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DNB Financial Corporation Reports Third Quarter 2017 Results

Company Release - 10/24/2017 8:00 AM ET

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

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Source: DNB Financial Corp