquisition.
     
  • Asset quality remained strong.  Net loan charge-offs were only 0.01% (annualized) of total average loans for the fourth quarter of 2016, and non-performing loans were 1.14% of total loans at year-end.
     
  • Wealth management assets under care increased 11.8% to $214.2 million as of December 31, 2016, from $191.5 million as of December 31, 2015. 
     
  • The Board of Directors declared a cash dividend of $0.07 per share, paid on December 22, 2016.

Income Statement Summary

Based on core earnings of $2.0 million, the Company’s performance for the quarter ending December 31, 2016 generated a return on average assets (“ROAA”) and return on average tangible common equity (“ROTCE”) of 0.74% and 10.34%, respectively.  The core ROAA and ROTCE for the same quarter last year were 0.69% and 8.67%, respectively.  Please see the “Reconciliation of Non-GAAP Financial Measures” on page 6 of the release.

Total interest income for the three months ending December 31, 2016 was $10.6 million, which represented a $4.3 million increase from the quarter ending September 30, 2016, and a $4.4 million increase for the three months ending December 31, 2015.  The year-over-year increase was primarily due to a 72.8% rise in total average loans and a 57 basis point increase in the yield on earning assets for the quarter ending December 31, 2016.  The main driver for the increase in both volume and rate was the East River acquisition.  The weighted average yield on total interest-earning assets included purchase accounting fair value adjustments.  On a core basis, which excludes the purchase accounting adjustments, the net interest margin was 3.33% for the three months ended December 31, 2016.

Total interest expense was $1.2 million for the three months ending December 31, 2016, compared with $760,000 for the third quarter of 2016, and $717,000 for the fourth quarter of 2015.  The year-over-year increase was primarily due to a higher amount of interest-bearing liabilities, largely due to the East River acquisition, as the weighted average cost of funds remains at historically low levels.

The loan loss provision was $100,000 for the most recent quarter compared with $290,000 for the three months ended December 31, 2015.  As of December 31, 2016, the Company’s allowance for loan losses was $5.4 million and represented 0.66% of total loans.  Loans acquired in connection with the purchase of East River have been 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 loan losses.  At December 31, 2016, the allowance for loan losses as a percentage of originated loans, which represents all loans other than those acquired, was 1.04%.

Total non-interest income for the fourth quarter of 2016 was $1.3 million, compared with $1.3 million for the same quarter, in 2015.  Total non-interest income for the fourth quarter of 2015, included a $120,000 gain from the insurance proceeds associated with a fire at one of the Bank’s locations. Wealth management fees were $403,000 for the fourth quarter of 2016, compared with $393,000 for the third quarter of 2016, and $394,000 for the quarter ending December 31, 2015. 

Non-interest expense was $7.3 million for the fourth quarter of 2016, compared with $6.7 million for the third quarter of 2016, and $4.7 million for the quarter ending December 31, 2015.  Non-interest expense for the quarter ending December 31, 2016 included merger-related costs of $280,000 and $480,000 for the write down of OREO property to its net realizable value. Compared to the third quarter of 2016, in addition to the write down of OREO property mentioned above, the increase in non interest expense was largely due to the East River acquisition. Compared to the fourth quarter of 2015, increases were largely due to addition of East River staff, offices and equipment as well as related due diligence and merger expense and the write down of OREO property mentioned above.

Balance Sheet Summary

Balance sheet growth, including intangible assets, on both a sequential quarter basis and year-over-year basis was largely attributable to the acquisition of East River. As of December 31 2016, total assets were $1.1 billion compared with $748.8 million as of December 31, 2015.  On a sequential quarter basis, total assets increased $301.1 million, or 39.1% (not annualized). 

On a sequential quarter basis, total loans increased $308.1 million, or 60.1% (not annualized), to $817.5 million as of December 31, 2016.  As of the same date, total loans were 76.3% of total assets.  The loan growth occurred primarily in the commercial real estate loan category.  As of December 31, 2016, the loan-to-deposit ratio was 92.3%.

Total deposits were $885.2 million as of December 31, 2016, compared with $606.3 million as of December 31, 2015, an increase of $278.9 million or 46.0%, and increased $239.6 million, or 37.1% (not annualized), on a sequential quarter basis. As of December 31, 2016, total shareholders’ equity was $94.8 million, compared with $55.5 million as of December 31, 2015.  Tangible book value per share was $18.56 as of December 31, 2016. Intangible assets were $16.1 million as of December 31, 2016, including goodwill of $15.5 million. 

Capital ratios continue to exceed minimum regulatory standards for well-capitalized institutions.  As of December 31, 2016, the tier 1 leverage ratio was 8.42%, the tier 1 risk-based capital was 10.65%, the common equity tier 1 risk-based capital ratio was 9.59% and the total risk-based capital ratio was 12.48%. As of the same date, the tangible common equity-to-tangible assets ratio was 7.46%. 

Asset Quality Summary

Asset quality remained solid as net charge-offs were only 0.01% of total average loans for the quarter ending December 31, 2016, compared with 0.03% for the quarter ending September 30, 2016, and 0.07% for the quarter ending December 31, 2015.  Total non-performing assets, including loans and other real estate property, were $12.1 million as of December 31, 2016, or 1.13% of total assets, compared with $9.9 million as of September 31, 2016, or 1.36% of total assets. The total amount of non-performing assets increased due to loans and other assets acquired with the East River acquisition.  The ratio of non-performing loans to total loans was 1.14% as of December 31, 2016. 

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 Twelve Months Ended
 December 31, December 30,
  2016   2015   2016   2015 
EARNINGS:           
Interest income$10,617  $6,190  $29,179  $24,478 
Interest expense 1,206   717   3,324   2,712 
Net interest income 9,411   5,473   25,855   21,766 
Provision for credit losses 100   290   730   1,105 
Non-interest income 1,279   1,107   4,714   4,327 
Gain from insurance proceeds -   120   1,180   120 
Gain on sale of investment securities -   4   431   78 
Gain (loss) on sale of SBA loans -   68   39   484 
Loss on sale / writedown of OREO and ORA 480   (20)  644   134 
Due diligence & merger expense 280   -   2,241   - 
Non-interest expense 6,587   4,742   21,756   18,895 
Income before income taxes 3,243   1,760   6,848   6,641 
Income tax expense 930   378   1,869   1,503 
Net income 2,313   1,382   4,979   5,138 
Preferred stock dividends -   8   -   50 
Net income available to common stockholders$2,313  $1,374  $4,979  $5,088 
Net income per common share, diluted$0.55  $0.48  $1.55  $1.79 
            
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands, except per share data)
            
 Three Months Ended Twelve Months Ended
 December 31, December 31,
  2016   2015   2016   2015 
            
GAAP net income$2,313  $1,374  $4,979  $5,088 
Net gains on sale of securities -   (3)  (431)  (78)
Gains from insurance proceeds -   (120)  (1,180)  (120)
Salary expense related to restricted stock and SERP -   -   446   - 
Due diligence & merger expense 280   -   2,241   - 
Accretion of purchase accounting fair value marks (761)  -   (761)  - 
Amortization of Intangible Assets 27   -   37   - 
Income tax adjustment 165   34   131   55 
Non-GAAP net income (Core earnings)$2,024  $1,285  $5,462  $4,945 
            
Earnings per common share:           
Basic$0.48  $0.46  $1.71  $1.76 
Diluted$0.48  $0.45  $1.70  $1.74 
            
Weighted average common shares outstanding:           
Basic 4,203   2,812   3,186   2,802 
Diluted 4,230   2,857   3,219   2,847 


DNB Financial Corporation
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)
               
 Quarterly
 2016  2016  2016  2016  2015 
 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
Earnings and Per Share Data              
Net income available to common stockholders$2,313  $1  $1,109  $1,556  $1,374 
Basic earnings per common share$0.55  $0.00  $0.39  $0.55  $0.49 
Diluted earnings per common share$0.55  $0.00  $0.39  $0.54  $0.48 
Core diluted earnings per common share (non-GAAP)$0.48  $0.42  $0.47  $0.40  $0.45 
Dividends per common share$0.07  $0.07  $0.07  $0.07  $0.07 
Book value per common share$22.36  $20.76  $20.90  $20.45  $19.65 
Tangible book value per common share$18.56  $20.73  $20.88  $20.38  $19.58 
Average common shares outstanding 4,203   2,853   2,849   2,833   2,812 
Average diluted common shares outstanding 4,230   2,886   2,883   2,869   2,857 
               
Performance Ratios              
Return on average assets 0.84%  0.00%  0.59%  0.84%  0.74%
Core return on average assets (non-GAAP) 0.74%  0.63%  0.71%  0.63%  0.69%
Return on average equity 9.78%  0.01%  7.56%  10.94%  9.32%
Core return on average equity (non-GAAP) 8.56%  8.23%  8.54%  8.16%  8.66%
Return on average tangible equity 12.04%  0.01%  7.57%  10.98%  9.35%
Core return on average tangible equity (non-GAAP) 10.34%  8.75%  9.17%  8.19%  8.67%
Net interest margin 3.63%  3.06%  3.08%  3.15%  3.14%
Core net interest margin (non-GAAP) 3.33%  3.06%  3.08%  3.15%  3.14%
Efficiency ratio 62.47%  94.43%  74.38%  78.66%  68.27%
Core efficiency ratio (non-GAAP) 64.41%  72.73%  70.39%  72.33%  70.38%
Wtd average yield on earning assets 4.10%  3.47%  3.46%  3.51%  3.53%
Core wtd average yield on earning assets (non-GAAP) 3.91%  3.47%  3.46%  3.51%  3.53%
               
Asset Quality Ratios              
Net charge-offs (recoveries) to average loans 0.01%  0.03%  0.10%  0.08%  0.07%
Non-performing loans/Total loans 1.14%  1.36%  1.54%  1.06%  1.06%
Non-performing assets/Total assets 1.13%  1.28%  1.38%  1.02%  1.02%
Allowance for credit loss/Total loans 0.66%  1.04%  1.06%  1.06%  1.02%
Allowance for credit loss/Non-performing loans 57.74%  76.28%  69.12%  99.64%  96.91%
               
Capital Ratios              
Total equity/Total assets 8.86%  7.69%  7.79%  7.64%  7.41%
Tangible equity/Tangible assets 7.46%  7.68%  7.78%  7.61%  7.40%
Tier 1 leverage ratio 8.42%  9.06%  9.11%  9.16%  8.94%
Common equity tier 1 risk-based capital ratio 9.59%  10.50%  10.82%  10.71%  10.44%
Tier 1 risk-based capital ratio 10.65%  12.06%  12.43%  12.34%  12.08%
Total risk-based capital ratio 12.48%  14.72%  15.16%  15.07%  14.78%
               
Wealth Management Assets under care*$214,170  $210,800  $200,586  $199,296  $191,529 
               
*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 
 Dec 31, Sept 30, June 30, Mar 31, Dec 31, 
 2016  2016  2016  2016  2015  
EARNINGS:               
Interest income$10,617  $6,277  $6,180  $6,105  $6,190  
Interest expense 1,206   760   708   650   717  
Net interest income 9,411   5,517   5,472   5,455   5,473  
Provision for loan losses 100   100   200   330   290  
Non-interest income 1,279   1,142   1,184   1,109   1,107  
Gain from insurance proceeds -   30   -   1,150   120  
Gain on sale of investment securities -   197   203   31   4  
Gain on sale of SBA loans -   -   -   39   68  
(Gain) loss on sale / write-down of OREO and ORA 480   160   4   -   (20) 
Due diligence & merger expense 280   1,498   275   188   -  
Non-interest expense 6,587   5,046   4,893   5,230   4,742  
Income before income taxes 3,243   82   1,487   2,036   1,760  
Income tax expense 930   81   378   480   378  
Net income 2,313   1   1,109   1,556   1,382  
Preferred stock dividends -   -   -   -   8  
Net income available to common stockholders$2,313  $1  $1,109  $1,556  $1,374  
*Net income per common share, diluted$0.55  $0.00  $0.39  $0.54  $0.48  
                
*The sum of the four quarters EPS data does not equal the annual EPS data due to the issuance of 1,368,527 additional shares in the fourth quarter, to complete the acquisition of East River. 
  
                
Condensed Consolidated Statements of Financial Condition (Unaudited) 
(Dollars in thousands) 
                
 Dec 31, Sept 30, June 30, Mar 31, Dec 31, 
 2016  2016  2016  2016  2015  
FINANCIAL POSITION:               
Cash and cash equivalents$22,103  $30,442  $20,146  $38,740  $21,119  
Investment securities 182,206   195,477   223,140   207,023   220,208  
Loans held for sale -   -   -   359   -  
Loans and leases 817,529   509,475   494,417   489,366   481,758  
Allowance for credit losses (5,373)  (5,303)  (5,247)  (5,172)  (4,935) 
Net loans and leases 812,156   504,172   489,170   484,194   476,823  
Premises and equipment, net 9,243   9,033   8,557   7,817   6,806  
Goodwill 15,590   -   -   -   -  
Other assets 29,387   31,148   23,159   23,307   23,862  
Total assets$1,070,685  $770,272  $764,172  $761,440  $748,818  
                
Demand Deposits$173,467  $146,731  $135,212  $131,951  $125,581  
NOW 224,219   169,400   185,279   201,566   185,973  
Money markets 184,783   160,312   149,108   138,241   137,555  
Savings 86,176   73,867   75,236   75,535   72,660  
Core Deposits 668,645   550,310   544,835   547,293   521,769  
Time deposits 187,256   71,920   73,560   71,264   66,018  
Brokered deposits 29,286   23,313   23,449   18,498   18,488  
Total Deposits 885,187   645,543   641,844   637,055   606,275  
FHLB advances 55,332   20,000   20,000   20,000   30,000  
Repurchase agreements 11,889   19,483   17,748   21,661   32,416  
Subordinated Debt 9,750   9,750   9,750   9,750   9,750  
Other borrowings 9,697   9,710   9,721   9,733   9,743  
Other liabilities 3,990   6,569   5,572   5,061   5,146  
Stockholders' equity 94,840   59,217   59,537   58,180   55,488  
Total liabilities and stockholders' equity$1,070,685  $770,272  $764,172  $761,440  $748,818  


DNB Financial Corporation
Condensed Consolidated Statements of Financial Condition - Quarterly Average Balances (Unaudited)
(Dollars in thousands)
                
  Dec 31,  Sept 30,  June 30,  Mar 31,  Dec 31, 
  2016   2016   2016   2016   2015  
FINANCIAL POSITION:               
Cash and cash equivalents$37,239  $25,208  $36,113  $23,080  $19,532  
Investment securities 192,359   217,593   213,235   215,565   227,936  
Loans held for sale 137   87   147   28   61  
Loans and leases 815,470   498,627   488,396   483,125   473,643  
Allowance for credit losses (5,512)  (5,344)  (5,265)  (5,025)  (4,831) 
Net loans and leases 809,958   493,283   483,131   478,100   468,812  
Premises and equipment, net 9,218   8,844   8,332   7,222   6,609  
Goodwill 15,590   -   -   -   -  
Other assets 22,457   19,829   19,222   19,678   19,415  
Total assets$1,086,958  $764,844  $760,180  $743,673  $742,365  
                
Demand Deposits$181,415  $137,437  $131,134  $120,391  $122,235  
NOW 224,101   176,704   192,339   193,548   183,129  
Money markets 177,885   156,412   142,768   137,121   140,136  
Savings 87,096   74,652   75,254   74,653   71,637  
Core Deposits 670,497   545,205   541,495   525,713   517,137  
Time deposits 186,287   72,324   75,541   70,927   68,731  
Brokered deposits 27,406   23,307   20,754   18,491   18,638  
Total Deposits 884,190   640,836   637,790   615,131   604,506  
FHLB advances 64,846   20,000   20,003   23,111   22,391  
Repurchase agreements 18,972   18,381   19,103   23,040   31,914  
Subordinated Debt 9,750   9,750   9,750   9,750   9,750  
Other borrowings 9,799   10,383   9,728   10,783   9,875  
Other liabilities 5,592   5,367   4,939   4,818   5,070  
Stockholders' equity 93,809   60,127   58,867   57,040   58,859  
Total liabilities and stockholders' equity$1,086,958  $764,844  $760,180  $743,673  $742,365  

 

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