Quarterly Report (10-q)

Date : 08/05/2019 @ 3:18PM
Source : Edgar (US Regulatory)
Stock : DNB Financial Corporation (DNBF)
Quote : 46.19  0.0 (0.00%) @ 12:00AM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION  

WASHINGTON, D.C. 20549

__ ____________________ __________________



FORM 10-Q



[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.



For the quarterly period ended: June 30 , 2019

or

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.



For the transition period from ________________ to _____________



Commission File Number: 1-34242

DNB Financial Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania                                       23-2222567

 

 

 

 

 



 

 

Pennsylvania

(State or other jurisdiction of

incorporation or organization)

 

23-2222567

(I.R.S. Employer Identification No.)

4 Brandywine Avenue - Downingtown, PA 19335

(Address of principal executive offices and Zip Code)



(610) 269-1040

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock ($1.00 Par Value)

DNBF

The NASDAQ Stock Market LLC



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days

   



 

 

Yes

 

No



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 





 

 

Yes

 

No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” , and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

 

 

Large accelerated filer

  

Accelerated filer

  

Non-accelerated filer    

 

Smaller reporting company

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



 

 

Yes  

 

No



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock ($1.00 Par Value)

(Class)

 

4, 334,431   (Shares Outstanding as of August   5 , 201 9 )  




 

 

DNB FINANCIAL CORPORATION AND SUBSIDIARY





INDEX



                                                                



 

 

 

 

 



 

PART  I - FINANCIAL INFORMATION

PAGE NO.



 

 

 

ITEM 1.      

 

FINANCIAL STATEMENTS (Unaudited):

 



 

 

 



 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 



 

June 30 , 2019 and December 31, 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF INCOME

 



 

Three and Six Months Ended June 30 , 201 9 and 201 8



 

 

 



 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 



 

Three and Six Months Ended June 30 , 2019 and 2018



 

 

 



 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



 

Three and Six Months Ended June 30 , 2019 and 2018

 



 

 

 



 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 



 

Six Months Ended June 30 , 2019 and 2018



 

 

 



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 

 

 

ITEM 2. 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

30 



 

 

 



 

 

 

ITEM 3.      

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

45 



 

 

 

ITEM 4.      

 

CONTROLS AND PROCEDURES

45 



 

 

 



 

PART II - OTHER INFORMATION

 



 

 

 

ITEM 1.

 

LEGAL PROCEEDINGS

45 



 

 

 

ITEM 1A.

 

RISK FACTORS

45 



 

 

 

ITEM 2.      

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

45 



 

 

 

ITEM 3.      

 

DEFAULTS UPON SENIOR SECURITIES

46 



 

 

 

ITEM 4.      

 

MINE SAFETY DISCLOSURES

46 



 

 

 

ITEM 5.      

 

OTHER INFORMATION

46 



 

 

 

ITEM 6.      

 

EXHIBITS

46 



 

 

 

SIGNATURES

47 



 

 

 

EXHIBIT INDEX

48 



 

 

 



 

2

 


 

 





PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

DNB Financial Corporation and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)







 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,

(Dollars in thousands, except share and per share data)

2019

 

2018

Assets

 

 

 

 

 

Cash and due from banks

$

46,398 

 

$

17,321 

Cash and cash equivalents

 

46,398 

 

 

17,321 

Available-for-sale investment securities at fair value (amortized cost of $70,406 and $98,765 )

 

69,931 

 

 

96,643 

Held-to-maturity investment securities (fair value of $60,322 and $61,135 )

 

59,949 

 

 

62,026 

Total investment securities

 

129,880 

 

 

158,669 

Loans held for sale

 

501 

 

 

419 

Loans

 

930,521 

 

 

934,971 

Allowance for credit losses

 

(6,672)

 

 

(6,675)

Net loans

 

923,849 

 

 

928,296 

Restricted stock

 

5,734 

 

 

5,616 

Office property and equipment, net

 

7,230 

 

 

7,636 

Operating lease right-of-use asset

 

3,792 

 

 

 -

Accrued interest receivable

 

4,297 

 

 

4,207 

Other real estate owned & other repossessed property

 

2,825 

 

 

5,051 

Bank owned life insurance (BOLI)

 

9,635 

 

 

9,530 

Core deposit intangible

 

302 

 

 

343 

Goodwill

 

15,525 

 

 

15,525 

Net deferred taxes

 

2,416 

 

 

2,762 

Other assets

 

2,025 

 

 

2,860 

Total assets  

$

1,154,409 

 

$

1,158,235 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-interest-bearing deposits

$

178,454 

 

$

164,746 

Interest-bearing deposits:

 

 

 

 

 

NOW

 

214,806 

 

 

236,071 

Money market

 

236,707 

 

 

235,023 

Savings

 

79,489 

 

 

77,979 

Time

 

178,530 

 

 

162,096 

Brokered deposits

 

87,877 

 

 

108,651 

Total deposits  

 

975,863 

 

 

984,566 

Federal Home Loan Bank of Pittsburgh (FHLBP) advances

 

31,203 

 

 

32,935 

Junior subordinated debentures

 

9,279 

 

 

9,279 

Subordinated debt

 

9,750 

 

 

9,750 

Other borrowings

 

272 

 

 

3,305 

Total borrowings

 

50,504 

 

 

55,269 

Accrued interest payable

 

641 

 

 

646 

Other liabilities

 

5,071 

 

 

5,908 

Operating lease liability

 

4,174 

 

 

 -

Total liabilities  

 

1,036,253 

 

 

1,046,389 

Stockholders’ Equity

 

 

 

 

 

Common stock, $1.00 par value;

 

 

 

 

 

20,000,000 shares authorized; 4,381,872 and 4,381,872 issued, respectively; 4,331,121 and 4,321,745 outstanding, respectively

 

4,382 

 

 

4,391 

Treasury stock, at cost; 50,751 and 60,127 shares, respectively

 

(961)

 

 

(1,130)

Surplus

 

69,613 

 

 

69,333 

Retained earnings

 

46,791 

 

 

42,223 

Accumulated other comprehensive loss

 

(1,669)

 

 

(2,971)

Total stockholders’ equity  

 

118,156 

 

 

111,846 

Total liabilities and stockholders’ equity  

$

1,154,409 

 

$

1,158,235 

See accompanying notes to unaudited consolidated financial statements.

3

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Income (Unaudited)

 





 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands, except share and per share data)

2019

 

2018

 

2019

 

2018

Interest Income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

11,358 

 

$

10,164 

 

$

22,648 

 

$

20,046 

Interest and dividends on investment securities:

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

812 

 

 

862 

 

 

1,623 

 

 

1,655 

Exempt from federal taxes

 

211 

 

 

218 

 

 

427 

 

 

435 

Interest on cash and cash equivalents

 

138 

 

 

45 

 

 

181 

 

 

66 

Total interest and dividend income

 

12,519 

 

 

11,289 

 

 

24,879 

 

 

22,202 

Interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on NOW, money market and savings

 

1,109 

 

 

994 

 

 

2,160 

 

 

1,824 

Interest on time deposits

 

916 

 

 

333 

 

 

1,744 

 

 

658 

Interest on brokered deposits

 

592 

 

 

414 

 

 

1,203 

 

 

613 

Interest on FHLB advances

 

145 

 

 

239 

 

 

370 

 

 

540 

Interest on repurchase agreements

 

 -

 

 

 

 

 -

 

 

12 

Interest on junior subordinated debentures

 

129 

 

 

113 

 

 

256 

 

 

218 

Interest on subordinated debt

 

103 

 

 

103 

 

 

207 

 

 

207 

Interest on other borrowings

 

10 

 

 

19 

 

 

26 

 

 

35 

Total interest expense

 

3,004 

 

 

2,221 

 

 

5,966 

 

 

4,107 

Net interest income

 

9,515 

 

 

9,068 

 

 

18,913 

 

 

18,095 

Provision for credit losses

 

100 

 

 

375 

 

 

300 

 

 

750 

Net interest income after provision for credit losses

 

9,415 

 

 

8,693 

 

 

18,613 

 

 

17,345 

Non-interest Income:

 

 

 

 

 

 

 

 

 

 

 

Service charges

 

246 

 

 

261 

 

 

537 

 

 

574 

Wealth management

 

529 

 

 

512 

 

 

974 

 

 

947 

Mortgage banking

 

72 

 

 

76 

 

 

146 

 

 

137 

Increase in cash surrender value of BOLI

 

53 

 

 

52 

 

 

105 

 

 

104 

Gain on sale of investment securities, net

 

 

 

 -

 

 

 

 

 -

Gain on sale of loans

 

 -

 

 

10 

 

 

 -

 

 

10 

Other fees

 

443 

 

 

421 

 

 

852 

 

 

833 

Total non-interest income

 

1,344 

 

 

1,332 

 

 

2,618 

 

 

2,605 

Non-interest Expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

3,785 

 

 

4,261 

 

 

7,638 

 

 

8,033 

Furniture and equipment

 

663 

 

 

550 

 

 

1,204 

 

 

1,039 

Occupancy

 

627 

 

 

634 

 

 

1,352 

 

 

1,331 

Professional and consulting

 

440 

 

 

424 

 

 

1,017 

 

 

827 

Advertising and marketing

 

225 

 

 

204 

 

 

420 

 

 

386 

FDIC insurance

 

95 

 

 

122 

 

 

209 

 

 

240 

PA shares tax

 

260 

 

 

243 

 

 

520 

 

 

485 

Telecommunications

 

90 

 

 

84 

 

 

178 

 

 

165 

Loss on sale or write down of OREO, net

 

37 

 

 

140 

 

 

150 

 

 

140 

Transaction costs

 

519 

 

 

 -

 

 

519 

 

 

 -

Other expenses

 

771 

 

 

878 

 

 

1,583 

 

 

1,624 

Total non-interest expense

 

7,512 

 

 

7,540 

 

 

14,790 

 

 

14,270 

Income before income tax expense

 

3,247 

 

 

2,485 

 

 

6,441 

 

 

5,680 

Income tax expense

 

660 

 

 

436 

 

 

1,267 

 

 

1,018 

Net income

$

2,587 

 

$

2,049 

 

$

5,174 

 

$

4,662 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.60 

 

$

0.48 

 

$

1.20 

 

$

1.09 

Diluted

$

0.60 

 

$

0.47 

 

$

1.19 

 

$

1.08 

Cash dividends per common share

$

0.07 

 

$

0.07 

 

$

0.14 

 

$

0.14 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

  Basic

4,331,121 

 

4,298,409 

 

4,329,226 

 

4,294,758 

  Diluted

4,336,254 

 

4,314,418 

 

4,333,181 

 

4,311,696 

See accompanying notes to unaudited consolidated financial statements.

4

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands)

2019

 

2018

 

2019

 

2018

Net income

$

2,587 

 

$

2,049 

 

$

5,174 

 

$

4,662 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

 

 

 

 

 

 

 

 

 

Before tax amount

 

838 

 

 

(235)

 

 

1,647 

 

 

(1,249)

Tax effect

 

(176)

 

 

49 

 

 

(344)

 

 

262 

Less reclassification for gains on sales of AFS investment securities included in net income

 

 

 

 

 

 

 

 

 

 

 

Before tax amount (1)

 

(1)

 

 

 -

 

 

(1)

 

 

 -

Tax effect (2)

 

 -

 

 

 -

 

 

 -

 

 

 -



 

(1)

 

 

 -

 

 

(1)

 

 

 -

Other comprehensive income - securities

 

661 

 

 

(186)

 

 

1,302 

 

 

(987)

Total other comprehensive income (loss)

 

661 

 

 

(186)

 

 

1,302 

 

 

(987)

Total comprehensive income

$

3,248 

 

$

1,863 

 

$

6,476 

 

$

3,675 

(1) Amounts are included in "Gains on sale of investment securities, net" in the consolidated statements of income.

(2) Amounts are included in "Income tax expense" in the consolidated statements of income.

See accompanying notes to unaudited consolidated financial statements.



5

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at April 1, 2019

$

4,382 

$

(1,027)

$

69,454 

$

44,507 

$

(2,330)

$

114,986 

Net income for three months ended June 30, 2019

 

 -

 

 -

 

 -

 

2,587 

 

 -

 

2,587 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

661 

 

661 

Restricted stock compensation expense ( no shares vested)

 

 -

 

 -

 

82 

 

 -

 

 -

 

82 

Cash dividends - common ( $0.07 per share)

 

 -

 

 -

 

 -

 

(303)

 

 -

 

(303)

Non-cash funding of 401(k) ( 2,335 shares)

 

 -

 

42 

 

48 

 

 -

 

 -

 

90 

Non-cash funding of deferred comp. plan ( 1,371 shares)

 

 -

 

24 

 

29 

 

 -

 

 -

 

53 

Balance at June 30, 2019

$

4,382 

$

(961)

$

69,613 

$

46,791 

$

(1,669)

$

118,156 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2019

$

4,391 

$

(1,130)

$

69,333 

$

42,223 

$

(2,971)

$

111,846 

Net income for six months ended June 30, 2019

 

 -

 

 -

 

 -

 

5,174 

 

 -

 

5,174 

Other comprehensive income

 

 -

 

 -

 

 -

 

 -

 

1,302 

 

1,302 

Restricted stock compensation expense (no shares vested)

 

(9)

 

 -

 

152 

 

 -

 

 -

 

143 

Cash dividends - common ( $0.14 per share)

 

 -

 

 -

 

 -

 

(606)

 

 -

 

(606)

Non-cash funding of 401(k) ( 6,266 shares)

 

 -

 

114 

 

83 

 

 -

 

 -

 

197 

Non-cash funding of deferred comp. plan ( 3,110 shares)

 

 -

 

55 

 

45 

 

 -

 

 -

 

100 

Balance at June 30, 2019

$

4,382 

$

(961)

$

69,613 

$

46,791 

$

(1,669)

$

118,156 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at April 1, 2018

$

4,383 

$

(1,345)

$

69,238 

$

35,056 

$

(3,662)

$

103,670 

Net income for three months ended June 30, 2018

 

 -

 

 -

 

 -

 

2,049 

 

 -

 

2,049 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

(186)

 

(186)

Restricted stock compensation expense ( 4,012 shares vested)

 

 

 -

 

104 

 

 -

 

 -

 

108 

Exercise of stock options ( 1,372 shares)

 

 

 -

 

(1)

 

 -

 

 -

 

 -

Shares withheld for employee taxes on stock option exercise and share award vest

 

(3)

 

 -

 

(140)

 

 -

 

 -

 

(143)

Cash dividends - common ( $0.07 per share)

 

 -

 

 -

 

 -

 

(301)

 

 -

 

(301)

Non-cash funding of 401(k) ( 2,428 shares)

 

 -

 

44 

 

42 

 

 -

 

 -

 

86 

Non-cash funding of deferred comp. plan ( 1,397 shares)

 

 -

 

25 

 

25 

 

 -

 

 -

 

50 

Balance at June 30, 2018

$

4,385 

$

(1,276)

$

69,268 

$

36,804 

$

(3,848)

$

105,333 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Accumulated

 

 



 

 

 

 

 

 

 

 

Other

 

 



Common

Treasury

 

 

Retained

Comprehensive

 

 

(Dollars in thousands)

Stock

Stock

Surplus

Earnings

Loss

Total

Balance at January 1, 2018

$

4,379 

$

(1,429)

$

69,110 

$

32,272 

$

(2,390)

$

101,942 

Net income for six months ended June 30, 2018

 

 -

 

 -

 

 -

 

4,662 

 

 -

 

4,662 

Other comprehensive loss

 

 -

 

 -

 

 -

 

 -

 

(987)

 

(987)

Restricted stock compensation expense ( 4,908 shares vested)

 

 

 -

 

196 

 

 -

 

 -

 

204 

Exercise of stock options ( 2,338 shares)

 

 

 -

 

(2)

 

 -

 

 -

 

 -

Shares withheld for employee taxes on stock option exercise and share award vest

 

(4)

 

 -

 

(176)

 

 -

 

 -

 

(180)

Cash dividends - common ( $0.14 per share)

 

 -

 

 -

 

 -

 

(601)

 

 -

 

(601)

Non-cash funding of 401(k) ( 5,658 shares)

 

 -

 

102 

 

92 

 

 -

 

 -

 

194 

Non-cash funding of deferred comp. plan ( 2,877 shares)

 

 -

 

51 

 

48 

 

 -

 

 -

 

99 

Adoption impact - ASU 2018-02

 

 -

 

 -

 

 -

 

471 

 

(471)

 

 -

Balance at June 30, 2018

$

4,385 

$

(1,276)

$

69,268 

$

36,804 

$

(3,848)

$

105,333 

See accompanying notes to unaudited consolidated financial statements.

6

 


 

 

DNB Financial Corporation and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



Six Months Ended June 30,

(Dollars in thousands)

2019

 

2018

Cash Flows From Operating Activities:

 

 

 

 

 

Net income

$

5,174 

 

$

4,662 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation, amortization and accretion

 

694 

 

 

761 

Provision for credit losses

 

300 

 

 

750 

Stock based compensation

 

143 

 

 

204 

Non-cash funding of retirement plans

 

297 

 

 

293 

Net gain on sale of securities

 

(4)

 

 

 -

Net loss on sale or write down of OREO and other repossessed property

 

150 

 

 

140 

Earnings from investment in BOLI

 

(105)

 

 

(104)

Deferred tax expense

 

 -

 

 

167 

Proceeds from sales of mortgage loans

 

8,113 

 

 

8,620 

Mortgage loans originated for sale

 

(8,049)

 

 

(8,108)

Gain on sale of mortgage loans

 

(146)

 

 

(137)

Proceeds from sales of loans

 

 -

 

 

188 

Loans originated for sale

 

 -

 

 

(178)

Gain on sale of loans

 

 -

 

 

(10)

Write off of property and equipment

 

 

 

 -

Increase in accrued interest receivable

 

(90)

 

 

(89)

Decrease in other assets

 

1,215 

 

 

97 

(Decrease) increase in accrued interest payable

 

(5)

 

 

(Decrease) increase in other liabilities

 

(837)

 

 

241 

Amortization of operating lease right-of-use asset

 

372 

 

 

 -

Accretion of operating lease liability

 

(369)

 

 

 -

Net Cash Provided by Operating Activities

 

6,856 

 

 

7,504 

Cash Flows From Investing Activities:

 

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

 

Sales

 

13,905 

 

 

 -

Maturities, repayments and calls

 

45,875 

 

 

6,953 

Purchases

 

(31,546)

 

 

 -

Activity in held-to-maturity securities:

 

 

 

 

 

Maturities, repayments and calls

 

2,148 

 

 

304 

Net (increase) decrease in restricted stock

 

(118)

 

 

691 

Net decrease (increase) in loans

 

3,559 

 

 

(40,102)

Purchases of property and equipment

 

(192)

 

 

(122)

Purchase of third party ownership in OREO

 

(165)

 

 

 -

Proceeds from sale of OREO and other repossessed property

 

2,829 

 

 

33 

Net Cash Provided By (Used In) Investing Activities

 

36,295 

 

 

(32,243)

Cash Flows From Financing Activities:

 

 

 

 

 

Net (decrease) increase in deposits

 

(8,703)

 

 

72,912 

Repayment of FHLBP advances

 

(66,732)

 

 

(200,641)

Funding of FHLBP advances

 

65,000 

 

 

184,600 

Net decrease in repurchase agreements

 

 -

 

 

(6,414)

Decrease in other borrowings

 

(3,033)

 

 

(2,402)

Dividends paid

 

(606)

 

 

(601)

Payment of employee taxes on stock option exercise and share award vest

 

 -

 

 

(180)

Net Cash (Used in) Provided by Financing Activities

 

(14,074)

 

 

47,274 

Net Change in Cash and Cash Equivalents 

 

29,077 

 

 

22,535 

Cash and Cash Equivalents at Beginning of Period 

 

17,321 

 

 

10,917 

Cash and Cash Equivalents at End of Period  

$

46,398 

 

$

33,452 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

$

5,971 

 

$

4,100 

Income taxes

 

719 

 

 

600 

Supplemental Disclosure of Non-cash Flow Information:

 

 

 

 

 

Transfers from loans to real estate owned and other repossessed property

 

588 

 

 

274 

See accompanying notes to unaudited consolidated financial statements.

7

 


 

 

NOTE 1: BASIS OF PRESENTATION



The accompanying unaudited consolidated financial statements of DNB Financial Corporation (referred to herein as the "Corporation" or "DNB") and its subsidiary, DNB First, National Association (the "Bank") have been prepared in accordance with the instructions for Form 10-Q and therefore do not include certain information or footnotes necessary for the presentation of financial condition, statement of operations and statement of cash flows required by generally accepted accounting principles. However, in the opinion of management, the consolidated financial statements reflect all adjustments (which consist of normal recurring adjustments) necessary for a fair presentation of the results for the unaudited periods. Prior amounts not affecting net income are reclassified when necessary to conform to current period classifications. The results of operations for the three and six months ended June 30 , 2019 are not necessarily indicative of the results which may be expected for the entire year.  The consolidated financial statements should be read in conjunction with the Annual Report and report on Form 10-K for the year ended December 31, 20 18



Subsequent Events-- Management has evaluated events and transactions occurring subsequent to June 30 , 2019 for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. The evaluation was conducted through the date these financial statements were issued.



Merger Agreement.  On June 5, 2019, S&T Bancorp, Inc. (“S&T”) and DNB entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which DNB will merge with and into S&T (the “Merger”), with S&T continuing as the surviving entity in the Merger, subject to the terms and conditions set forth therein.  Immediately following the Merger, DNB’s wholly owned bank subsidiary, DNB First, National Association, will merge with and into S&T’s wholly owned bank subsidiary, S&T Bank (the “Bank Merger”), with S&T Bank continuing as the surviving entity in the Bank Merger. The Merger Agreement was unanimously approved by the Board of Directors of each of S&T and DNB.



Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), DNB shareholders will have the right to receive 1.22 shares of common stock, par value $2.50 per share, of S&T for each share of common stock, par value $1.00 per share, of DNB.



The merger is subject to customary closing conditions enumerated in the merger agreement, including receipt of regulatory approvals and the approval of DNB’s shareholders. It is anticipated that the transaction will close during the fourth quarter of 2019.



Recent Accounting Pronouncements -  

Accounting Developments Affecting DNB  



In May 2014, the FASB issued ASU No. 2014-09, ‘‘Revenue from Contracts with Customers (Topic 606).’’ The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016 and 2017, the FASB issued ASU Nos. 2016-10, 2016-12, 2016-20, and 2017-13 that provided additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements.



DNB adopted the new standards discussed above effective January 1, 2018 using the modified retrospective approach. A significant majority of DNB’s revenues are  explicitly excluded from the scope of  the new guidance including interest, dividend income, BOLI, gain/loss on sale of loans and investments on the Consolidated Statements of Income. The adoption of ASU 2014-09 did not require a cumulative adjustment to the opening balance of retained earnings as of January 1, 2018 and did not have a material impact on DNB’s Consolidated Statements of Financial Condition, Comprehensive Income, Stockholders’ Equity or Cash Flows for the year ended December 31, 2018. Non-interest income components in the scope of Topic 606 continue to be recognized when DNB’s performance obligations are complete or at the time of sale after a customer’s transaction posts in the account. Disclosures required for DNB’s revenue streams in the scope of ASU 2014-09 are included in Non-Interest Income in the following table.



8

 


 

 

Non-interest Income  Non-interest income includes revenue from contracts with customers in the scope of ASU 2014-09 as follows:





 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands)

2019

 

2018

 

2019

 

2018

Non-interest Income:

 

 

 

 

 

 

 

 

 

 

 

Service charges:

 

 

 

 

 

 

 

 

 

 

 

Non-sufficient funds charges

$

122 

 

$

142 

 

$

255 

 

$

301 

Business analysis charges

 

46 

 

 

44 

 

 

92 

 

 

85 

Cycle charges

 

21 

 

 

22 

 

 

41 

 

 

45 

Lockbox fees

 

10 

 

 

 

 

57 

 

 

52 

Stop payment fees

 

 

 

 

 

 

 

Wire transfer fees

 

22 

 

 

22 

 

 

44 

 

 

43 

Other service charges

 

20 

 

 

20 

 

 

39 

 

 

41 

Total service charges

 

246 

 

 

261 

 

 

537 

 

 

574 

Wealth management:

 

 

 

 

 

 

 

 

 

 

 

DNB Investments & Insurance

 

126 

 

 

150 

 

 

202 

 

 

238 

DNB First Investment Management & Trust

 

403 

 

 

362 

 

 

772 

 

 

709 

Total wealth management

 

529 

 

 

512 

 

 

974 

 

 

947 

Other fee income:

 

 

 

 

 

 

 

 

 

 

 

Cardholder interchange fees

 

286 

 

 

269 

 

 

539 

 

 

514 

Safe deposit box

 

24 

 

 

26 

 

 

47 

 

 

50 

Check printing

 

13 

 

 

12 

 

 

37 

 

 

35 

Merchant card processing

 

45 

 

 

42 

 

 

87 

 

 

90 

ATM surcharges for non-DNB customers

 

17 

 

 

20 

 

 

32 

 

 

37 

Other fee income

 

12 

 

 

13 

 

 

26 

 

 

27 

Total other fee income

 

397 

 

 

382 

 

 

768 

 

 

753 

Total Revenue from contracts with customers

 

1,172 

 

 

1,155 

 

 

2,279 

 

 

2,274 

Total Revenue not within the scope of ASC 606

 

172 

 

 

177 

 

 

339 

 

 

331 

Total non-interest income

$

1,344 

 

$

1,332 

 

$

2,618 

 

$

2,605 



Service charges on deposit accounts are recorded monthly when DNB’s performance obligations are complete. Deposit balances are disclosed in the Consolidated Statement of Condition. For transaction-based service charges such as non-sufficient funds charges, wire transfer fees, stop payment fees, ATM fees, and other transaction-based fees, revenue is recognized at the time of sale after the transaction posts in the customer’s account.

Wealth management revenue includes non-deposit products and services offered under the names “DNB Investment & Insurance” and “DNB First Investment Management & Trust”.

Through a third-party marketing agreement with Cetera Investment Services, LLC (“Cetera”), DNB Investment & Insurance offers a complete line of investment and insurance products. DNB’s performance obligation as an agent is to arrange for the sale of products by Cetera. Monthly, DNB recognizes commission fees in the amounts to which it is entitled in accordance with the terms of the marketing agreement for products sold. Shortly after a sale, the product provide r remits the commission payment through Cetera to the Company, and the Company recognizes the revenue. DNB records revenue net of the cost of the services.

DNB First Investment Management & Trust offers a full line of investment and fiduciary services. DNB’s performance obligation is to manage investments, estates and trusts. Investment management and trust income is primarily comprised of fees earned from the management and administration of trusts, estates and investment agency portfolios. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized quarterly, based upon the quarter-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after quarter end through a direct charge to customers’ accounts. While managing estates and trusts, DNB contracts with a third-party tax preparation service. For tax preparation services, DNB’s obligation as an agent is to arrange for the performance of services by the third party. As tax services are rendered, DNB records revenue net of the cost of the services.

Cardholder interchange fees consist of revenue DNB is entitled per agreements with third party debit and credit card providers. DNB’s performance obligation as an agent is to arrange for cardholder services with its customers in accordance with fees and terms offered by the third-party service providers. Based on cardholder transactions reported by third party service providers, DNB recognizes fees for the amount it is contractually entitled.

DNB also contracts with third party providers for check printing, merchant card services, and ATM services. DNB’s performance obligation as an agent is to arrange for the services with its customers in accordance with fees and terms offered by the third-party service providers. Monthly, DNB recognizes fees for the amount it is contractually entitled.

9

 


 

 

DNB adopted ASU 2015-16, Business Combinations (Topic 805), in 2016: Simplifying the Accounting for Measurement Period Adjustments on a prospective basis. This amendment eliminates the requirement to account for adjustments to provisional amounts recognized in a business combination retrospectively. Instead, the acquirer will recognize the adjustments to provisional amounts during the period in which the adjustments are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. DNB evaluated the impact of this guidance and it does not have a material impact to the consolidated financial statements.



In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities . The guidance addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In particular, the guidance revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also amends certain disclosure requirements associated with fair value of financial instruments. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As of June 30, 2019 , DNB did not hold any equity investments (excluding restricted investments in bank stocks).  DNB does not expect to make significant purchases of equity investments; therefore, the adoption of this ASU is not expected to be material to DNB's consolidated financial statements. Adoption of the standard on January 1, 2018 also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets.



In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.   DNB has determined that upon the adoption of ASU 2016-02 is required to recognize a right-of-use asset and a corresponding liability based on the then present value of such obligation. T he adoption of ASU 2016-02 result ed in the recognition of operating lease liabilities of $4.4 million and right-of-use asset of $ 4.0 million. T he adoption of the new standard did not have a material impact on its Consolidated Statements of Income. Update 2018-11 - Leases (topic 842): Targeted Improvements provided an additional/optional transition method to adopt the new leases standard. Prior to this ASU issuance, a modified retrospective transition approach was required. The adoption of this ASU does not materially impact our Consolidated Statement of Financial Condition and Consolidated Statements of Changes in Stockholders’ Equity. Update 2018-20 - Leases (topic 842): Narrow-Scope Improvements for Lessors was released to better clarify the treatment of sales taxes and other similar taxes related to Lessor and Lessees costs and payments. The amendments in this update permit lessors, as an accounting policy election, to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Also, certain lessor costs require lessors to exclude from variable payments, and therefore revenue, lessor costs paid by lessees directly to third parties. DNB’s lessor income is immaterial; as such, this ASU does not materially impact our Consolidated Statement of Financial Condition or Consolidated Statements of Comprehensive Income. DNB adopt ed the use-of-hindsight practical expedient.  



DNB recognized rent expense associated with our leases as follows:







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(Dollars in thousands)

2019

 

2018

 

2019

 

2018

Operating lease cost:

 

 

 

 

 

 

 

 

 

 

 

Fixed rent expense

$

251 

 

$

284 

 

$

503 

 

$

569 

Net lease cost

$

251 

 

$

284 

 

$

503 

 

$

569 

Lease costs

 

 

 

 

 

 

 

 

 

 

 

Amortization of lease liability

$

186 

 

$

 -

 

$

372 

 

$

 -

Interest expense

 

65 

 

 

 -

 

 

131 

 

 

 -

Net lease cost

$

251 

 

$

 -

 

$

503 

 

$

 -





10

 


 

 

DNB had the following cash and non-cash activit i es associated with our leases: