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DNB Financial Corporation Reports First Quarter 2017 Results

DOWNINGTOWN, Pa., April 24, 2017 (GLOBE NEWSWIRE) -- DNB Financial Corporation (Nasdaq:DNBF), today reported net income in accordance with generally accepted accounting principles (“GAAP”) of $2.4 million, or $0.57 per diluted share, for the quarter ending March 31, 2017, compared with $1.6 million, or $0.54 per diluted share, for the same quarter, 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 quarters ended December 31, 2016 and March 31, 2017, but are not included in the results of operations for the corresponding prior year periods. 

On a core basis, the Company reported net income of $1.9 million, or $0.45 per diluted share, for the quarter ending March 31, 2017, compared with $1.1 million, or $0.40 per diluted share, for the corresponding prior year quarter.  Core earnings, which is a non-GAAP measure of net income, excludes gains from insurance proceeds of $80,000, purchase accounting adjustments (accretion) of $661,000, merger-related expenses of $51,000, amortization of intangible assets of $23,000, and an associated income tax adjustment of $168,000 for the three months ending March 31, 2017.  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, “The Company delivered another quarter of solid earnings, despite the industry-wide challenge of growing loans.”  Mr. Hieb added, “The investment in deposit gathering capabilities has supported our strategy of funding prudent loan growth with high quality core deposits.  We are particularly pleased with our continued strong credit quality and solid growth of our wealth management business.” 

Highlights

  • On a sequential quarter basis, total core deposits grew $31.7 million, or 4.7% (not annualized), and were 77% of total deposits as of March 31, 2017.
  • The net interest margin increased to 3.67% for the quarter ending March 31, 2017, compared with 3.63% for the quarter ending December 31, 2016, and 3.15% for the quarter ending March 31, 2016.  The year-over-year improvement was primarily due to the acquisition of East River.
  • Asset quality remained strong.  Net loan charge-offs were only 0.14% (annualized) of total average loans for the first quarter of 2017, and non-performing loans were 0.94% of total loans at March 31, 2017.
  • Wealth management assets under care increased 4.8% (not annualized) to $224.5 million as of March 31, 2017 from $214.2 million as of December 31, 2016.
  • The Company paid a quarterly cash dividend of $0.07 per share on March 20, 2017.

Income Statement Summary

Based on core earnings of $1.9 million, the Company’s performance for the quarter ending March 31, 2017 generated a return on average assets (“ROAA”) and return on average tangible common equity (“ROTCE”) of 0.74% and 9.82%, respectively.  The core ROAA and ROTCE were 0.61% and 8.01%, respectively, for the same quarter last year.  Please see the “Reconciliation of Non-GAAP Financial Measures” on page 6 of the release.

Total net interest income for the three months ending March 31, 2017 was $9.2 million, which represented a $179,000 decrease from the quarter ending December 31, 2016, and a $3.8 million increase from the three months ending March 31, 2016.  The year-over-year increase was primarily due to a 68.7% rise in total average loans and 52 basis point increase in the net interest margin to 3.67% for the quarter ending March 31, 2017.  The main driver for the increase in both volume and rate was the East River acquisition.  For the first quarter of 2017, the weighted average yield on total interest-earning assets was 4.16%, which included purchase accounting adjustments.  On a core basis, which excludes the purchase accounting fair value marks, the core net interest margin was 3.38%. 

Total interest expense was $1.3 million for the three months ending March 31, 2017, compared with $1.2 million for the fourth quarter of 2016, and $650,000 for the first 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 provision for credit losses was $325,000 for the most recent quarter compared with $100,000 for the three months ended December 31, 2016 and $330,000 for the first quarter of 2016.  As of March 31, 2017, the allowance for credit losses was $5.4 million and represented 0.67% 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 credit losses.  At March 31, 2017, the allowance for credit losses as a percentage of originated loans, which represents all loans other than those acquired, was 1.04%.

Total non-interest income for the first quarter of 2017 was $1.3 million, compared with $2.3 million for the same quarter, last year.  Total non-interest income for the first quarter of 2016, included a $1.15 million gain from the insurance proceeds associated with a fire at one of the Bank’s locations.  On a core basis, non-interest income was approximately 12.9% of total revenue for the quarter ending March 31, 2017.  There were no gains from the sale of securities realized in the first quarter of 2017.  Wealth management fees were $374,000 for the first quarter of 2017, compared with $397,000 for the first quarter of 2016.  Wealth management fees represented 29% of total fee income. 

Non-interest expense was $6.7 million for the first quarter of 2017, compared with $7.3 million for the fourth quarter of 2016, and $5.4 million for the quarter ending March 31, 2016.  Non-interest expense for the quarter ending March 31, 2017 included merger-related costs of $51,000 and $23,000 amortization expense.  Compared with the first quarter of 2016, increases were largely due to addition of East River staff, offices and equipment as well as the aforementioned merger and amortization expense.

Balance Sheet Summary

As of March 31, 2017, total assets were $1.1 billion.  On a sequential quarter basis, total assets increased 1.8% (not annualized) as a $22.0 million increase in cash and cash equivalents was partially offset by a $3.8 million decrease in investment securities and a $1.2 million decline in total loans.  Total deposits increased $20.6 million, or 2.3% (not annualized), on a sequential quarter basis primarily due to growth in core deposits, partially offset by a planned decrease in time deposits.  As of March 31, 2017, total shareholders’ equity was $97.3 million, compared with $94.8 million as of December 31, 2016.  Tangible book value per share was $19.11 as of March 31, 2017, compared with $18.56 as of December 31, 2016.

On a sequential quarter basis, total loans decreased $1.2 million, or 0.1% (not annualized), to $816.4 million as of March 31, 2017.  As of the same date, total loans were 74.9% of total assets.  Total average loans, however, were flat on a sequential quarter basis as period-end balances were affected by loan payoffs in the latter part of the quarter.  Loan originations have been prudent and conservative underwriting standards have been maintained. The Company remains challenged to grow commercial-oriented loans in a competitive market characterized by cautious borrower demand.

On a sequential quarter basis, total core deposits grew $31.7 million, or 4.7% (not annualized), and were 77.3% of total deposits as of March 31, 2017.  As of the same date, noninterest-bearing deposits – which increased slightly in the first quarter – were 19.5% of total deposits.  Core deposit growth in the first quarter of 2017 was primarily attributable to an increase in money market accounts.  As of March 31, 2017, the loan-to-deposit ratio was 90.1%.

Capital ratios continue to exceed regulatory standards for well capitalized institutions.  At March 31, 2017, the tier 1 leverage ratio was 8.75%, the tier 1 risk-based capital was 10.75%, the common equity tier 1 risk-based capital ratio was 9.71% and the total risk based capital ratio was 12.56%. As of the same date, the tangible common equity-to-tangible assets ratio was 7.57%.  Intangible assets were $16.2 million as of March 31, 2017. 

Asset Quality Summary

Asset quality remained solid as net charge-offs were only 0.14% of total average loans for the quarter ending March 31, 2017, compared with 0.01% for the quarter ending December 31, 2016, and 0.08% for the quarter ending March 31, 2016.  Total non-performing assets, including loans and other real estate property, were $12.7 million as of March 31, 2017, compared with $12.1 million as of December 31, 2016.  The ratio of non-performing loans to total loans was 0.94% as of March 31, 2017, versus 1.14% 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  
  March 31,  
   2017    2016  
EARNINGS:            
Interest income $ 10,494     $ 6,105    
Interest expense   1,262       650    
Net interest income   9,232       5,455    
Provision for credit losses   325       330    
Non-interest income   1,226       1,109    
Gain from insurance proceeds   80       1,150    
Gain on sale of investment securities   -       31    
Gain (loss) on sale of SBA loans   -       39    
Gain on sale / write-down of OREO and ORA   (1 )     -    
Due diligence & merger expense   51       188    
Non-interest expense   6,695       5,230    
Income before income taxes   3,468       2,036    
Income tax expense   1,027       480    
Net income $ 2,441     $ 1,556    
Net income per common share, diluted $ 0.57     $ 0.54    
             
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands, except per share data)
             
  Three Months Ended  
  March 31,  
  2017   2016  
             
GAAP net income $ 2,441     $ 1,556    
Net gains on sale of securities*   -       (31 )  
Gains from insurance proceeds   (80 )     (1,150 )  
Salary expense related to restricted stock and SERP   -       446    
Due diligence & merger expense   51       188    
Accretion of purchase accounting fair value marks   (661 )     -    
Amortization of Intangible Assets   23       -    
Income tax adjustment   168       129    
Non-GAAP net income (Core earnings) $ 1,942     $ 1,138    
             
Earnings per common share:            
Basic $ 0.46     $ 0.40    
Diluted $ 0.45     $ 0.40    
             
Weighted average common shares outstanding:            
Basic   4,247       2,833    
Diluted   4,274       2,869    
             
*Starting with the quarter ended December 31, 2016, DNB excluded net gains on the sale of securities from core earnings.  The first quarter of 2016 has been restated for comparative purposes.  


                             
DNB Financial Corporation
Selected Financial Data (Unaudited)
(Dollars in thousands, except per share data)
                             
  Quarterly
  2017   2016   2016   2016
  2016
  1st Qtr   4th Qtr   3rd Qtr   2nd Qtr   1st Qtr
Earnings and Per Share Data                            
Net income $ 2,441   $ 2,313   $ 1   $ 1,109   $ 1,556
Basic earnings per common share $ 0.57   $ 0.55   $ 0.00   $ 0.39   $ 0.55
Diluted earnings per common share $ 0.57   $ 0.55   $ 0.00   $ 0.39   $ 0.54
Core diluted earnings per common share (non-GAAP)  $ 0.45   $ 0.48   $ 0.42   $ 0.47   $ 0.40
Dividends per common share $ 0.07   $ 0.07   $ 0.07   $ 0.07   $ 0.07
Book value per common share $ 22.88   $ 22.36   $ 20.76   $ 20.90   $ 20.45
Tangible book value per common share $ 19.11   $ 18.56   $ 20.73   $ 20.88   $ 20.38
Average common shares outstanding   4,247     4,203     2,853     2,849     2,833
Average diluted common shares outstanding   4,274     4,230     2,886     2,883     2,869
                             
Performance Ratios                            
Return on average assets   0.92%     0.84%     0.00%     0.59%     0.84%
Core return on average assets (non-GAAP)   0.74%     0.74%     0.63%     0.71%     0.61%
Return on average equity   10.28%     9.78%     0.01%     7.56%     10.94%
Core return on average equity (non-GAAP)   8.18%     8.56%     8.23%     8.54%     7.98%
Return on average tangible equity   12.34%     12.04%     0.01%     7.57%     10.98%
Core return on average tangible equity (non-GAAP)   9.82%     10.34%     8.75%     9.17%     8.01%
Net interest margin   3.67%     3.63%     3.06%     3.08%     3.15%
Core net interest margin (non-GAAP)   3.38%     3.33%     3.06%     3.08%     3.15%
Efficiency ratio   63.14%     62.47%     94.43%     74.38%     78.66%
Core efficiency ratio (non-GAAP)   67.59%     64.41%     72.73%     70.39%     72.33%
Wtd average yield on earning assets   4.16%     4.10%     3.47%     3.46%     3.51%
Core wtd average yield on earning assets (non-GAAP)   3.99%     3.91%     3.47%     3.46%     3.51%
                             
Asset Quality Ratios                            
Net charge-offs to average loans   0.14%     0.01%     0.03%     0.10%     0.08%
Non-performing loans/Total loans   0.94%     1.14%     1.36%     1.54%     1.06%
Non-performing assets/Total assets   1.16%     1.13%     1.28%     1.38%     1.02%
Allowance for credit loss/Total loans   0.66%     0.66%     1.04%     1.06%     1.06%
Allowance for credit loss/Non-performing loans   70.56%     57.74%     76.28%     69.12%     99.64%
                             
Capital Ratios                            
Total equity/Total assets   8.93%     8.86%     7.69%     7.79%     7.64%
Tangible equity/Tangible assets   7.57%     7.46%     7.68%     7.78%     7.61%
Tier 1 leverage ratio   8.75%     8.42%     9.06%     9.11%     9.16%
Common equity tier 1 risk-based capital ratio   9.71%     9.59%     10.50%     10.82%     10.71%
Tier 1 risk based capital ratio   10.75%     10.65%     12.06%     12.43%     12.34%
Total risk based capital ratio   12.56%     12.48%     14.72%     15.16%     15.07%
                             
Wealth Management Assets under care* $ 224,490
  $ 214,170
  $ 210,800
  $ 200,586
  $ 199,296
                             
*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  
  Mar 31,   Dec 31,   Sept 30,   June 30,   Mar 31,  
  2017
  2016
  2016
  2016
  2016
 
EARNINGS:                              
Interest income $ 10,494     $ 10,617     $ 6,277     $ 6,180     $ 6,105    
Interest expense   1,262       1,206       760       708       650    
Net interest income   9,232       9,411       5,517       5,472       5,455    
Provision for credit losses   325       100       100       200       330    
Non-interest income   1,226       1,279       1,142       1,184       1,109    
Gain from insurance proceeds   80       -       30       -       1,150    
Gain on sale of investment securities   -       -       197       203       31    
Gain on sale of SBA loans   -       -       -       -       39    
(Gain) loss on sale / write-down of OREO and ORA   (1 )     480       160       4       -    
Due diligence & merger expense   51       280       1,498       275       188    
Non-interest expense   6,695       6,587       5,046       4,893       5,230    
Income before income taxes   3,468       3,243       82       1,487       2,036    
Income tax expense   1,027       930       81       378       480    
Net income $ 2,441     $ 2,313     $ 1     $ 1,109     $ 1,556    
Net income per common share, diluted $ 0.57     $ 0.55     $ 0.00     $ 0.39     $ 0.54    
                               
   
Condensed Consolidated Statements of Financial Condition (Unaudited)  
(Dollars in thousands)  
                               
  Mar 31,   Dec 31,   Sept 30,   June 30,   Mar 31,  
  2017
  2016
  2016
  2016
  2016
 
FINANCIAL POSITION:                              
Cash and cash equivalents $ 44,068     $ 22,103     $ 30,442     $ 20,146     $ 38,740    
Investment securities   178,422       182,206       195,477       223,140       207,023    
Loans held for sale   200       -       -       -       359    
Loans and leases   816,363       817,529       509,475       494,417       489,366    
Allowance for credit losses   (5,418 )     (5,373 )     (5,303 )     (5,247 )     (5,172 )  
Net loans and leases   810,945       812,156       504,172       489,170       484,194    
Premises and equipment, net   9,203       9,243       9,033       8,557       7,817    
Goodwill   15,525       15,590       -       -       -    
Other assets   31,576       29,387       31,148       23,159       23,307    
Total assets $ 1,089,939     $ 1,070,685     $ 770,272     $ 764,172     $ 761,440    
                               
Demand Deposits $ 176,199     $ 173,467     $ 146,731     $ 135,212     $ 131,951    
NOW   218,133       224,219       169,400       185,279       201,566    
Money market   221,356       184,783       160,312       149,108       138,241    
Savings   84,700       86,176       73,867       75,236       75,535    
Core deposits   700,388       668,645       550,310       544,835       547,293    
Time deposits   177,335       187,256       71,920       73,560       71,264    
Brokered deposits   28,045       29,286       23,313       23,449       18,498    
Total deposits   905,768       885,187       645,543       641,844       637,055    
FHLB advances   50,972       55,332       20,000       20,000       20,000    
Repurchase agreements   11,474       11,889       19,483       17,748       21,661    
Subordinated debt   9,750       9,750       9,750       9,750       9,750    
Other borrowings   9,685       9,697       9,710       9,721       9,733    
Other liabilities   5,002       3,990       6,569       5,572       5,061    
Stockholders' equity   97,288       94,840       59,217       59,537       58,180    
Total liabilities and stockholders' equity $ 1,089,939     $ 1,070,685     $ 770,272     $ 764,172     $ 761,440    


                               
DNB Financial Corporation
Condensed Consolidated Statements of Financial Condition - Quarterly Average Balances (Unaudited)
(Dollars in thousands)
                               
  Mar 31,
  Dec 31,
  Sept 30,
  June 30,
  Mar 31,
 
  2017
  2016
  2016
  2016
  2016
 
FINANCIAL POSITION:                              
Cash and cash equivalents $ 27,406     $ 37,239     $ 25,208     $ 36,113     $ 23,080    
Investment securities   185,676       192,359       217,593       213,235       215,565    
Loans held for sale   41       137       87       147       28    
Loans and leases   815,028       815,470       498,627       488,396       483,125    
Allowance for credit losses   (5,432 )     (5,512 )     (5,344 )     (5,265 )     (5,025 )  
Net loans and leases   809,596       809,958       493,283       483,131       478,100    
Premises and equipment, net   9,267       9,218       8,844       8,332       7,222    
Goodwill   15,589       15,590       -       -       -    
Other assets   24,046       22,457       19,829       19,222       19,678    
Total assets $ 1,071,621     $ 1,086,958     $ 764,844     $ 760,180     $ 743,673    
                               
Demand Deposits $ 172,984     $ 181,415     $ 137,437     $ 131,134     $ 120,391    
NOW   218,357       224,101       176,704       192,339       193,548    
Money market   197,615       177,885       156,412       142,768       137,121    
Savings   85,348       87,096       74,652       75,254       74,653    
Core deposits   674,304       670,497       545,205       541,495       525,713    
Time deposits   180,819       186,287       72,324       75,541       70,927    
Brokered deposits   28,326       27,406       23,307       20,754       18,491    
Total deposits   883,449       884,190       640,836       637,790       615,131    
FHLB advances   55,420       64,846       20,000       20,003       23,111    
Repurchase agreements   12,858       18,972       18,381       19,103       23,040    
Subordinated debt   9,750       9,750       9,750       9,750       9,750    
Other borrowings   9,748       9,799       10,383       9,728       10,783    
Other liabilities   4,070       5,592       5,367       4,939       4,818    
Stockholders' equity   96,326       93,809       60,127       58,867       57,040    
Total liabilities and stockholders' equity  $ 1,071,621     $ 1,086,958     $ 764,844     $ 760,180     $ 743,673    
                               


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

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