DNB Financial Corporation Reports Third Quarter 2015 Results

DOWNINGTOWN, Pa., Oct. 22, 2015 (GLOBE NEWSWIRE) -- DNB Financial Corporation (Nasdaq:DNBF), today reported net income available to common stockholders of $1.3 million, or $0.45 per diluted share, for the quarter ending September 30, 2015, compared with $1.2 million, or $0.43 per diluted share, for the same quarter, last year. Net income available for common shareholders for the first nine months of 2015 was $3.7 million, or $1.31 per diluted share, compared with $3.3 million or $1.16 per diluted share, in the prior year period. DNB Financial Corporation (the “Company”) is the parent of DNB First, National Association, one of the first nationally-chartered community banks to serve the greater Philadelphia region.

Third Quarter Highlights

• Wealth management assets under care increased 14.6% from September 30, 2014. Asset generation and growth remain impressive despite lower equity market valuations over the third quarter.
• Total loans increased 4.7% on a year-over-year basis, although they were flat on a sequential quarter basis. 
• Asset quality remained excellent.  As of September 30, 2015, non-performing loans were only 0.90% of total loans compared with 0.98% as of June 30, 2015.
• Core deposits contracted, but increased 4.4% over the past 12 months and were 85.5% of total deposits as of September 30, 2015.
• The company paid a quarterly cash dividend of $0.07 on September 21, 2015.

William S. Latoff, Chairman and CEO, commented: “We were pleased to see our quarterly earnings increase and believe our results represent solid progress in an uncertain and challenging environment.  Quality loan growth was achieved over the past year and we remain committed to maintaining our prudent pricing and credit discipline.  We are also encouraged that our net interest margin continued to stabilize.  Despite the equity market downturn during the third quarter, we continue to generate new wealth management assets, through initiatives to expand banking relationships.”

Income Statement Summary

The Company’s performance resulted in a return on average assets of 0.68% for the third quarter and first nine months of 2015. The return on average equity was 8.71% and 8.52% for the same periods, respectively.

Total interest income for the three months ending September 30, 2015 was $6.2 million, which represented a $256,000, or 4.3% increase compared with the three months ending September 30, 2014, and a $30,000, or 0.5% (not annualized), increase from $6.1 million for the three months ending June 30, 2015.  Total interest expense rose to $711,000 for the third quarter of 2015, compared with $544,000 for the third quarter of 2014, and $678,000 for the three months ending June 30, 2015.  The year-over-year increase was primarily due to the issuance of $9.8 million of subordinated debt at the end of the first quarter of 2015.  The weighted average cost of funds remained at a historically low level. 

The net interest margin for the third quarter of 2015 was 3.13%, compared with 3.33% for the third quarter of 2014 and 3.11% for the second quarter of 2015.  On a consecutive quarter basis, the Company's net interest margin was relatively stable in 2015, despite continuing pressure due to the low-interest rate environment and intense pricing competition for quality lending business. 

Total non-interest income for the third quarter of 2015 was $1.0 million, which was essentially unchanged from the same quarter in 2014. On a sequential quarter basis, total non-interest income declined $301,000, or 22.5% (not annualized). The primary reason for the decrease was an $185,000 gain on Small Business Administration (SBA) loan sales, which occurred in the previous quarter and a $105,000 decrease in income from the Company’s wealth management business.  Wealth management fees were $317,000 for the quarter ending September 30, 2015, which represented nearly one-third of total fee income.  Assets under management were $184.5 million as of September 30, 2015, but were negatively impacted by declines in asset values due to market conditions, which more than offset new asset generation.

Non-interest expense was $4.6 million for the third quarter of 2015, which represented an increase of only 1.6% from that of the corresponding quarter last year, reflecting management’s emphasis on controlling expenses.  Annual increases in salary and employee benefit costs were largely offset by declines in occupancy expense, and professional and consulting fees.

The effective tax rate for the quarter ending September 30, 2015 was 22.1%, compared with 25.8% for the corresponding quarter in 2014.  The primary reason for the lower effective tax rate was an increase in tax exempt loans to local municipalities and tax exempt municipal investment securities.

Balance Sheet Summary

As of September 30, 2015, total assets were $741.9 million compared with $755.9 million as of June 30, 2015, and $695.4 million as of September 30, 2014.  Total assets contracted $14.0 million, or 1.9% (not annualized), on a sequential quarter basis due to an $8.5 million decrease in cash and cash equivalents along with smaller declines of both total loans and investment securities.  Total assets, however, increased $46.5 million, or 6.7% on a year-over-year basis primarily due to strong loan growth, which was accompanied by a smaller increase in investment securities.  Solid annual loan growth reflected the company’s commercial banking initiatives and attractive market areas.  Likewise, total deposits increased 3.2% since September 30, 2014, despite a $17.9 million decrease on a sequential quarter basis. 

Total loans grew $21.0 million or 4.7% to $470.4 million as of September 30, 2015, from $449.4 million as of September 30, 2014.  On a sequential quarter basis, total loans decreased slightly (less than 1%) from $472.3 million as of June 30, 2015.  As of September 30, 2015, total loans were 63.4% of total assets compared with 64.6% as of September 30, 2014.  Loan growth has been moderate; and the Company remains challenged to grow commercial-oriented in a competitive market, while maintaining its conservative underwriting standards.

On a sequential quarter basis, total core deposits declined $30.9 million, or 5.6% (not annualized), but represented 85.5% of total deposits as of September 30, 2015.  The decrease in core deposits was primarily due to a $20.1 million decrease in NOW accounts. The decline is mainly attributed to the delay in approving the State of Pennsylvania's annual budget, which includes distributions to many of DNB's municipal clients, who have temporarily drawn down their accounts to fund normal operating costs. Time deposits, however, increased $13.0 million. Total deposits were $608.5 million as of September 30, 2015, compared with $626.4 million as of June 30, 2015 and $589.4 million at September 30, 2014.

Capital ratios continue to exceed regulatory standards for well-capitalized institutions.  At September 30, 2015, the Tier 1 leverage ratio was 9.23%, Tier 1 risk-based capital was 12.74%, common equity Tier 1 risk based capital was 10.46% and total risk based capital was 15.46%.  As of the same date, the total shareholder equity-to-total assets ratio was 7.87% and the tangible common equity-to-tangible assets ratio was 7.42%.  Tangible book value per share was $19.57 as of September 30, 2015, compared with $18.96 as of June 30, 2015, and $18.26 as of December 31, 2014.

Asset Quality Summary

Asset quality remained strong.  Net charge-offs decreased slightly to 0.41% of total average loans for the quarter ending September 30, 2015, compared with 0.43% for the quarter ending June 30, 2015. The net charge-offs for the three months ended September 30, 2015, were primarily due to four credits, two of which were previously reserved, for which new market and financial information became available during the quarter. Total non-performing assets, including loans and other real estate property, were $6.5 million as of September 30, 2015, compared with $6.6 million as of June 30, 2015, and $6.9 million as of September 30, 2014.  The ratio of non-performing assets to total assets was 0.87% and non-performing loans were 0.90% of total loans as of September 30, 2015.  As of the same date, the allowance for loan losses to total loans ratio was 1.01%.

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.

DNB Financial Corporation is a bank holding company whose bank subsidiary, DNB First, National Association, is a community bank headquartered in Downingtown, Pennsylvania with 12 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/.

DNB Financial Corporation (the "Corporation"), may from time to time make written or oral "forward-looking statements," including statements contained in the Corporation's filings with the Securities and Exchange Commission including this press release and in its reports to stockholders and in other communications by the Corporation, which are made in good faith by the Corporation pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

These forward-looking statements include statements with respect to the Corporation'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 the Corporation'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. The following factors, among others, could cause the Corporation's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Corporation conducts 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 recent 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 of the Corporation 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 the Corporation's products and services; the success of the Corporation 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; acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms, including the rules of participation for the Small Business Lending Fund (SBLF), a U.S. Treasury Department program; and the success of the Corporation at managing the risks involved in the foregoing.

The Corporation 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 the Corporation on its website or otherwise. The Corporation 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 the Corporation 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 Securities and Exchange Commission, including our most recent annual report on Form 10-K, as supplemented by our quarterly or other reports subsequently filed with the SEC.

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